$93M added to city retiree health care costs
The unexpectedly high amount will probably force an expected tax break to be scaled back
The city could be expected to pay an additional $93 million a year beginning next fiscal year to put aside future health care costs for retirees, the City Council was told yesterday.
And that figure -- higher than some expected -- could affect how far the Council would be willing to reduce the property tax rate as part of a package of residential property tax breaks.
"The reality is it's going to affect the tax rate because it's a big number," Council Budget Chairman Todd Apo said.
The Council learned of the city's extra costs during a public hearing. The Council gave the second of three approvals to the proposed $1.63 billion operating budget (Bill 30) and a nearly $729 million construction budget (Bill 31) for next fiscal year.
As part of the operating budget, Mayor Mufi Hannemann has set aside $60 million in a special fund to help pay for the city's future obligations in civil servant retirement health benefits.
The budget the Council approved last night slashes the amount in the fund to $30 million. The additional amount in retirement health care costs came as a result of a change in the accounting of future government retiree benefits other than pensions.
City Budget Director Mary Pat Waterhouse said the obligation is more than the $62 million budgeted for next year and is on top of the $85 million the city is budgeting for current retiree health benefits.
Waterhouse said the Hawaii Employer-Union Health Benefits Trust Fund will decide by June how much they city might be billed to pay into the health fund, which could be up to $178 million to include the future and current costs.
Waterhouse said that if the city does not put enough money away, the city's credit rating could suffer.
"We're using terms 'financially prudent' and 'fiscally responsible' to budget this," Waterhouse said.
But some are not as convinced that putting away money based on a yet-unknown amount is fiscally prudent.
Councilman Charles Djou said most municipal governments in the country have not funded these future costs. "The reason is they have made the policy decision -- it is better to leave the extra cash in the checkbooks and the wallets of the people instead of the government."
Some of the differences so far between the operating budget that the mayor submitted and the Council's version boil down to:
» The Council approved a one-time homeowner tax credit of $200 that is lower than from the mayor's proposed $376.
» While the Council passed a one-time $150 credit for renters last night, some members are looking at the $11 million funding as another source for more tax cuts.
Ted Kanemori, 62, of Kaneohe urged the Council last night to reduce the current residential rate of $3.59 per $1,000 valuation by $1.
"This is something you have the power to control," said Kanemori, who saw the value of his home rise to $849,000 from $378,000 in 2000.