Benefits:
The untouchables

Despite tough economic times,
benefits remain organized
labor's sacred cow

By Rob Perez
Star-Bulletin

Illustrations by
David Swann, Star-Bulletin

Vacation benefits -- best in the nation.

Sick leave benefits -- best in the nation.

Mileage reimbursement rates -- best in the nation.

As fringe benefits go, Hawaii's state and county workers have a package that, in many respects, rivals or tops the best that mainland governments have to offer. Retiree health benefits are particularly generous.

But unlike Hawaii's private sector, where many businesses have trimmed benefits or shifted costs to workers to cope with an eight-year economic slump, the state has done little of that.

Instead, it has cut services, eliminated hundreds of jobs and held wage increases in check. The fiscal crisis got so bad several years ago that Gov. Ben Cayetano called it the worst in state history.

But through it all, a relatively rich benefit package has been all but untouchable.

The few legislative proposals that delved into that sensitive area have, for the most part, gone nowhere, partly because of pressure from public-worker unions.

In most cases, benefits for state and county workers are the same because the perks are set by state law. Some are specified in union contracts.

Overall, benefits represent 35 to 40 percent of the state's payroll costs, a range in line with other governments and the private sector, according to James Takushi, Cayetano's human resources director.

But critics fear the mushrooming expenses of providing such benefits, particularly for medical insurance and pensions, will become a much heavier burden on the governments. That burden will intensify if the economy doesn't pick up and bolster government coffers.

Because few people foresee a robust rebound on the horizon, legislators and others are questioning whether the public sector can continue being so generous.

"You and I as John Doe taxpayers, we're paying for all that stuff, and it's big-time bucks," said Tim Ho, president of the Hawaii Employers Council, a management group that helps companies negotiate with unions.

But public workers and their union leaders say cutting benefits isn't the answer because people rely on them to make ends meet.

"I don't think it would be right or fair to tamper with the benefits package," said Antonie Wurster, a planner with the state Department of Transportation.

If the state needs to cut costs, it should look at ways to provide the same benefits more efficiently, Wurster said. She said health-care costs, for example, have been driven up because of an insurance system that needs re-evaluation.

Russell Okata, executive director of the Hawaii Government Employees Association, the state's largest public union, likewise said the state should pay more attention to cutting wasteful spending.

Too often government workers are asked to shoulder the financial burden of trying to fix the economy, Okata said.

"It seems like every economic solution has been on the backs of public employees," he said.

While the unions typically resist any effort to cut worker benefits, they aren't the ones who negotiated many of them.

Some of the more generous benefits were established legislatively long before unions began representing state and county employees in the early 1970s.

The 21 vacation days given to employees after just one year's work, for instance, predates even statehood. So does Hawaii's sick-leave policy, also 21 days per year.

Both are the most generous offered among the 50 states, according to a recent survey by Workplace Economics Inc. in Washington, D.C. A few other states provide more than 21 vacation days once their workers have more than five or 10 years service.

Another national best: the state's 37 cents-a-mile reimbursement for using personal vehicles on official business, the Workplace study shows. Such a high rate is not surprising given Hawaii's highest-in-the-nation gas prices.

Hawaii also provides attractive holiday perks. Its 13 paid holidays annually ties for second best with five other states, according to the Workplace survey. Texas is tops with 15.

Stark differences

When Hawaii's public-sector benefits are compared with the state's private sector, the differences often are even more stark.

Only 5.8 percent of private employers match or better the 21 paid sick days provided by the local governments, according to a 1994 Employers Council survey, the most recent one available.

For vacations, nearly half the employers required at least 11 years employment before granting 20 days annually, while 15 percent never grant that much, the survey shows.

Medical coverage for families is comparable between the two sectors, although private employers tend to pay more for single employees.

But the public sector offers far better benefits upon retirement.

For retirees with at least 10 years service who were hired before July 1996, the government pays 100 percent of medical premiums. Spouses and dependents are covered as well -- an especially generous benefit.

In the private sector, workers at 71 percent of the employers lose their company health insurance once they retire, according to the council survey.

A competitive package

While the government retiree health benefits are more lucrative than what's typically offered by private employers, its pensions are considered more comparable.

And when compared with public sectors on the mainland, Hawaii's retirement plans generally aren't as generous.

Hawaii workers hired after 1984, for instance, must work 10 years before they become vested in a retirement plan. In 32 other states, the vesting period is five years or less, according to the Workplace survey.

Also, the percent factor -- 1.25 percent -- used in calculating the pension amount for the majority of post-1984 workers, generally is lower than what is used in states with comparable plans, benefits consultants say.

"That program is below average," said Michael Carter, a benefits expert with Watson Wyatt Worldwide in Dallas.

But Hawaii's practice of allowing accumulated sick leave -- with no cap -- to be used in calculating a pension is an expensive benefit, possibly increasing the cost by as much as 5 percent, Carter said. Most other states don't do that because "it gets to be prohibitively expensive," he said.

Looking at the entire benefit package, experts say Hawaii workers have nothing to complain about.

"If I was a state employee in Hawaii, I would be pleased with the package. It's a competitive one," said Paul Yakoboski, senior research associate with the Employee Benefit Research Institute in Washington, D.C.

The extra perks

Little things add a touch of extravagance.

When University of Hawaii faculty members travel to conferences where meals are served, they still get a per-diem food allowance "in order to provide freedom of choice in meal consumption," the faculty contract says.

Local officials historically have justified the richer benefits by saying state and county workers weren't getting paid as much as their private-sector counterparts.

But that is not the case today, according to various surveys that show public-sector salaries higher than those in the private sector.

Union officials, however, take issue with such surveys and refer to nonpay issues as well.

Karen Ginoza, president of the Hawaii State Teachers Association, said the benefits help offset the negatives of public-sector work. Teachers, for instance, are in classrooms where temperatures at times can top 90 degrees or where problem students can be very disruptive, HSTA representatives say.

"It's really not a place conducive to work," Ginoza said.

Teacher pay in Hawaii, after factoring in the cost of living, ranks second to last among the 50 states, the union says.

One reason benefits have been so untouchable is that, politically, it's tough to take away something somebody already has. (Pension benefits are protected by the state Constitution.)

"To negotiate benefits away is very difficult, especially when you're not getting pay increases or very little increases," said Takushi, the human resources director.

Such rationale helps explain why there has been only one significant reduction in the benefits package in the 1990s -- and that affected only future workers.

Retiree health benefits altered

A 1996 law changed how the government contributes to retiree health benefits for workers hired after June of that year.

Instead of requiring only 10 years service before an employee is eligible for fully paid medical benefits upon retirement, the minimum service was increased to 25 years.

Even that change, pushed by the Cayetano administration, sparked opposition.

"No other administration had the guts enough to do that," Takushi said.

The administration also succeeded in changing a law to stop vacation and sick leave from accumulating after a person retired but was still on the payroll due to accrued vacation. Now the accumulation clock stops ticking when the person stops working.

Takushi said reducing such benefits as vacation and sick leave will not save the government large sums of money.

Cut costs elsewhere

Critics say the government must look for ways to cut costs, even if it means taking such steps as raising the retirement age.

"You're not putting a financial burden on (workers) by doing that," said Rep. Mike White, a Maui Democrat. "It just means they have to keep working a little longer."

White's concerns are sparked by what many consider huge government liabilities in the years ahead for retiree medical and pension benefits.

By the year 2010, for instance, the cost of providing retiree medical insurance is projected to be nearly $200 million -- more than double today's cost, according to White.

"The reality is if we don't look at options to reduce costs, then we may have no alternative but to get money through taxation," he said.

Spooked by the future liabilities, some legislators are advocating that all wage and benefit issues be subject to labor-management negotiations.

Currently, some issues are negotiated at the bargaining table, while others are addressed at the Legislature.

The problem with that system, critics say, is that the state can't get a true picture of the cost of its total compensation package.

And by having legislators decide such issues, decisions are driven more by politics and lobbying clout than by what makes sense from an operational or management perspective, said Rep. Nathan Suzuki, a Moanalua Valley Democrat. "We just get lobbied and lobbied and that's a poor way of setting compensation. We're not good fiduciaries of public money because we don't sit at the bargaining table."

Okata said he would support having all wage and most benefit issues negotiated. But the union, he said, would be just as protective of employee benefits no matter what the setting.

"If you want the union to give up something for its workers, do you think we would give it up for free?" Okata said. "You just don't take away benefits."