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Open Door Left By Earmarking

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By Lowell L. Kalapa

     Perhaps one of the most insidious changes to public financing philosophy at the state level over the past decade is the practice of earmarking receipts for a particular fund or program.

Initially the mechanism presented an opportunity for elected officials to “hide” the money at a time when they really didn’t want the public to know exactly how much money the state was holding. This was the time when the state surplus approached nearly three-quarters of a billion dollars. And who could argue against the purpose? It was for education!

This was the $90 million in general excise tax revenues that was earmarked for the educational facilities special fund. The legislation designated that $90 million a year in general excise tax dollars would go into this fund for seven years. It was projected that between the principal amount and interest to be earned, there would be enough money to build all the school facilities that the state would need into the next century.

Problem with that good intention was that when revenues started to slow, the legislature yanked the plug on the earmarking and took the money back into the general fund. However, the earmarking did accomplish its real goal which was to take the money off the table and hide it out of sight so that the $90 million did not contribute to the ever growing surplus in the state general fund. Unfortunately, hiding the fact that the tax system was producing tremendous surpluses eclipsed the opportunity to reduce taxes.

While the legislature did repeal the earmarking of the general excise tax, there are other examples of earmarking on the books. Although the constituents of these preferred programs or projects that benefit from the earmarked funds think this a great idea, the earmarking of those funds comes at the expense of other worthy public programs. Since the earmarked funds can only be used for the designated purposes, those funds can’t be used for programs like education, welfare, health services or public safety.

Among some of the other examples of earmarked funds is the conveyance tax, some of which is designated for the affordable rental housing program and some is designated for the natural area reserve fund.

Unlike an appropriate special fund or earmarked revenues, there is little relationship between those who purchase property and those people residing in rental housing or preserving the natural areas of the state.

Another earmarked source of revenue is the fees collected from marriage licenses. A few years ago when general revenues began to dry-up, those interested in the problems of domestic violence and child abuse convinced lawmakers to increase the marriage license fee by 50% and earmark the new revenues for domestic violence programs. A couple years later, lawmakers earmarked a part of the fees for copies of birth, marriage and death certificates to be deposited into these domestic violence special funds. And then just this year, lawmakers again raised the marriage license fee so that more money could be deposited into these special funds.

Again, while some might think that earmarking funds is a great idea because it assures that these programs don’t have to go begging for money, it preempts lawmakers from setting priorities on a current basis. It also absolves lawmakers from ever again addressing the problem because the problem has the earmarked source of funding. More importantly, what do taxpayers who have to pay these fees and taxes have to say about how those funds are used?

Lawmakers need to stop and ask themselves whether or not earmarking maintains an accountability relationship between those who must pay the tax or fee and the services provided with the revenues from that fee. In the truest sense, earmarking tax revenues for which there is no justifiable relationship between the fee and the service paid for with those revenues is a heinous violation of public accountability. The earmarking of such sources of revenue like the conveyance tax and the marriage license fee should be repealed.

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