Maui budget crisis has begun

Viewpoint

Maui County taxpayers will be paying millions more every year into the state Employees’ Retirement System, according to the system’s executive director, Thom Williams.

In a presentation last month in Wailuku, Williams said Act 17, signed into law this year by Gov. David Ige, requires the state and counties to ramp up their payments into the state pension fund.

“This is a massive, massive increase,” Williams said.

Maui County paid $31 million into the pension fund in fiscal 2017. But now, its payments will increase to approximately $34 million in fiscal 2018, $36 million in fiscal 2019, $42 million in fiscal 2020 and $47 million in fiscal 2021.

This amounts to a total of $36 million in extra payments by Maui County over the next four years alone — and its contributions are set to remain just as high every year afterward.

Williams said the extra payments were needed to help the public pension system avert a crisis in unfunded liabilities, currently estimated at about $12.4 billion.

“The crisis was averted in part by an increase in contributions,” Williams said.

Williams is correct that the increased payments will help the state pay down its unfunded liabilities and return to being able to meet its current obligations to state and county employee retirees. But a new crisis has begun — the crisis of taxpayers feeling the pressure to bail out the system.

Williams acknowledged that the counties would be under more financial pressure.

“We know over time it really crowds out other goods and social services that are required, whether it’s education or roads or hospitals, or you name it,” he said. “There are limited revenues available, and these are commitments that have been made and need to be paid.”

When budgets get tight, there are usually two ways to balance the books: Either raise taxes or cut services. Maui County will probably consider doing a little of both.

Earlier this year, Maui County increased property taxes by approximately $29.7 million for fiscal 2018. County Council members said that the extra money was needed to help provide better services.

But a large chunk of those increased tax revenues could be going toward paying off the state’s pension debt, which could harm the quality of government services for most Maui County residents.

In addition, the county might have no choice but to cut services to make room for the extra dollars earmarked for the pension fund.

Requiring bigger payments into the pension fund is a national best practice for pension reform, and it is one step to righting the system. However, the new payments will kick off a period of budget turmoil for the county — and for Maui’s taxpayers and public workers who ultimately are on the hook.

* Joe Kent is vice president of research at the Grassroot Institute of Hawaii, a nonprofit, Honolulu-based public policy think tank that “seeks to educate people about the values of individual liberty, economic freedom and accountable government,” according to its website, grassrootinstitute.org.

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