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Validity of Budget Cuts Questionable

posted in: Weekly Commentary 0
By Lowell L. Kalapa

Elected officials at both the state and county level seem to be proudly pronouncing that they have trimmed the size of government and in fact, public services have been cut to the bone.

If you buy that story, there is someone who would like to sell you a bridge in this city called New York. During the past budget season, elected officials and administrators held up all kinds of charts and graphs designed to convince the public that government is actually getting smaller. The problem with that is the fine print at the bottom of the page.

More often than not, when state or county officials talk about government getting smaller, they are talking about the general fund budget. In the case of the state, this is the budget that has been traditionally funded in large part by taxes like the income and general excise tax. At the county level, the general fund budget is funded in large part by the collections of the real property tax.

However, as taxpayers have noticed in recent years, elected officials have discovered the “new tax” of the 90’s – the user fee. Indeed in recent years, more and more government functions are being paid with fees that are being charged for specific public services such as licensing, registration, fees to use certain public facilities, and fees to undertake certain types of activities like building permits or vocational licensing.

For example, in the City & County of Honolulu, administration officials proudly show off a bar chart that indicates that the city’s operating budget has declined from well over a billion dollars in the year just closed to just under $969 million in the current fiscal year. But really how much of that reduction will be due to a shift of programs and positions from being funded by the general fund to being funded by special funds. It is hard to tell because these are just budget projections.

But if one were to look at the actual audited financial reports of the city over the past five or six years, the tale is telling. For example, in fiscal year 1993, 68.4% of the city’s revenues came from the real property tax while 31.6% was realized from charges or fees for services. Last year, fiscal 1998, the shift in resources claimed only 62% of the city’s revenues from the real property tax while 38% of the resources available to the city came from user fees and charges. As a result, one can claim that the city’s “budget” is being curtailed if one only talks about that part of the budget that is paid through the general fund.

That would not be true if one were to ask how much the city spends as a whole on all public services regardless of whether it was paid out of real property taxes or user fees. The total cost of government paid out of moneys collected from residents has continued to rise. So just because the revenues are not being taken out in real property tax does not mean that the cost of government borne by local taxpayers has been contained or gone down.

Similarly at the state level, more and more of the state spending plan will be paid out of new and higher user charges and fees. For example, it will cost more to file a conveyance of real property since the bureau of conveyances needs funds to update its recording system. Fees charged by the courts will also increase.

Some may argue that charging those who get a specific benefit from government is appropriate. While that might be valid if indeed the cost of providing the service was truly reflected in the fee charged, that is not the case in many instances. For example, the marriage license fee does not just cover the cost of the recording and filing of the document, but the fee also pays for the domestic violence programs of the state. Similarly, the business registration fees were found to cover more than the cost of running that division of the department of commerce and consumer affairs. In fact, it produced so much money that the division ended up with a $20 million surplus in the first year after fees were raised.

Obviously the division was embarrassed by the surplus, but didn’t want to give up the higher fees so that this year they designed a way to hide the fact by consolidating most other fees levied by the department of commerce and consumer affairs into its “compliance resolution fund.” As a result, businesses will now subsidize other programs of the department like the licensing of Realtors or the examination of banks.

So you thought your elected official was downsizing government? Well, take another look!

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