Take Care in Handling That Surplus

Between a robust economy fueled by rising visitor arrivals and frugal handling of state tax dollars over the past two years, the state ended the fiscal year on June 30th with a surplus in the general fund of nearly a half billion dollars.

On one side, the governor is calling for tax relief while on the other side, others are calling for spending some of the surplus on programs or projects that were deferred because there was a lack of funds during Hawaii’s economic malaise of the last decade. So who is right and who is wrong?

Well, both are right. Hawaii continues to rank in the top 10% of states with the heaviest per capita state and local tax burden. On the other hand, as one media observer noted, the deplorable condition of the state’s educational facilities is a disgrace and some of the surplus funds should be spent on repairing and improving these educational facilities.

Both tax relief and spending on deferred maintenance are valid uses of the surplus. But hopefully administrators, as well as lawmakers, will set some of the surplus aside into the state’s rainy day fund to be used for real emergencies should some disaster strike the state. In doing so, lawmakers also need to tighten up the definition of what constitutes an emergency that warrants spending moneys from the rainy day fund. The fund should not be tapped just because there isn’t enough money to fund ongoing programs. 

Similarly, lawmakers should not look at the surplus as a windfall to start new programs that will insure ongoing costs. What we did learn from the decade-long economic slump is that in lean times the state’s economy could not support the plethora of programs that were initiated in the hey day of the Waihee era when money flowed so freely. If nothing else, this surplus should be viewed as an opportunity to explore ways of making government more efficient and responsive. It should allow administrators, as well as policymakers, to take some risks in making changes that will deliver public goods and services with the least amount of cost.

For a state that has pursued the advent of high technology so passionately, it is time for that bureaucracy to practice what it preaches. For example, the department of health, education and human services would be served well if they all communicated on the same computer system with the same software so that many of the kids in their care are not given the same inoculation more than once.

And wouldn’t it be great if teachers didn’t have to spend their own money for classroom supplies because they don’t want the hassle of filing purchase orders and then waiting three or five months to get those materials. Why couldn’t the department of education issue teachers debit cards much like the department of human services uses debit cards in place of food stamps? 

Then there is that labyrinth of securing tax clearances from the tax department, certificates of good standing from the department of commerce and consumer affairs, and certifications from the department of labor when doing business with the state. Just running around from office to office and then to the Internal Revenue Service to get a federal tax clearance can be daunting, if not discouraging. But this is what vendors doing business with the state must do, a task that can take almost a whole day, if not longer, depending on the time of the year.

Why not spend a little of that surplus so that the contracting agency can check electronically whether or not the vendor is current with all state and federal taxes, has complied with the state labor laws and is up to date with its corporate registration. The information provided would still remain confidential, but it sure would save vendors, as well as public employees, a lot of time. Taxpayers seeking these documents for purposes other than doing business with the state would still be required to seek those documents in person in order to insure confidentiality.

Speaking of doing business with the state, a reform of the procurement process is long overdue. Put in place nearly ten years ago to guard against fraud and abuse, the current system appears to have gone overboard, frustrating vendors who many times don’t get paid on time because all the “t’s” haven’t been crossed. And sometimes the state doesn’t pay the bill at all.

Next week we will look at the possibilities for tax relief with the help of the surplus.