Clarity Needed in Holding Elected Officials Accountable

by Lowell L. Kalapa, Tax Foundation of Hawaii

It is quite amusing to see many former legislators who voters thought they had put out to pasture jumping back into the foray and running for election to office after a hiatus.

Amusing in that these former elected officials want to get back into the policymaking arena at a time when all of the chickens that they created in the past are coming home to roost. It makes the voters wonder why these former elected officials are back running for office. Is it that they want to right the wrongs that they contributed to in the past or is it that they want to feed again at the trough and take taxpayers for another ride?

By far the most challenging issue that current lawmakers have continued to duck in recent sessions is the looming unfunded liabilities of the state retirement system and the public employees’ health fund. It is not that these unfunded liabilities come as a surprise to current lawmakers as it was their predecessors who contributed to the problem. In fact, as far back as 1983 when a task force was convened to study the problem and returned with a recommendation that the state retirement system be converted from a contributory to a noncontributory system and health fund benefits apply only to active employees were lawmakers forewarned of the impending calamity if the systems were not reformed.

But lawmakers believed that if they made a few tweaks to the system, they could claim that they saved the system while still currying the favor of public employees. What those lawmakers back then refused to admit was that the demographics were changing and that the defined benefit plan of the state public employees’ retirement system could not be sustained given the fact that retirees would be living longer and that their retirement benefits are and will be calculated off a much more generous wage base.

The denial of the possible calamity was overshadowed by an ebullient Japanese bubble of the late 1980’s and a rising fervor of the dot com bubble of the 1990’s. Coupled with a weak general fund financial condition during the 1990’s, lawmakers took to raiding the excess earnings of the state retirement system. They also continued to ignore the fact that the health benefits provided public employees and their dependents were beyond being affordable. Ah, but it kept the public employees and their unions in their corner when it came to being reelected.

What came as a surprise to many taxpayers who are not beneficiaries of the public employees’ retirement and healthcare system is that coverage - until recently - was extended to the spouses of public employees and continued after the death of the employee. Further, the state healthcare plan for public employees reimburses retirees on Medicare the cost of their Medicare premium. Where a private sector retiree would see his or her monthly Social Security benefit check shrink by this amount of the Medicare premium (currently about $104 per month - rising to nearly $250 a month by 2014) in order to pay for the Medicare premium, public employee retirees are reimbursed this amount by the state’s health care plan. Thus, while other retirees have to do with that much less per month in their Social Security checks, the public retiree is made whole with that reimbursement. Thus, taxpayers, including private sector retirees, end up paying not only for their Medicare premiums, but also those of the public employee retirees.

Obviously, Hawaii taxpayers can no longer afford such a generous benefit as the rising cost of living in Hawaii squeezes all taxpayers, public employees and public employee retirees included. However, it appears only a handful of lawmakers are willing to initiate reforms to curb the rising cost of these benefits, and even fewer are willing to bite the bullet to begin paying down these unfunded liabilities. For years, the current Speaker of the House has warned his colleagues that the day of doom is upon us all, as taxpayers and lawmakers, if certain reforms are not adopted. For years his colleagues have refused to deal with the problem, wanting instead to continue spending on more programs and services instead of dealing with the harsh reality of meeting these past obligations. The long and short of it is that if these unfunded liabilities are not addressed soon, Hawaii may find itself on that growing list of governments having to declare bankruptcy.

So while public employees and their unions push to elect or reelect lawmakers who will maintain the status quo and who are unwilling to initiate reform, in the long run they may find their own futures at stake when lawmakers will no longer be able to squeeze blood out of the taxpayer apple.

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