Name the financial institution that smiles when you mention state taxes, and swoons when you say "Hawaii state taxes."
The answer is the bond rating agency Standard & Poor’s, which recently issued a report praising how Hawaii plans to handle its debt.
Hawaii has a new law to earmark state taxes just to pay down the $13.6 billion debt. That brought smiles from the same folks that back in 2011 downgraded the bonds sold by the United States of America.
When the memo came out, Gov. Neil Abercrombie hailed it as proof that his administration was making the tough decisions to get state debt under control.
Hawaii has a really serious debt. We owe billions in total to retired state and county workers. Hawaii has one of the largest debts measured on a per capita basis. Hawaii also will pay the medical insurance bill for retired public workers; that cost is increasing.
Hawaii got on Standard & Poor’s’ good side by passing a law saying the state promises to pay a yearly amount to bring down the debt. If the state doesn’t do that, the law says the money is to be taken directly from the state tax office. Just like when you sign up to automatically pay your phone bill on the first of every month, this state law would automatically give the money to the retirement fund.
That’s the kind of tax policy Standard & Poor’s likes.
Originally, the Abercrombie administration didn’t like this law at all. In February, Kalbert Young, budget director, cautioned legislators.
"We are concerned that the specified contribution levels and timetable is not affordable at the present time without drastic reductions in other areas of the state budget or significant measures to increase state general fund tax revenues," Young said in written testimony. The translation is, "If we do this, we have to either cut the budget or raise taxes."
Young was worried because the payments are $200 million in 2014, $398 million in 2015, $597 million in 2016, $796 million in 2017 and $995 million in 2018. That’s quite a layaway program.
Young urged that instead of the sliding scale, the state pay just no less than $100 million a year.
By April, however, Young and the Abercrombie administration were on board with the pay, pay and pay plan and recommended passage.
The catch with the new plan is that the law also calls for a task force to study other ways of paying off the debt, which could be the political deus ex machina that rescues the Legislature from financial responsibility.
"A key to the state’s future credit trajectory likely hinges on its ability to follow through on its OPEB funding measures when revenue growth ebbs lower," Standard & Poor’s said, meaning, "Hawaii better not chicken out on this plan."
"Assuming economic and tax revenue trends soften at some point in the next several years, we believe the state’s commitment to the new higher contributions could be put to the test," the report said.
While Abercrombie patted himself on the back in his press release, saying: "Our most significant objectives have been to build financial reserves, deal with long-term unfunded liabilities, and instill sound financial management," the good news may mean Hawaii works with a shrinking state budget or raises taxes to keep its existing services while obeying the new pension-debt law.
———
Richard Borreca writes on politics on Sundays, Tuesdays and Fridays. Reach him at rborreca@staradvertiser.com.
