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What Happened to That Surplus?

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By Lowell L. Kalapa

During the campaign last year much to do was made about how much money the state had “in the bank” as measured by the state general fund surplus.

Indeed, at the end of the 1998 fiscal year there was a surplus of just over $150 million. No doubt about that, but how that surplus came about is another story that bears telling for it indicates that not everything is as it appears to be. One of the major omissions or perhaps oversights in reporting that surplus is the fact that a good part of it resulted from transfers from the state highway special fund.

Now, officials might claim that they have been transferring balances from special funds for years and there is nothing wrong with taking money from the highway fund. After all, they claimed, the state highway fund has a huge surplus. Indeed, the law prescribed nothing to prevent the taking of the money, only that enough money be maintained in the highway fund to see it through the next year.

So what’s the big deal? Well, first of all, that highway money was “contributed” by highway users for the purpose of filling the pot holes and repairing the bridges and guard rails that prevent accidents and make the ride smoother. By transferring those moneys to the general fund, those dollars now go to pay for schools, feed prisoners at the correctional facilities, and general assistance for the poor.

If there is no intent to spend that money on the state’s highways, then why even dedicate the state fuel tax and the motor vehicle weight tax to the highway fund? Will the highway user know that every time he fills his tank at the gas station that he is paying for schools? And what will the highway user say when the pot holes aren’t filled or guard rails aren’t replaced?

Oh, but they said there was a surplus in the highway fund, so those pot holes will get filled and the streets will be repaved. Well, there are two responses to that point. First, if there is a surplus, then shouldn’t lawmakers lower the gas tax so the cost of gasoline would not be as high? Second, if there is a surplus, then why is the state administration’s budget document projecting a $69 million deficit in the state highway fund by the end of the year 2003? That’s right, according to the state’s own budget projections, the state highway fund will be “broke” in three years. So much for a surplus in the state highway fund.

What is even more unacceptable is the deception that the general fund actually produced a surplus on its own. That is general fund revenues were sufficient to cover general fund costs. The message was don’t worry taxpayers and voters, everything is A-OK. We have enough money to cover the cost of government! In fact, the opposite is true. By stealing money from the highway fund and pretending that those are general fund dollars, allows public officials to continue spending like there is no crisis when in fact there is one?

By having a “pretend” surplus, public officials didn’t have to make the real hard decisions of cutting government spending or in the alternative, presenting the question to the voter/taxpayer that taxes have to be increased. So everybody didn’t have to worry, everybody could be “happy.” Public programs didn’t have to be cut, taxes didn’t have to raised. What more could voters ask for?

Well, the harsh reality is coming home to roost. Now officials are fessing up to the fact that indeed the state will be faced with serious red ink in a couple of years. However, the “excuse” is that revenues will not materialize not because the economy is bad, but because taxpayers got a reduction in taxes.

Now let’s think about that logic again. Let’s see, taxes were so high in Hawaii that officials had to cut taxes and as a result of cutting taxes, there isn’t enough money to pay for all those public programs. So it is all the taxpayers’ fault that the state will go into red ink, because taxpayers thought the tax burden was too high. Let’s not even talk about the fact that perhaps some of the public programs should never have been funded in the first place or that all those positions that were created back in the early part of the decade are really necessary.

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