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Giving Up Flexibility One of the Losses of Earmarking

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By Lowell L. Kalapa

One of the measures winning legislative approval this year will earmark what would have been general fund revenues for a specific project. In this case, it is the receipts of the public service company tax imposed on cruise ships, or let’s say on future cruise ships which are destined to ply the waters of our state. The money will be earmarked for the purpose of building new and upgrading existing cruise ship facilities.

Indeed the proposal had a lot of support from every corner of the state. There were Neighbor Island business groups who see the inter-island cruise business as one more boost to their visitor market, then there were the other water carriers who transport cargo between the islands and from outside the state and, of course, transportation officials.

One would think that with this kind of broadbased support, this is a great idea – that is to earmark revenues from a tax that will be paid by anticipated cruise ship business in the state for the purpose of building facilities that are dedicated to cruise ships. In short, the rationale being that cruise ships would pay for facilities that they would use. But is this such a good idea from a public financing point of view?

Let’s take a look at this idea from the beginning. With the local interisland cruise ship business about to expand with a new ship, officials see the potential for new activity on the waterfront. The harbors are largely financed from wharfage and docking fees paid by the users of the port facilities followed by rental income of facilities which service the docked ships and boats. It is a self-contained system that pays for improvements and maintenance of the facilities used by ships.

After a study had been conducted by a consultant to the department of transportation forecasting the future needs of the harbor program and the potential the cruise ship business held for the state, the department pursued various strategies to finance the improvements that were recommended by the study. Well, the most obvious choice was the current source of revenues, docking and wharfage fees.

Indeed, the state harbors division floated the idea late last year before a meeting of county officials arguing that the increased need would not amount to more than a few pennies on a bag of rice. Well, that didn’t sit well with cargo shippers and consumers. After all, the money that would be raised from higher wharfage and docking fees would largely benefit cruise ships as the proposed facilities would be dedicated solely for cruise ship use. Thus money raised from all harbor users would benefit only a few.

By the time the legislative gavel convened the 2000 session, the wharfage fee increase was out the window and the proposal that eventually gained approval was on the table. Under the provisions in the bill, public service company tax revenue generated by cruise ship business over and above what is currently generated by cruise ship business would be earmarked for the harbors and boating special funds. The argument in support of the proposal is that this is money that is not currently being realized by the state anyway, so why not designate those funds for cruise ship facilities?

Well, from the cargo shippers point of view, the earmarking of public service company tax revenue doesn’t affect their operating costs. For the Neighbor Island promoters, any solution to getting money to build cruise ship facilities was a bonus. So why not support this approach?

This is money that should be going to the state general fund where lawmakers decide from year to year what they priorities are for the community. Gone is the flexibility of future lawmakers to decide if there are other pressing needs for those dollars. In fact, it is interesting to note that the final bill enumerates just how many dollars will be earmarked each year for the harbor and boating special funds out to the year 2025.

Proponents of the bill argue that lawmakers will still have to appropriate the money. What they fail to point out is that once the money is earmarked and put into a special fund, it cannot be used for anything else. So unless a future legislature decides to raid the harbor special fund, those earmarked dollars can only be used for the designated purpose.

So while education and welfare programs go begging for lack of resources, moneys will be set aside for cruise ship facilities.

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