(Released on 5/18/08)
Now that lawmakers have gone home for the year turning their attention to their reelection, taxpayers can turn their attention to other issues as politicians gear-up their campaigns.
In the coming few months, voters will be cajoled by one side or the other over the question of whether or not the time is due to hold another constitutional convention. The venerable document known as the state constitution forms the basis for all of the laws that govern our community here in Hawaii. It sets the overall vision the people have for their community and sets the broad direction for the state for years to come.
The last constitutional convention held nearly 30 years ago in 1978 virtually set a new course for the state and established new policies, some of which policymakers have been struggling with for years. Many financial issues faced state and local government during the difficult years of the 1970’s. For example, in California Proposition 13 was passed in an attempt to limit taxes. In other states there was a threat of bankruptcy as governments overstepped their financial capacities by issuing debt far in excess of their capacity to carry that debt while other communities attempted to establish public-private partnerships to provide the services needed by their communities.
In Hawaii, the response to those problems and concerns of the 1970’s resulted in the people of Hawaii adopting a control on how fast state government could grow relative to the growth in the state’s economy. This limit on state debt took into account just how much of the state’s budget could go for the mortgage payment. It included the adoption of special purpose revenue bonds which allowed the state to issue bonds on behalf of private companies that provided services that benefit the public good, such as the provision of health care and energy. To resolve a problem that sometimes put the administration and the legislature at odds in drafting the state’s spending plan, voters approved an independent body, called the Council on Revenues, to forecast the revenues of the state by which all branches of government must abide.
The 1978 constitutional convention also responded to pleas from the counties that in order to be financially independent, they should be given complete control over the real property tax. Until that time, the state legislature set the policies of the real property tax, such as who got an exemption from the tax, how large the home exemption should be, how real property should be valued, and how the tax was to be administered. The sole responsibility of the county was to set the tax rates.
The counties told constitutional convention delegates that if given complete control over the real property tax, the counties would never bother the state for financial aid in the future. Thus, the convention asked voters to approve turning over the real property tax to the counties. However, despite the voters’ agreement, the annual county request before the legislature continues and they come on bended knee for state financial assistance.
A provision that continues to irritate lawmakers is a mandated refund of general fund surpluses that exceed 5% or more of the average revenues realized over the prior three years. This has forced lawmakers to acknowledge the tax system imposes an undue burden on taxpayers to the point that it produces more than is needed to operate state government. While the validity of this provision is always debatable, especially when lawmakers provide only a token refund of a dollar per taxpayer as they did this year, one has to admit that the mandated refund does create the awareness of just how much money taxpayers are asked to give up to state government.
Over the past 30 years, taxpayers have come to learn that while well-intended, some of these fiscal provisions of the state constitution have been circumvented by lawmakers, such as the constitutional spending ceiling and the mandated tax refund. No one imagined that special funds could be created to get around having to account for the size of a growing state government. Nor did they foresee that state spending could take the form of back door spending called “tax credits.” Or for that matter, that the counties would continue to depend on the state for handouts while shrinking from their responsibilities to fund county government out of the real property tax.
In the coming weeks, we will look at financial issues that could be addressed by a constitutional convention and alternative solutions to these issues.