Financial nightmare may affect health of all By (Ukjent person) |
"We're sitting on a time bomb, and it's about to blow up in our faces."
— The late Frank Loo, former Honolulu councilman.
Collectors of political bloopers love this one from the colorful Loo. But after the laughter dies down, one recognizes he had a point to make.
It's a point Loo might well be making again today as city and state officials begin to wrestle with one of the biggest unanticipated financial nightmares they have faced in years.
It is a nightmare that could chew up much of the present state surplus and make any hopes of substantial property tax relief little more than a dream.
And it is a nightmare that could change, substantially, the pattern of generous post-employment health benefits for government workers in Hawai'i.
The fallout from a seismic shift in health benefits for the public sector would inevitably affect the private market as well.
At this point, the concern is simmering just below the surface. And it involves arcane rules of accounting and actuarial estimations of the cost of benefits government must pay. But sooner or later, it will become a core topic as state and county government attempt to make sense of their budgets.
Here's the phrase to keep in mind: "Unfunded liability." Over the years, governments have come to grips with the fact that they must account for, and set money aside for, what traditionally were unfunded liabilities. The classic example is government pensions, which were being given out on a pay-as-you go basis. But accounting rule-makers said the books should show the long-term liability of those pensions, not just the year-to-year cost.
Most jurisdictions, including Hawai'i, thus discovered they had substantial unfunded liabilities on their books. This matters, because it affects the cost of borrowing money, among other things.
Over the years, the state has done a good job of reducing the unfunded liability in its pension plan largely by giving up the short-sighted habit of siphoning off excess money from the pension fund for immediate expenses elsewhere in the budget.
But now comes word from something called the Governmental Accounting Standards Board (nicknamed Gazby) that says government jurisdictions must shortly begin reporting and preparing for other post-employment benefits, which largely means healthcare benefits.
(For those with a terminally geek interest in these matters, look it up as Governmental Accounting Standards Board Statement No. 45).
Hawai'i offers generous lifelong health insurance benefits to retired government workers and their dependents.
Forcing governments to look at the long-term impact of such benefits on the budget could boost annual contributions by five to 10 times, some actuaries estimate.
House Speaker Calvin Say, who is looking closely at this issue, says the outside "bill" under this accounting standard for Hawai'i could be as much as $3 billion. So much for the surplus.
In Honolulu, Mayor Mufi Hannemann says this new requirement is a major reason he wants to begin building up a so-called "rainy day" or "fiscal stability reserve" fund.
The new standards, which governments really have no choice but to accept (if they wish to keep good bond ratings and "clean" ratings from the auditors), kick in for the state and the larger counties at the end of this year.
Say said there is nothing in Gov. Linda Lingle's supplementary budget that reflects this new obligation, but he said the attorney general's office is studying the matter.
The short-term upshot is that governments will soon have to begin setting aside more money every year against future bills for healthcare for their retirees. The amounts will be substantial.
That means less to spend on schools, roads, parks and other public services.
But long term, the impact of this change may mean a rethinking of the range of healthcare services available for government retirees and, indeed, the general public.
"This forces us to think," Say said. "Should we move to socialized medicine?"
Interesting question, that.
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