Court finds $345M pension raid illegal
The Legislature won't have to repay the funds, used for raises
The state Legislature's $345 million raid on excess earnings from the state and county pension fund in 1999 was illegal, but the money need not be repaid, according to a Hawaii Supreme Court decision.
The decision has no immediate effect on the $11 billion Employees' Retirement System, which handles the pensions for an estimated 100,000 retired state and county employees.
But Peter Gruenstein, an Alaska-based attorney for plaintiffs in the original lawsuit, including SHOPO, called it a "hugely important victory" for the members of the ERS.
"It should protect the fiscal integrity of the ERS in perpetuity from the kind of skimming that the Legislature has been all too willing to do in the past," Gruenstein said yesterday by telephone. "Hawaii, now, is one of the few states in the country where the members of that system have very strong protections for the fiscal integrity of their pension fund."
He said he was disappointed that the ERS, which joined the suit seven months after it was initially filed, did not seek restitution to have the money repaid to the fund.
Gruenstein said he was discussing the verdict with clients and analyzing whether there was any legal means of going after the money.
"They're obviously interested in it," he said. "We've told our clients we're in the process of analyzing the decision now and we expect to have further conversations with our clients within the next week."
Rep. Joe Souki, who was speaker of the House in 1999 when the Legislature approved the raid, said the money was used to pay for retroactive union pay raises.
"The public didn't want to see us raise taxes and we just didn't have the revenue flow. In order to maintain basic services, we had to take the money," said Souki (D, Waihee-Wailuku).
At the time, the state was in the middle of a recession and had laid off more than 100 state employees to cut expenses.
"We also had to take money from the housing fund just to balance the budget," Souki said. "We had some very tough years during my term as speaker."
Rep. Marcus Oshiro, House Finance Committee chairman, said the 1999 Legislature had used the ERS investments' excess earnings, but laws passed in 2000 prohibited the Legislature from again tapping the fund.
"Now the ERS gets everything," Oshiro said.
"The Supreme Court said we violated the Constitution, but no pensioner or retiree suffered a loss," said Oshiro (D, Wahiawa-Poamoho).
Oshiro added that the court ruling said the state did not have a liability to repay the money.