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Neutralizing the Spending Limit Demands Attention

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By Lowell L. Kalapa

     Another constitutional issue that demands attention is the way the limitation on general fund spending is complied with by administration officials and lawmakers.

The 1978 Constitutional Convention was urged to adopt the limitation on general fund expenditures as a better alternative than the popular “Proposition 13” that was catching fire in California. The limit would apply to how much government spends as opposed to the Proposition 13 limit on how much government could raise in taxes. Limiting the amount the government could raise in taxes posed a number of other problems such as the worthiness of the government’s debt capacity.

So delegates to the 1978 Constitutional Convention bought into the limit on general fund spending. The amount of growth that would be allowed was tied to the amount of growth in the state’s economy. The rationale being that if the economic growth was good, that the economy could support a parallel growth in government services. Further, Con-Con delegates wanted to make sure that there was some sort of escape valve for lawmakers should there be a good reason for exceeding the limitation. So, they specified that the ceiling could be exceeded if two-thirds of the legislature approved of going over the ceiling and they gave good reasons for doing so.

While the intent was in good faith, delegates to the 1978 Con-Con could not foresee some of the ways the general fund limitation could be circumvented. However, over the past two decades, lawmakers and other elected officials have found devious ways to get around that limitation.

For example, when the legislature did decide to exceed the ceiling in the 1990 session, they found that it depends on how they made that declaration to go over the ceiling that really counts. The whole idea of making the legislature stand up and declare that the spending ceiling was being broken was to notify the public and put a sharp spotlight on their actions. While in the end the legislation exceeded the spending ceiling by hundreds of millions of dollars, the public and media paid very little attention to the fact.

Why? Because lawmakers decided to make their declaration on each appropriation bill. The result was that the amount each bill went over the ceiling ranged from a few hundred thousand dollars here to a few millions dollars there. The cumulative impact wasn’t known until lawmakers turned out the lights and went home for the year. It is doubtful that lawmakers could have gotten away with going over the spending ceiling by more than $300 million had the public known at the time the money bills were being approved.

The other way the spending limit was circumvented was the creation of special funds with moneys that were taken from the general fund. The most glaring example was the earmarking of the general excise tax for a special fund that would be used to build school facilities. Because building schools and education is something akin to motherhood and apple pie, no one dared to question the fact that the receipts of the general excise tax are supposed to go into the general fund and expenditures from the general fund were to be measured against the constitutional spending limit.

While declining general fund revenues forced lawmakers to rescind that earmarking, no one has questioned the earmarked funds of the conveyance tax which continue to support the rental housing trust fund and the natural area reserve program. Yet funding these programs with what used to be receipts of the general fund flies in the face of the whole reason of having a limitation on general fund expenditures.

Circumventing the constitutional spending limit both in fact and in spirit is one of the reasons why Hawaii state finances are in such disarray. It is one of the major reasons why there is a state government much larger than the economy and the taxpayers can afford.

Both the creation of special funds — and while elected officials would like us to believe that they got rid of the habit, the practice continues funded with the new tax of the Nineties, the user fee — and how the legislature complies with the declaration provision that makes it possible to exceed the general fund spending ceiling demand attention. Whether or not lawmakers and administration officials will want to tie their own hands is another story. But for taxpayers, this is a crucial pocket book issue.

Next week, we will look at another financial provision of the Constitution that warrants consideration.

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