Retirement fund payments gain approval

By PETER SUR

Tribune-Herald staff writer

A divided County Council on Friday gave preliminary approval to a bill that would require the county to make payments toward the retiree benefits account.

The argument over retiree pre-payments, in accordance with an accounting standard known as GASB 45, dates back to last year, when a poor economy forced Mayor Billy Kenoi to defer a $20.3 million annual payment to the account to balance the county’s 2011-2012 operating budget.

This year, the 2012-2013 budget again defers payments to the account; it’s not known what the obligation will be, but it may be higher.

Experts agree with the mayor that annual payments are not required, but they also say the longer those obligations are ignored, the bigger the payment will have to be in the future. That’s why Council Chairman Dominic Yagong wants to require the county to make a minimum payment of several million dollars toward the retirement benefits.

Yagong’s bill would require either any fund balance at the end of the fiscal year in excess of $5 million to be applied toward GASB 45 obligations, unless the county included at least 50 percent of the actuary’s recommended payment in the operating budget.

“Either way, it pushes government to act,” Yagong said. “Either way, it is one way that the government will make sure that some payment is made.”

The bill passed on a 5-2 vote, with Fred Blas and Donald Ikeda opposed. Dennis Onishi and J Yoshimoto were absent.

Those voting in favor of the bill were council members Brenda Ford, Pete Hoffmann, Angel Pilago, Brittany Smart and Yagong.

The bill must be passed by the council a second time before heading to Kenoi’s desk. If Kenoi vetoes the bill, it’s unclear whether Yagong can muster the six votes required to override it. Either way, it allows the chairman to highlight his differences in opinion with the mayor in an election year.

“We’re telling the people of the county of Hawaii, including the retirees of the county of Hawaii, that we are going to make sure that there will be money there, when their benefits are due,” Yagong said.

Kenoi was not present for the meeting, but Finance Director Nancy Crawford and Deputy Director Deanna Sako expressed deep concerns about how the passage of the bill would affect the county’s credit rating.

“This doesn’t actually fit with the way we determine our fund balance,” Crawford said. She described the county’s fund balance as a reserve fund that provides liquidity and flexibility in an operating budget against “unanticipated events” such as an emergency situation.

The existence of a sizable fund balance is also important to the county’s creditors, Crawford said, calling $5 million a “small” amount.

Crawford read aloud a comment from one of the county’s underwriters that “rating agencies would view the resulting loss of flexibility and liquidity (of a shrunken fund balance) as a serious near-term credit problem that would very likely outweigh any benefit from maintaining any progress on long-term (retiree benefit) funding.”

“I’m not certain of the long-term implications of this,” Hoffmann said, while counseling the continuation of steps to maintain the county’s bond rating.

“I look at this and I say, we’re paying a bill that is due,” Ford said. “This is good, prudent policy. … The longer you defer and the higher the debt becomes … the more likely it is that the municipality is going to raise taxes on the taxpayers in order to clear that debt. It is a debt. If you’re not paying that bill, it is a debt.”

Friday’s meeting was a continuation of a council meeting that began Wednesday morning. Council members were unable to finish the agenda by Wednesday evening because of testimony related to hunting and geothermal issues, and had reconvened Friday morning to wrap up the unfinished business.

Email Peter Sur at psur@hawaiitribune-herald.com.