The state government ended the last fiscal year with a near-record budget surplus of more than
$893 million, but Gov. David Ige’s administration is downplaying that seemingly cheery snapshot of the state’s finances.
Administration officials instead are stressing the need for the state to honor its expensive long-term financial obligations to provide raises, pensions and health care to public workers and retirees.
State Director of Finance Wesley Machida said preliminary estimates put the general treasury budget surplus for the year ending June 30 at $893.8 million, which is the second-largest cash surplus in state history. The all-time record was set last year, when the state closed the books on fiscal 2016 with a surplus of nearly $1.03 billion.
Four years ago then-Gov. Neil Abercrombie publicly announced his administration had a “historically unprecedented” surplus of $844 million at the end of fiscal year 2013, and then proposed to tap some of that cash to help finance new initiatives such as Housing First programs to help the homeless and universal preschool.
By contrast, Ige said Tuesday he has no plans to launch any major new initiatives with this year’s surplus.
“As I’ve said before, I really do think that we need to be focused on making good on the promises we made in the past,” Ige said. “So, pension liabilities (and future health care costs), I really believe we need to get those better handled before we start talking about expanding into new areas.”
In the month after the state registered its $893 million surplus, Machida said, state officials paid out $1.132 billion to cover various kinds of expenses, including $400 million in pension contributions, $275 million in payments for health care coverage for public workers and retirees, and $105 million to cover the cost of Medicaid and other health costs.
The Ige administration has adopted a policy of making payments into the Employees Retirement System and the Hawaii Employer-Union Health Benefits Trust Fund at the beginning of each fiscal year instead of throughout the year.
The money is then invested for the full year, which benefits the state in the long run, but the practice tends to drain money out of the general treasury early in the year. The treasury is then replenished with tax collections and other revenue later in the year.
However, Machida also said the latest round of collective bargaining increased the state’s wage and fringe benefit costs for the coming year by $103 million.
One factor that helped to accumulate the surplus is the budget restrictions imposed by the administration, Machida said. Ige has imposed 10 percent restrictions on discretionary spending by state departments each year, although departments can apply to have half of that restricted money released, Machida said. “Discretionary spending” excludes fixed costs such as debt payments, wages, health care costs or pension contributions.
“I think that we have implemented smart, strategic financial management processes for state government so that we can take better care of the taxpayer dollars,” Ige said.
However, he said the seemingly hefty balance at the end of the fiscal year is not even enough to cover two months of expenses for the state. “It’s not like it’s a windfall,” Ige said.
The public workers’ pension fund had an unfunded liability of $12.44 billion as of June 30, 2016, and the unfunded liability for the public employees’ health fund was calculated to be more than $11.7 billion in 2015.