View Point

Friday, June 26, 1998

Governor should call off
hurtful state payroll lag

Delaying pay will
harm economy and people

By Chris Halford

HAWAII state government is implementing a peculiar version of a "payroll lag" for its employees. This policy will hurt our economy and our people. As the representative for the 11th House District, I have spoken against and consistently voted against this payroll lag concept.

Mechanically, the payroll delay to state employees is simple. Currently, the state distributes paychecks on the 15th and last day of each month.

Beginning with the pay period ending June 30, paychecks will be delayed one day each for five periods, until payday comes permanently on the 5th and 12th day of each month.

Even though the five-day lag accumulates one day in each of five consecutive pay periods (21/2 months), the result is a single, five-day delay in pay.

This lag allows the state to hold the amount of one payroll, $51 million, for five days before resuming a regular pay schedule. Such a payroll lag gives the employer a one-time float. In this case, the state is borrowing $51 million from its employees for five days, interest free.

An accountant or banker would consider this loan a small windfall to the state. At 6 percent interest, this five-day loan would yield about $42,000.

The state administration, however, sees a super-sized opportunity in this five-day loan. Our government incredibly claims that, in borrowing this $51 million for five days, it is, in fact, saving $51 million -- forever!

The government claims that this "savings" gives the state $51 million more to spend on whatever it wants, and has proceeded to do just that. Our state budget directs that all $51 million of the "savings" be spent.

This is another example of our state's commitment to overspending. By an accounting fiction, it says that it is spending "savings." In reality, this overspending is creating a debt that must be paid back one day, perhaps by our children.

Implementing this payroll lag creates many other problems, making this administrative policy very expensive:

Since the payroll lag violates the existing bargaining agreements of public workers and, as such, violates the U.S. Constitution, the state is exposed to lawsuits. The University of Hawaii Professional Assembly has already sued the state and won a preliminary injunction, assuring that its members' pay will not be lagged.

An extended court battle is forthcoming at considerable cost to the state. Additionally, the state is complaining that it must hire more employees to process UHPA paychecks separately from those of other state employees. So far, the other public worker unions have decided to tolerate this violation to their members.

The state is currently spending $4 million to change the payroll process to implement the lag (in addition to the previously mentioned extra employees) and to counsel state workers about various hardships that will occur from the delayed paychecks.

A tremendous surge in late payments is expected in our island community. More than 40,000 workers in Hawaii will have their paychecks permanently delayed by the payroll lag. This affects consumer loan payments and court-ordered payments like child support that are tailored to be paid on the old pay schedule.

The economic effect of these late payments and the disruption in people's lives have not been computed.

Obviously the state is willing to go to great lengths and incur great expense to get an "extra" $51 million to spend in the budget. The state leadership has sold this bad spending policy to the public and to its employees using two false premises.

One is the accounting fiction that this borrowing is a "savings." (The state did not dare promote this lie in federal court this month. It told the court that the "paper savings" is a result of the payroll lag occurring at the very end of a fiscal year, giving the appearance that one less payroll was being paid.)

The other lie is that the payroll lag will solve chronic overpayments to employees. Accurate payroll will result from implementing a good management plan, not from holding up the payroll.

The payroll lag is bad policy that would never be attempted by a responsible business. A competent business would not lie to itself about borrowings being savings, or continue deficit spending indefinitely, or implement policies that violate contracts and federal law.

Hawaii's version of a "payroll lag" is very expensive and bad public policy. The governor still has time to call off the lag. I recommend that he do just that.

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Chris Halford represents the
11th House District (R, Kula-Kihei).