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Bumping The Spending Ceiling

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By Lowell L. Kalapa

Back in 1978 when Hawaii had its last constitutional convention, delegates grappled with a number of fiscal issues and adopted provisions that they hoped would help to stem the rising tide of taxes and spending in the 50th state.

It was the same year that disgruntled taxpayers in California went to the polls in droves and adopted the infamous Proposition 13 that limits the amount of annual growth in property taxes. Seeing the shortcomings of Proposition 13, delegates to the Hawaii constitutional convention wanted to find another way to control the growth in the size of government.

The result was a pair of provisions that delegates hoped would help contain the size of government and make sure taxpayers paid attention to the burden of taxes state government imposed. The first provision attacks the growth of government from the spending side as opposed to the revenue side which is what Proposition 13 does. In doing so, it avoids the numerous problems a revenue cap creates such as the inability to issue debt because bond buyers are less than confident a government can repay its debt if it can’t raise the necessary funds.

The provision basically limits the rate of growth in state general fund appropriations to the rate of growth in the state’s economy. The reasoning for tagging state spending to the rate of growth in the state’s economy is that government should not grow any faster than the economy that has to produce the revenues to support that government. Conversely, if the economy grows, then government services necessary to support that economic growth would be permitted.

The constitutional provision left the definition of the growth in the economy up to the legislature which subsequently provided that the growth in the economy would be measured by the growth in the state’s total personal income. Total personal income was chosen because not only does it take into account real economic growth, but it also accommodates inflation and growth in population. 

Although the provision is commonly referred to as the state “spending limit,” it is not a provision that is written in stone. The constitutional provision allows the limit to be exceeded if a declaration is made outlining the amount by which the limit will be exceeded and the reasons why the limit is being exceeded. In the case of the legislature, no appropriation that exceeds the limit may be made without a two-thirds vote approving that appropriation.

While the spending limit has been in place for more than 25 years, the limiting factor has been more a lack of revenues as evidenced during the 1990’s when tax collections hit a slump. In times when there has been a plethora of revenues, government officials have chosen to ignore the spending limit. This was the case in the late 1980’s when the state general fund was awash in money. Neither the administration nor lawmakers hesitated to consistently exceed the general fund spending limit. 

Now that the state is once again rolling in the dough, it appears that the spending limit will be exceeded once again. In submitting the administration’s budget, the governor makes note that the spending limit will be exceeded by $48.2 million (or 1.1%) for the current fiscal year and by $103.6 million (or 2.1%) for the next fiscal year. The reasons given by the governor are that there are “substantial costs of mandated services, social assistance entitlement, support for public education, major repairs and maintenance needs statewide and other critical requirements.”

The question is what are critical requirements and substantial costs of mandated services and is there a way to accommodate those critical costs but not fund other costs which may not be crucial to the health, safety and welfare of the community? Just because the state is flush with cash should not give rise to going over the constitutional spending ceiling. And if the ceiling is to be exceeded, those costs should not be on-going programs or services because when revenues plummet, something will have to give or else lawmakers will resort to the strategy they did during the 1990’s when revenues dried up.

The whole issue here is fiscal discipline. Living within one’s means should be the guideline here as it was intended by the 1978 constitutional convention. It is not like the state just suffered an unexpected disaster or some sort of economic downturn requiring the state to take action.

If the intent and the spirit of the constitutional mandate is to have any meaning, then action needs to be taken to keep the state spending plan within the constitutional spending ceiling. 

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