[ OUR OPINION ]
A report projecting that the state may have to pay in millions of dollars more than before to sustain its employees' pension fund packs another load of bleak news on Governor Lingle's administration, the state Legislature, retirees and Hawaii taxpayers. Further, it shows the untenable situation that can develop when short-sighted solutions are employed to deal with the state's spending problems. ERS shortfall shows danger of robbing Peter to pay Paul
THE ISSUE The government employees retirement fund will likely need an infusion of cash from already lean state coffers.
Unless the stock market makes a dramatic turnaround, the state will have to raise its contributions to the Employees' Retirement System by about $93 million in 2005 from about $235 million in 2004, according to a consultant for the pension fund. By 2010, the burden could total more than $600 million. County governments, already in revenue binds, also will face increases in 2004-2005. The city will be hit for a total of $80.9 million; Maui County for $17.2 million; the Big Island, $17.9 million; and Kauai, $9.1 million.
The rise in the level of contributions is necessary to maintain the pension fund, which lost 5.9 percent in fiscal 2002 over a 6.9 percent loss in 2001 as the bear market took its toll on investments. As of Sept. 30, the fund held a value of $7.1 billion, down from $9.9 billion in fiscal 2000.
On top of its losses, the pension fund's gains during the bull market were used by lawmakers as a basis for trimming employer contributions. Legislation passed in 1998 allowed the state to apply all of the fund's earnings over 10 percent to reduce state and county contributions in order to balance the state's budget. If the ERS had been allowed to bank its earnings against future losses in the unpredictable market, the sharp increases the state now encounters could have been mitigated. In addition, the legislation has prompted a class-action lawsuit alleging that the state improperly diverted $347 million from the retirement system and violates the state Constitution, which should be another cause for concern among officials.
ERS provides pension benefits for more than 96,000 government employees and their beneficiaries, 62,208 of whom are active and 30,330 of whom are retired. Employees' salaries on which pensions are pegged now average 5.4 percent more than in 2001; payrolls went up 9.3 percent this year, totaling about $2.5 billion. As more people retire, demands on the pension fund will grow.
The state is looking at possible revenue shortfalls of $300 million in the next two years. As they have in the last decade, lawmakers will be hunting for every penny, but it is time to get serious about reducing the state's expenses. Lingle has ambitious plans to expand Hawaii's economic base to draw in more money; that's good for the future. Right now, state leaders cannot continue to postpone the inevitable as they have done in the past. Something's got to give.
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