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‘Jenga’ budgeting is no game

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Last week, I accidentally demolished the state budget.

What’s more, I was helped by Maui residents who attended the Grassroot Institute of Hawaii’s recent event in Wailuku concerning “The real state of Hawaii’s finances.”

The guest speaker for the event was Sheila Weinberg of Truth in Accounting, an organization dedicated to uncovering and sharing the truth about government finances.

In order to illustrate the precarious nature of Hawaii’s finances, Weinberg created a Jenga game where each block was a fiscal policy that could mean either sound budgeting or disaster. For the uninitiated, Jenga is a family game where participants remove and replace blocks in a tower while trying not to be the person who knocks down the increasingly unsteady edifice.

The first block removed was a balanced-budget requirement. Hawaii does have a balanced budget requirement, which is good fiscal policy. However, it can easily be overridden by the governor, which helps explain how our state has $18 billion in debt despite a balanced-budget requirement.

Next up was a block representing the state’s decision to prefund healthcare for retired state and county retirees. Until 2013, Hawaii didn’t prefund healthcare. But then it did, because the unfunded liabilities for the program were starting to get scary.

Then along came the coronavirus lockdowns, resulting in the Great Lockdown Crash of 2020, and the state stopped paying its healthcare contributions. Weinberg compared this decision to skipping the minimum payments on a credit card. Skipping $408 million in contributions to the Hawaii Employer-Union Health Benefits Trust Fund, aka the EUTF, will cost Hawaii taxpayers $922 million over the long term.

Block by block, the bad policies began to build up:

>> Budget for only half your expenses; according to state reports, Hawaii has $15 billion in expenses, but only budgets for $8 billion.

>> Let employees retire at age 60, adding to the cost of paying full pension and retiree healthcare benefits.

>> Offer generous retiree healthcare benefits: Hawaii has medical, dental, vision and life insurance benefits and payments of Medicare’s supplemental premium. Current and future retirees will get $11 billion in healthcare benefits, $9 billion of which are unfunded.

Some of the state’s budget decisions seem to be pure wishful thinking, like pretending pension assets will earn 7% a year.

“The state’s actuaries and pension plans believe they’re going to earn 7% interest on their pension plans,” said Weinberg. “One of the reasons they keep this number so high is because … if the pension assets earn a lot of money, then that means the less they can contribute to the plan.”

What happens if the plan doesn’t earn 7% — like last year, when it earned 2.1%?

Well, because the benefits remain the same no matter what the plan earns, the taxpayers have to make up the difference.

Other decisions seemed more like an “ignorance is bliss” approach to budgeting — like focusing solely on cash in hand — that is, the amount in the general fund — when balancing the budget.

It looks good and works well for politicians who are looking at short-term benefits, like surviving the next election, but those debts are still out there, and taxpayers will be the ones to pay.

As Weinberg explained, “This would be like you focusing on your cash account without looking at your credit cards.”

Then there’s the block I pulled, the one that brought the whole Jenga tower crashing down: “Invest taxpayers money in the stock market.”

As  Weinberg explained, there’s no such thing as a taxpayer who isn’t investing in the stock market. That’s because 33% of the state’s pension assets are in the market. When the market drops, taxpayers have to make up the difference.

Put all the bad fiscal policies together, and you get massive debt. Eventually, all of that debt also will fall on the taxpayers. According to calculations from Truth in Accounting, Maui has $866 million in debt, about $14,000 per taxpayer. On top of that, you can add the state debt of  $37,000 per taxpayer.

Remember that this is money that has already been spent. Future taxpayers will have to pay it but won’t receive anything for it. The total state and county taxpayer burden for a Maui resident is about $51,000.

So  what can we do about it? How can we ensure that our children and grandchildren won’t be saddled with so much government debt?

Here, knowledge is power. The first thing we have to do is help people understand the problem. That means adopting truthful government budgeting and accounting practices.

As  Weinberg said, “You’ve been getting government that costs more than you’ve been paying.”

People need to know what government really costs. And they need to understand that the only solutions are to cut spending or increase taxes.

Next, it’s simply a matter of following the best practices for balancing the budget and reforming the pension system. Hawaii’s state and county governments need to stop promising services and benefits that they cannot afford. Above all, we need to stop accumulating debt and adopt sound fiscal practices.

In the end, it’s really quite simple: We need to build our fiscal policy on a solid foundation of good budgeting and accounting principles, not a shaky “Jenga” construction of empty promises and debt. Otherwise, the whole structure will come tumbling down!

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This commentary was Keli’i Akina’s weekly “President’s Corner” column for Aug. 28, 2021. If you would like to have his columns emailed to you on a regular basis, please call 808-864-1776 or email info@grassrootinstitute.org.

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