New Look at Financial Provisions of Constitution Needed

By Lowell L. Kalapa
It has been more than 20 years since Hawaii has had a constitutional convention and now that voters have rejected holding one in the coming year, scholars, observers, and elected officials should take a serious look at reforming some of the financial provisions of our state constitution.

Many interests fear that a constitutional convention would have opened a “pandora’s box” that would reverse some of the achievements made by the 1978 constitutional convention. However, that fear should not prevent taxpayers and elected officials from examining how well this framework for our state government is working in other areas.

For example, a major change made by the 1978 constitutional convention was the way of setting how much debt the state could incur without jeopardizing the fiscal condition of the state. Until that change was made, the state could authorize and issue any amount of bonds equal to an amount that represented three and one-half times the amount of the average general fund revenues collected over the previous three years. Thus, if that old way of computing the state’s debt limit was still in effect today, the state could issue up to roughly $9 billion in debt. That amount would be the principal borrowed.

But concerned citizens back in 1978 saw that as general fund revenues grew, the amount that the state could issue would not reflect the state’s ability to repay that debt in the future. As a result, con-con delegates tied the state’s debt limit to a percentage that the debt repayments represented of the revenues that would be available to repay that debt.

Today, the amount of debt that the state can issue is tied to a limit on the amount the debt service represents of the average of general fund revenues in the past three years. That percentage is set by the constitution as not more than 18.5% of average general fund revenues. As a result, much like a bank would look at your income in determining how much of a mortgage you could afford based on your income, so does the state’s constitutional debt limit.

Although 1978 constitutional convention delegates reviewed and changed the state’s debt limit, they did not alter the limit imposed on county bonded debt. Under the current debt limitations on counties, a county may issue debt in an amount equal to 15% of the county’s net assessed values for real property tax purposes. Under this limitation, the City & County could issue up to $13 billion in bonds, Maui County – $2 billion, Hawaii County – $1.5 billion and Kauai County – $760 million at the end of fiscal year 1995. But thank goodness county officials haven’t gone hog-wild in issuing debt and the amounts issued and outstanding are but fractions of the allowable amount under the constitutional limit.

This generous limitation seemed perfectly all right when it was adopted more than 30 years ago when property values were reasonable, but with the recent inflated land values and demand for housing that has sent valuations soaring, such a limit doesn’t make a lot of sense. Thus, one amendment lawmakers might consider is tying the amount of debt service a county could incur to a percentage of the available revenues, much like the state’s debt limit. This would insure that the county’s “mortgage” payment doesn’t get out of hand and threaten resources needed for day-to-day operations.

While such a change could have been accomplished in a constitutional convention, there are other avenues which can achieve the same goal. The legislature has the power to place a constitutional amendment on the next general election ballot. Thus, a change in how the constitution keeps a lid on the issuance of debt by the county can be undertaken without a constitutional convention.

Next week, we will look at other financial provisions of the constitution that warrant review and perhaps amendment.