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Having Prudence Will Prevent Repeat Of 90’s

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By Lowell L. Kalapa

“Happy days are here again!” seems to be in everyone’s songbook these days and even politicians seem to be claiming credit for Hawaii’s exuberant economy.

With bodies in every bed, the visitor industry is red hot, fueled primarily with westbound visitors from the mainland. Much of Hawaii’s current fortunes in the visitor industry can be attributed to the misfortunes of 9/11 which put a damper on travel abroad. However, as industry observers have already noted, Hawaii has about reached its capacity to host more visitors. 

Also fueling Hawaii’s red-hot economy is the massive reconstruction of military housing units as well as a resurgence in the upscale housing market and the drive to provide affordable housing for Hawaii’s workers. In sharp contrast to just a few years ago, there are no construction workers sitting on the bench these days. In fact, homeowners often are frustrated by the lack of contractors available to do even the smallest of remodeling or refurbishing jobs. 

The result of this flurry of economic activity is that the state’s coffers are once more overflowing with tax and fee revenues. This, in turn, has set off a spending spree for lawmakers as well as for the administration. Much of this spending is being justified on the basis that it is going toward education. In fact, lawmakers approved spending this past session that will go over the constitutional limit on general fund expenditures. The measure appropriates general funds for the renovation of classrooms statewide to the tune of $160 million. Of that amount, $111 million exceeds the constitutional spending ceiling or is 2.1% over the spending ceiling. 

Having been elevated to the level of the proverbial “motherhood and apple pie,” opposing spending on education amounts to near heresy. But that is not the point! 

When constitutional convention delegates approved and recommended the ceiling on general fund expenditures, it was to insure that state government spending did not exceed the economy’s ability to support government in Hawaii. The constitutional edict dictates that growth in state general fund spending not exceed the rate of growth in the state’s economy. 

The reasoning behind this provision recognizes the fact that as the economy grows, it has the ability to support expanded public goods and services needed by a growing economy. Conversely, it also recognizes that if government grows faster than the state economy and if government growth overshadows the growth in the economy that is asked to support it, the potential for growth in the economy will be hindered because of government spending. 

The last time lawmakers exceeded the general fund expenditure ceiling was during the second term of the Waihee administration as state coffers were filled by the rising balloon of foreign investment in Hawaii. When that balloon burst in the mid-1990’s, lawmakers went from flushing dollars down the toilet to pinching pennies on the sidewalk. They resorted to stealing money from special funds and raising new money from user fees and charges. 

In some instances, programs had to be reduced but hardly any existing program or service was completely eliminated. Because lawmakers resorted to user fees to pay for certain services, these services moved off the general fund list of programs and became special fund financed programs. Over the years, fewer government services that had been paid for with general fund dollars were included in the general fund spending pie. 

The chilling effect is that as lawmakers exceed the spending ceiling once more, it should be remembered that the number of services that were initially subject to the ceiling and those that are now covered by the ceiling are not comparable. Thus, government is truly growing much faster than the state’s economy when one adds those formerly general fund financed programs now funded with special fund fees to those programs currently funded out of the general fund. 

For those who may argue that spending on the renovation of classrooms is justifiable, one has to remember that this expenditure is on top of many other expenditures not related to education. Others might argue that this is a one-time expenditure, so there are no recurring costs. However, as we have learned with other one-time expenditures on capital facilities, maintenance is a recurring cost. 

Elected official across the board need to exercise more prudence or else they will find themselves in a boat similar to the one lawmakers found themselves in the 1990’s. 

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