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Letting the Taxpayer Keep His Money Part of Economic Stimulus

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By Lowell L. Kalapa
(Released on 1/11/09)

We should have predicted it would happen. Creating special funds with various user fees and charges having little relationship to the amount of use or demand for the program or service ultimately will create either an underfunded program or a nice target to be raided.

Indeed the administration’s budget proposal is somewhat predicated on raiding certain special funds provided the raid can pass legal and constitutional muster. While it might appear provident that these special fund excesses are available to shore up the general fund budget for the ensuing fiscal biennium, the use of these funds is an injustice to the taxpayer. Those funds with growing surpluses underscore the very criticism that the structure of the fee or the amount of the user fee bears little relationship to the type of service that was supposed to be rendered or goal established for the special fund that is the beneficiary of the fee.

An example of this is the so-called “bottle bill” fee of six cents per beverage container. The fee supposedly was to encourage consumers to return their empty beverage containers to be recycled. And even though it has turned into a boon for the scavengers who rummage through public waste containers and a fundraising option for schools and charities in the $30 million range; advocates of the fee promised that the fee would rid the streets and sidewalks of discarded beverage containers. However, it is not uncommon to still find beverage containers lying in the gutters and under trees in the park that even the scavengers have missed.

What is more appalling is that over $30 million sits in the coffers of state government doing very little economic good. Some may say, well it is only a nickel, what difference could a nickel make? Well, that may be true for one beverage container, but when millions of dollars are amassed like that, one has to question whether or not that fee is appropriate. Obviously it has not changed the habits or attitudes of thousands of consumers who don’t care about getting their nickel back as they toss their beverage containers into the waste can or on the ground.

Another is the enhanced “911” fee on cell phones which is the 66 cent a month fee on your cellular phone.

Little, if any, of the money has been used for the purpose of the emergency phone system which makes that fund another target to raid.

Many of these special funds are funded with earmarked fees or taxes adopted because advocates of this or that cause don’t want to come to the legislature and “beg” for funding. These advocates believe that if they can get an earmarked tax or fee, they have the money that has been dedicated for their program.

However, if there is no relationship between the service receiving the dedicated funding and the demand for the service for which the fee or tax is being charged, then there is a mismatch of funding and the need for funding. For example, a portion of the tax on cigarettes is earmarked for the operation of the Hawaii Cancer Research Center. Okay, smoking cigarettes causes cancer and certainly we want to stop people from this bad habit. But if the higher tax on cigarettes does reduce the number of people smoking and, therefore, the number of cigarettes that are purchased and consumed, then the amount collected on the sale of cigarettes will fall and with it the amount available to the Cancer Research Center, with operating costs that will likely not track sales.

Another earmarked fee is the one imposed for marriage licenses. A part of that fee is earmarked for domestic violence programs. Perhaps one can make the argument that domestic violence does occur between married couples, but one can also state that one doesn’t necessarily have to be married in order to commit domestic violence.

Unfortunately, these fees highlight the lack of accountability. Once a resource is earmarked for a particular program, there is rarely a review of the funding of those programs. There is little oversight as to where the money is being spent and as to whether or not the fee or tax is producing adequate or excessive resources.

Although elected officials might think that these pots of money are a godsend and can be raided to help pay for programs like education or social services, the point of the matter is that it is money that should have been circulating in the state’s economy. At a time when both the federal and state governments are trying to get people to spend and stimulate demand for goods and services, millions of dollars lay dormant in the state’s numerous special funds.

Lowell L. Kalapa is the president of the Tax Foundation of Hawaii. Mr. Kalapa’s commentary is printed each week in the Maui News, West Hawaii Today, Garden Isle News, and the HawaiiReporter.com.

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