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Gumming Up the Finances of State and Local Government

posted in: Weekly Commentary 0
By Lowell L. Kalapa

Elected officials at both the state and county level bemoan the lack of financial resources to take care of all of the demands made by the public for services and programs.
At both the state and county level, elected officials have resorted to some novel strategies to get their hands on funds that they so desperately want to spend to keep their constituents happy. The most infamous strategy is the raiding of dedicated or special funds. At the state level, lawmakers have resorted to raiding special funds for the last nine years, taking funds that they declare are “in excess” of the needs of the program for which the special funds were collected.
The special funds which were either proposed to be raided or were actually raided to balance the general fund spending plan, ranged anywhere from the animal quarantine special fund to the tobacco enforcement fund to the spouse and child abuse special accounts in the judiciary and the department of human services.
At the local level, the City & County of Honolulu has raided its sewer special fund and utilized highway user tax revenues to shift funds back to the general fund to pay for police officer pay raises. Meanwhile, county officials contemplate a possible increase in sewer fees to fill up the sewer fund again.
It is not a pretty picture when one realizes that there just is not enough money to cover all of the bills on government’s plate without having to resort to extraordinary strategies such as raiding special funds or deferring contributions to the employees’ retirement fund. These actions should serve as a big red flag that things are not well in the house of cards elected officials have created over the years. Unless fiscal discipline is applied, the taxpayers of Hawaii will be in dire jeopardy of disaster in the form of a government that will not be able to pay its bills or the reality that the burner will be even hotter as the heat in tax hell rises with new or higher taxes.
Apparently lawmakers believe that the economy will turn the corner and the state will once again be rolling in dough. The problem is that the level of spending the state and counties currently implement is based on an unusual blip in the island economy that will never return. It was the boom time of the late 1980’s and early 1990’s when foreign investors fed the tax furnace and therefore the fervor to spend like crazy. And government took advantage of the blind foolishness and extracted all sorts of resources from these investors from impact fees for golf courses to permitting fees for the privilege of doing business in Hawaii.
The late 1980’s and early 1990’s was also the time when the legislature imposed the brand new transient accommodations or hotel room tax for the initial purpose of paying for a state convention center. When lawmakers dragged their feet on the decision on where the convention center was to be located, lawmakers took the transient accommodations tax collections and threw them into the general fund that spawned all sorts of new programs and services before they were turned over to the counties.
Once that money went to the counties and the funds that had been stowed away in special funds from the huge surpluses of the 1980’s had been spent, state government plunged into a decade-long struggle with finances. Not only did the weak economy put a damper on state finances, but then lawmakers thought they could jump start the economy with all sorts of tax incentives which further drained the state treasury.
Similarly at the county level, when the TAT windfall rained down on the counties they used it to allow county officials to avoid raising property tax rates on residential property while keeping higher rates on non-residential property.
The point of the matter is that tax revenues are not going to recover any time too soon. However, if elected officials want to avoid defaulting on bills coming due, like debt service on bonds issued by the state and counties, then elected officials will have to bite the bullet and begin to set priorities for those limited state and county tax dollars. Cutting expenditures is never a pretty sight and, yes, there will be those who will rant and rave that spending cuts will impoverish the future of our community.
However, unless those spending reductions are made, all of us as taxpayers will end up being impoverished as elected officials dig deeper and deeper into our pocketbooks to pay for programs that we can well do without. The question is whether or not elected officials will have the political will to make those spending cuts to return fiscal integrity to our government.

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