HomeMy WebLinkAboutCOM 0734.004 2010-2012 rpl;� +,,'. William T.Takaba
��r Managing Director
William P.Kenoi
Mayor --''t _
Walter K.M.Lau
+••J♦. ' Deputy Managing Director
County of Hawai`i
25 Aupuni Street • Hilo,Hawai`i 96720 • (808)961-8211 • Fax(808)961-6553
KONA: 74-5044 Ane Keohokalole Hwy.,Bldg.C • Kailua-Kona,Hawai`i 96740
(808)324-4444 • Fax(808)323-4440 7
July 12, 2012
-,~�
Members of the County Council - ,:-7
County of Hawai`i
25 Aupuni Street
Hilo, HI 96720
Re: Bill 262,Draft 2—Amending Chapter 2,Article 4,Section 2-12.4,Hawai`i County
Code,Relating to Fund Balance
Pursuant to Section 3-12 of the Hawai`i County Charter, I am disapproving Bill 262, Draft 2, and
returning it to you.
This bill adds a subsection(f)to Section 2-12.4, which requires that any Fund Balance in excess of
$5 million be applied to the post employment benefits account until fifty percent of the"actuary
recommended payment"has been made. After reviewing the bill, I have a number of concerns.
FISCAL STABILITY AND RESPONSIBILITY
The Fund Balance is an important reserve that protects the County from the financial impact of
unanticipated events. It can provide funding for unanticipated expenditures that are not covered
by other reserves, such as the Budget Stabilization Fund and the Disaster and Emergency Fund.
The Fund Balance is a safety net that allows the County to withstand a variety of fiscal difficulties
that could occur. And it is this flexibility that makes the Fund Balance so important to bond rating
agencies and investors, and why the Government Finance Officers Association(GFOA)
recommends that between 10%- 15%of annual operating expenses be available in the Fund
Balance.
The Hawai`i County Code, Section 2-220(b), states:
"The council hereby establishes a policy to accumulate between five to fifteen percent of
the general fund total expenditures based on a combination of the fund balance and the
budget stabilization fund."
This underscores the importance the County Council has placed on having adequate reserves. It is
a policy consistent with the recommendations of the GFOA and bond rating agencies. A Fund
Balance of$5 million represents less than 2%of our current General Fund operating expenses of
$291 million. To limit the Fund Balance to less than 2% in order to make a voluntary OPEB
payment threatens the County's liquidity and is fiscally irresponsible.
Comm. No. 34,
County of Hawaii is an Equal Opportunity Provider and Employer.
Ref.To:
Ref. Date I
Members of the Hawai`i County Council
Page 2
July 12, 2012
GASB 45 requires certain governmental entities to report the long-standing liability incurred for
other post employment benefits(OPEB), such as health insurance. In reporting the liability,
actuarial estimates are made to calculate its growth, and to provide an annual payment amount for
reducing the liability. The actual funding of contributions against the calculated liability is
optional.
INVESTOR CONFIDENCE
Bond rating agencies issue guidance to local governments on the criteria they consider when
determining their ratings. These documents stress the importance of the flexibility to adjust
spending and the security an adequate fund balance provides.
One of the County's bond underwriters expressed concern about Bill 262, Draft 2, stating, in part:
"I would say,on balance,the rating agencies would take a negative view of this kind of
requirement. This bill would require the County to sweep fund balances...into the OPEB trust
at a time when you would most want to maintain a reserve against uncertainty,ready to be
drawn over several years to cushion the impact of declining revenue or rising costs. Rating
agencies would view the resulting loss of flexibility(and liquidity)as a serious,near term credit
problem that would very likely outweigh any benefit from maintaining progress on long-term
OPEB funding."
The County recently received affirmation of its excellent AA- bond rating from Fitch
Ratings. They were aware that the County administration made a strategic decision to fund only
the current cost for retiree health insurance in fiscal years 2011-12 and 2012-13. If Bill 262, Draft
2,had already been enacted,the raters would have seen a significant drop in our Fund Balance
from the prior year.
A final concern regarding Bill 262,Draft 2,is its ambiguity in both its precise meaning and
its implementation. The bill refers to "any fund balance",which is not clearly defined.
CONCLUSION
Bill 262,Draft 2,is an ill-conceived, shortsighted piece of legislation that does not effectively
address the fiscal needs of the County of Hawaii. It threatens the excellent credit rating we
have,and is not in the best interest of our taxpayers. I am,therefore,disapproving Bill 262,
Draft 2.
Aloh
William P. Kenoi
MAYOR
Enclosure