Hawaii Legislation Replenishes Budget Reserves

LOS ANGELES --Hawaii Gov. Neil Abercrombie will sign three bills Wednesday afternoon aimed at replenishing Hawaii’s reserves and eventually pre-funding 100% of its OPEB liabilities.

Abercrombie tapped into the state’s reserve funds to restore services that had been slashed under his predecessor, Linda Lingle, after the economy crashed in 2008.

“We had to use some of the reserves in the first year that Gov. Abercrombie came into office in the first five months of calendar year 2011 to get through the fiscal year,” said Kalbert Young, Hawaii’s finance director.

Revenues were projected to be less than expenditures – and if Abercrombie had not tapped into the reserve funds, the state would have had a deficit, Young said.

“The legislature was asked, and did pass a bill, to use the Hurricane Relief Fund to shore up revenues for fiscal 2011,” Young said.

The plan assumed the reserve fund would be replenished during the following biennium, which is what Senate bills 1092 and 1094 are designed to do.

Under the new legislation, half of the $111 million used from the reserve fund would be returned in fiscal 2014 and the second half would be repaid in 2015.

S.B. 1092 also appropriates an additional $50 million to the Hurricane Relief Fund in 2014 beyond what was used in 2011.

As of July 1, 2013, there is $24 million in the rainy day fund and $21 million in the Hurricane Relief Fund.

By the end of fiscal 2014, the Hurricane Relief Fund will be $126 million strong and the Rainy Day Fund will have $75 million in it. By the end of fiscal 2015, both funds will have a combined reserve of $260 million.

“We are looking to finish 2013 with very strong positive ending balances,” Young said.

The state currently has reserves at 5% of the general fund, but hopes to move into having 10% in reserve by the end of fiscal 2015.

“To be able to build back up to that point in three years is quite significant,” Young said.

Hawaii’s legislature not only tackled the issue of depleted reserve funds this year, it also made significant strides in dealing with other post employment benefit liabilities, Young said.

Through House Bill 546, which will also be signed by Abercrombie during Wednesday’s signing ceremony, the state will pre-fund OPEB liabilities for the first time.

“The bill mandates a course to 100% funding of the ARC [actuarially required contributions] to all governmental employees,” Young said.

While counties have been requiring government employees to pay close to 100% of their ARC, the state was not. So the most significant change will be for state employees under the new legislation, who will start out contributing 50% percent of the ARC, and then after a stair-step of increases at 19% annually will eventually pay 100% by 2019.

The governor’s five-year financial plan has already stated a desire to reach 100% pre-funding of OPEB by 2019.

“The bill sets us on a course to get there by 2019,” Young said. “The executive branch proposal is in total alignment with the legislature.”

The state also has spent the past two years enacting a number of pension overhaul measures to reduce the benefits of employees starting in fiscal 2012 – also aimed at reducing the state’s pension liability. The state’s pension fund is currently 59.2% funded after the last evaluation.

The combination of the recovery and the state’s reform measures are helping the governor to reach his goal of having one of the best funded pension systems, Young said. He said Hawaii is currently ranked in the middle in terms of its pension liability.

But these three bills and efforts that have been in the works since Abercrombie took office should attain the goal of being in the top tier among the 50 states in prefunding to reduce pension liability, he said.

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