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Members of the Hawai`i County Council <br /> Page 2 <br /> July 12, 2012 <br /> GASB 45 requires certain governmental entities to report the long-standing liability incurred for <br /> other post employment benefits(OPEB), such as health insurance. In reporting the liability, <br /> actuarial estimates are made to calculate its growth, and to provide an annual payment amount for <br /> reducing the liability. The actual funding of contributions against the calculated liability is <br /> optional. <br /> INVESTOR CONFIDENCE <br /> Bond rating agencies issue guidance to local governments on the criteria they consider when <br /> determining their ratings. These documents stress the importance of the flexibility to adjust <br /> spending and the security an adequate fund balance provides. <br /> One of the County's bond underwriters expressed concern about Bill 262, Draft 2, stating, in part: <br /> "I would say,on balance,the rating agencies would take a negative view of this kind of <br /> requirement. This bill would require the County to sweep fund balances...into the OPEB trust <br /> at a time when you would most want to maintain a reserve against uncertainty,ready to be <br /> drawn over several years to cushion the impact of declining revenue or rising costs. Rating <br /> agencies would view the resulting loss of flexibility(and liquidity)as a serious,near term credit <br /> problem that would very likely outweigh any benefit from maintaining progress on long-term <br /> OPEB funding." <br /> The County recently received affirmation of its excellent AA- bond rating from Fitch <br /> Ratings. They were aware that the County administration made a strategic decision to fund only <br /> the current cost for retiree health insurance in fiscal years 2011-12 and 2012-13. If Bill 262, Draft <br /> 2,had already been enacted,the raters would have seen a significant drop in our Fund Balance <br /> from the prior year. <br /> A final concern regarding Bill 262,Draft 2,is its ambiguity in both its precise meaning and <br /> its implementation. The bill refers to "any fund balance",which is not clearly defined. <br /> CONCLUSION <br /> Bill 262,Draft 2,is an ill-conceived, shortsighted piece of legislation that does not effectively <br /> address the fiscal needs of the County of Hawaii. It threatens the excellent credit rating we <br /> have,and is not in the best interest of our taxpayers. I am,therefore,disapproving Bill 262, <br /> Draft 2. <br /> Aloh <br /> William P. Kenoi <br /> MAYOR <br /> Enclosure <br />