The recent story on the $8.4 billion unfunded liability of the Employees Retirement System highlights a most critical problem facing our community. But an even bigger fiscal challenge we face is with the Employer-Union Trust Fund (EUTF) and its role in administering retirement health benefits for public employees. The most recent actuarial study reported the unfunded liability of the EUTF as of July 1, 2011, at $18.2 billion.
That liability increased by 75 percent, or $8 billion, from just four years earlier when it was $10.3 billion. To put this in perspective, the total annual state of Hawaii general fund budget is $5.5 billion. No other cost center funded by the state and the counties grows at the rate the EUTF’s deferred liability rises. It is unsustainable and will continue to worsen as the number of retirees and the cost of post-employment health care benefits continues to escalate.
This ticking time bomb is fast approaching a point of detonation with explosive consequences. Despite the looming financial catastrophe, there is no meaningful plan to fill this gaping hole in the financial health of the state and the counties.
Fixing this problem has no simple solution. A realistic remedy will necessarily involve revenue enhancements, benefit containment, structural reforms, reprioritization of programs and serious fiscal discipline as elements of an integrated long-term financial plan. But the political complexities of designing and promoting such a plan are daunting and fraught with peril for the architects of such a strategy.
We need only look to the mainland for examples where other states have struggled to deal with their own unfunded liabilities. Illinois today finds itself politically paralyzed in an intensely polarized environment despite heroic attempts to resolve the crisis. Are we in Hawaii inevitably destined to go down the same path?
A meaningful solution to Hawaii’s problem will leave no segment of our community unaffected by the required changes to the status quo.
Critics argue that the problem lies in government waste and inefficiency. Expenditure reductions are an essential part of any plan, but the reality is that fixing the problem only through spending cuts on the scale necessary would result in draconian consequences that no responsible public official would seriously propose.
Benefit changes must be on the table as part of the solution, but public employees will contend that any benefit reduction constitutes a breach of their contract of employment and will render public service unattractive. But if retirement health benefits are not reined in, the unsustainable growth of the EUTF liability will continue unbridled and undermine the entire program.
Increasing tax revenues are an indispensable element of any remedy. Yet who among our public officials has the courage to advocate any tax increase?
Hawaii has not yet reached the crisis point beleaguering other states. We have a small window of opportunity to act before we are left without choices. Our community needs to work together with a mutual resolve to fix the problem through shared sacrifice. But the process begins only if we can inspire our public leaders to have the courage to begin making the hard choices that fixing the problem requires.
Failing to act now will ensure that in a few years we will see our community mired in the same kind of acrimony and divisiveness that we can see occurring in other states today.
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Editor’s note: In addition to being an Employees Retirement System trustee, Colbert Matsumoto is on the board of Oahu Publications Inc. (the Star-Advertiser’s parent company), which is separate from this newspaper’s editorial board.
