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Millions In Surplus Tempting For Lawmakers

posted in: Weekly Commentary 0
By Lowell L. Kalapa
(Released on 01/21/07)

The opening shots in the spending race were fired earlier this month when the state director of budget and finance presented the administration’s spending plan to lawmakers.

With more than $720 million in general funds remaining at the end of the fiscal year, June 30, 2006, the state surplus is a tempting target not only for lawmakers but for administrators as well. Indeed, the administration proposes spending $10.4 billion in general funds over the next two fiscal years – 2008-2009. General funds will account for over half of the total operating expenditures of the state during that period. The fiscal year 2008 spending plan represents a nearly 5% increase over fiscal year 2007, and over a 2% increase for the fiscal year 2009 over 2008.

Justification for the growth in expenditures follows the usual litany of critical state programs such as, “public education, workforce development, health and human services for those most in need, affordable housing, protection of natural resources, a modernized transportation system, increased emergency preparedness, energy efficiency, and infrastructure rebuilding.” No doubt, it is hard to argue against funding what appears to be basic needs and services our community desires. Certainly the devil is in the details which will unfold as the session progresses.

What should concern taxpayers is the administration’s proposal to increase the number of permanent positions in state government as a result of these expenditures. For fiscal year 2008 the administration’s budget proposal calls for a net increase in permanent positions of more than 850 while that number would increase to more than 1,000 additional positions for fiscal year 2009. Although some of those positions will be funded by special funds, federal funds and other trust and revolving funds, the bulk will be funded with general funds which are your tax dollars.

Of the total new positions for FY 2008, 503 are to be funded with general funds while 635 of the thousand some odd new positions for FY 2009 will be funded with general funds. The greatest number of additional new positions for each of the fiscal years will be for the University of Hawaii to implement its strategic plan for higher education. Of the total number of additional new permanent positions, there are just over 350 “positions” which were temporary that are being converted to permanent personnel. While the payroll costs of these additional, permanent positions are of immediate concern, taxpayers should be even more concerned about the long-term cost as a result of fringe benefits such as retirement and health benefits. In fact, the administration notes with concern that fixed costs, such a debt service, payroll and fringe benefits, continue to rise and account for a significant share of the budget. In its presentation of the budget, the administration also highlights the critical issues regarding the unfunded liabilities of the employees’ retirement system and the employer-union health benefits trust fund.

Although the administration’s budget proposal remains well below the constitutional limit on general fund expenditures, it is this expansion of positions that should raise a red flag about the potential demand on the state’s future general fund resources. Adding additional positions will, in the long run, place growing requirements on tax resources.

The administration admits that the current general fund surplus is due in large part to the booming economy and in some part to its prudent handling of state expenditures. But at the same time, it draws attention to the fact that the economic wizards on the Council on Revenues are signaling that the state’s economy is beginning to slow. However, it doesn’t seem that the economic bellwether has dampened the enthusiasm to spend those precious general fund dollars over the next two years as evidenced within the administration’s budget proposal.

For lawmakers, this economic warning that the economy is beginning to slow is being used more as an excuse not to provide substantive tax relief than it is to rationalize the trimming of expenditures. This seems almost like an instant replay of the early 1990’s when lawmakers then were told that the economic bubble was about to burst. Lawmakers, as well as administration officials, back then went merrily on their spending way ignoring the economic warning signs.

Will the current economic exuberance and the resulting general fund surplus once more tempt the elected officials to fritter our precious tax dollars into a big black hole? Hopefully, this time around lawmakers will be reminded to exercise prudence and due diligence to insure that we can maintain public programs and public services while sustaining the economy.

While many of the public programs and services noted by the administration are important to our community, lawmakers should put economic sustainability at the top of the priority list this session. 

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