Friday, November 4, 2011

The Scariest Halloween Story: The Debt per Hawaii Resident

I am particularly jittery with the financial maelstrom in Greece, but our own back yard in Hawaii seems to be in a very bad financial condition.

Take a look at this article: Hawaii State Liabilities Climb by 60 Percent in Two Years; Expert Calls the News 'Shocking'

So the Hawaii State Health Fund liability comes to ... "a total of $14.0 Billion. (These numbers are for July 1, 2009)" and likely much higher right now. The article does not cover the government employee pensions liability which takes this total to over $23 Billion.

Budget & Finance Director Kalbert Young: "Credit downgrades impact taxpayers because they translate to higher interest rates and borrowing costs. As a result, taxpayers will have to pay more for government or they will have to accept a larger portion of their taxes going towards debt."

Actually his statement sounds like a single blow although it is really a quadruple blow to us:
  1. We need to pay more taxes so we'll have less take-home income.
  2. More of our taxes must go to pay down the debt and less will go to services and infrastructure maintenance and expansion.
  3. The lower bond rating and the corresponding higher finance charge means that the same infrastructure projects will cost more.
  4. In addition to their direct impact, points 1, 2 and 3 combined mean fewer jobs because we will have less to spend as individuals and families, have less to spend on projects, and less to pay for services.
To sum it up, the two major state liabilities combined (that is, health and pension which are constitutionally promised to government workers) mean that each person in Hawaii now owes more than $50,000. Then there is the federal debt which is approaching 15 trillion dollars. Simply divide by 330 million for your own share of $45,500.

But wait! The City and County of Honolulu has signed a Consent Decree with the EPA to fix its sewers and provide Secondary Sewage Treatment. The cost is no less than $4,500 per person on Oahu.

I bet you did not know that today you carry a "mortgage" in the amount of $100,000 (and climbing). But in reality only about a third of people pay substantial taxes and it is these same people that will shoulder this burden. A household with two high income earners (say a combined income of about $150,000) and two kids should face a "mortgage" of roughly one half million dollars. Lucky, you now "own" a second unit in Hawaii!

Right now in Hawaii, the only uku-billion project that is discretionary and deletable is the rail. If rail gets into construction, it will cost well more than seven billion dollars and open a hole to sink tens of millions of dollars for annual operations. And don't forget this: Given how tough things are going to get for us, a dollar spent on rail is a dollar not spent on a number of other far more critical needs.

Trick or Treat?

I am five days late relative to Halloween, but that shouldn't be a big problem. This scare will last our lifetimes.)

John Pritchett's Hawaii's Unfunded Liabilities cartoon: