State lawmakers have created a huge mess with the enactment of Senate Bill 2077.
This law creates an unaffordable enhancement of separation benefits for employees of Maui’s public hospital system.
The system is due to transfer to private management in a desperately needed cost-cutting initiative.
The Legislature convened a special session this week to override Gov. David Ige’s veto of SB 2077, legislation for which the government employees union had lobbied forcefully.
But Wednesday’s override clarifies nothing about what the final impact will be.
It’s the legislators’ job to set the state’s spending priorities through the budget process. With this override, however, they effectively waved off that responsibility by enacting the measure without setting aside funds to pay for it.
Any effort to craft a compromise version of the bill that would pass muster with the governor was abandoned, as well.
The lack of a funding mechanism creates a dilemma for Ige. The governor either must carve out millions of dollars from some other source, or come back to the regular session with a request for a supplemental appropriation.
This assumes he can implement the measure at all.
A spokesman for the state attorney general said Thursday that the agency is still reviewing the bill to determine what the next steps would be.
Why?
Because, according to an attorney for the state Employees’ Retirement System (ERS), the special severance arrangement violates the requirements of the Internal Revenue Code, endangering the fund’s tax-exempt status.
SB 2077 allows workers to elect either a voluntary severance payment, taxable as wages, or a special subsidized retirement benefit, attorney J. Thomas Maloney Jr. wrote July 7 in a letter to the ERS.
This “deferred election” is what violates the tax-exempt requirements of the fund, he said.
On Thursday, the governor vowed that he would do nothing that would effectively put the retirement benefits of all state employees in jeopardy.
That resolve deserves public support: The tax repercussions of losing that exemption could enlarge the state’s unfunded liability, something Ige and other state leaders have worked hard to reduce.
The governor also must redouble efforts to settle a lawsuit from the United Public Workers, filed in protest of the privatization scheme.
It might be necessary to enter talks with the Hawaii Government Employees Association as well, with the goal of averting further delay of the privatization deal.
Last year, the Hawaii Health Systems Corp. (HHSC) gained authorization for a privatization deal with Kaiser Permanente Hawaii with the passage of Act 103. The pact was inked in January, affirming that Kaiser would operate the Maui regional facilities — principally Maui Memorial Medical Center, Kula Hospital and Lanai Community Hospital.
Privatization is projected to save the state $260 million in hospital subsidies over 10 years.
But that savings will be offset if the special severance benefits of the hospitals’ 1,400 employees are carried out — to the tune of an estimated $60 million or more. These are employees who ultimately will keep their jobs under the new management.
So the richer benefits are hard to justify, particularly if they would further hobble a retirement system already struggling to dig itself out of a fiscal hole.
Defenders of the override have said they were concerned that failure to enact the deal would tie up the transfer of the hospitals in further legal knots, imperiling the smooth transition of hospital operations crucial to Maui residents.
But it’s no solution to let a plainly flawed bill become law, one that could generate its own set of legal complications. Lawmakers should have considered the repercussions while they were hurrying the bill through with little discussion in the waning days of the session.
That was an unconscionable thing to do from the start. And so is saving it from the trash heap and lobbing it back to the governor now.
