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Testimony — SB1087, relating to EUTF prefunding

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The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Hawaii Senate Committee on Labor, Culture and the Arts on Feb. 10, 2021.
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To: Senate Committee on Labor, Culture and the Arts
Sen. Brian T. Taniguchi, Chair
Sen. Les Ihara, Jr., Vice Chair

From: Grassroot Institute of Hawaii
Joe Kent, Executive Vice President

RE: SB1087 — Relating to the Hawaii Employer-Union Health Benefits Trust Fund

Comments Only

Dear Chair and Committee Members:

The Grassroot Institute of Hawaii would like to offer its comments on SB1087, which would suspend the requirement for public employers to make annual required contributions to the Hawaii Employer-Union Health Benefits Trust Fund through fiscal year 2024-2025.

We are concerned that this measure would put Hawaii taxpayers on the hook for an additional nearly $8 billion.

The fund, which pays out health benefits to current and retired state and county employees and their dependent, currently has unfunded liabilities of $11.5 billion.1 Skipping payments for five years could increase the total unfunded liability by at least $2 billion,2 to over $13.5 billion3 according to a report by Gabriel, Roeder, Smith & Company. This would free up $1.78 billion for the state and $537 million for the counties between fiscal 2021 to fiscal 2025, excluding Maui County, which has committed to fully funding its portion of approximately $13 million per year.4

 But deferring payments would have the unfortunate side effect of adding interest and payroll growth costs of $4.2 billion in the long run, according to the GRS report,5 and $1.3 billion more for the counties, according to an estimate by the Grassroot Institute of Hawaii.6

The original deferred payments must also be paid back, which with interest and payroll costs could total up to $7.8 billion over the next 30 years, assuming the state and all the counties except Maui County suspend the payments between fiscal years 2021 to 2025.

This would increase the amount of unfunded liabilities to be paid down by Hawaii taxpayers, and destabilize the health benefits plan of 68,000 active government employees and their 60,000 dependents and 47,000 retirees and their 20,000 dependents.7

Lawmakers should rethink suspending the required annual payments to the state’s health benefits fund. It is better that we find a sustainable approach to addressing the state’s debts now, rather than passing the bill to Hawaii’s next generation.

Sincerely,

Joe Kent
Executive vice president
Grassroot Institute of Hawaii
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  1. Draft Hawaii Employer-Union Health Benefits Trust Fund Retiree Health Care Plan, Actuarial Valuation Report as of July 1, 2020,” Gabriel, Roeder, Smith & Company, Jan. 11, 2021, Section A, p. 2.
  2. The State of Hawaii’s unfunded liability for the EUTF is $8.9 billion, and the unfunded liability for the counties is a total of $2.6 billion, as shown on Joseph Newton and Mehdi Riazi, “Hawaii EUTF” Gabriel, Roeder, Smith & Company, Jan. 11, 2021, p. 2, row “UAAL,” which stands for “Unfunded Actuarial Accrued Liability.” The state’s unfunded liability could increase by approximately $2 billion as shown on the red line on the chart on page 9. Note that $2 billion is not stated in the report, but is visually apparent in the chart on page 9. Note also that the report calculates only the estimated unfunded liability for the state but not the counties. It is possible that the unfunded liabilities of the counties could increase as well, but data is unavailable. The current unfunded liability across the state and counties is $11.5 billion, as shown on page 3, column (3).
  3. The $13.5 billion estimate is derived by adding $2 billion to the current unfunded liability of $11.5 billion. However, it should be noted that the actual unfunded liability could be higher, since the GRS report does not estimate the additional unfunded liability for the counties.
  4. Maui County has committed to fully funding its portion of approximately $13 million per year. See “Draft Hawaii Employer-Union Health Benefits Trust Fund Retiree Health Care Plan, Actuarial Valuation Report as of July 1, 2020,” Gabriel, Roeder, Smith & Company, Jan. 11, 2021, Section A, p. 5, which states, “The County of Maui has indicated it plans to fully fund the ARC.”; Joe Kent, “Ige’s EUTF Funding Dodge Will Come Back To Haunt Us,” Honolulu Civil Beat, Sept. 21, 2020.
  5. Draft Hawaii Employer-Union Health Benefits Trust Fund Retiree Health Care Plan, Actuarial Valuation Report as of July 1, 2020,” Gabriel, Roeder, Smith & Company, Jan. 11, 2021, p. 8, column e.
  6. Grassroot Institute of Hawaii analysis of county ARC increase from deferral of 5 years of prefunding,” Grassroot Institute of Hawaii, Jan. 11, 2021.
  7. Who we are,” Hawaii Employer-Union Health Benefits Trust Fund, 2021.

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