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Make a Strategy to Consolidate to Save Money

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By Lowell L. Kalapa
(Released on 2/1/09)

Hit with the reality of a sinking economy, the state’s Council on Revenues lowered its estimates of general fund tax revenue by about $125 million for the current fiscal year that will end on June 30, 2009.

However, what is even a greater concern is the fact that as a result of a smaller revenue base off of which increases are calculated for the years 2010 and 2011, the cumulative revenue impact will create an additional loss in revenue of more than $513 million.

Going into the latest meeting of the Council on Revenues, administration officials were already grappling with a shortfall of more than $1.2 billion over the three-year period. Thus, the shortfall will now be more than $1.8 billion. This means that lawmakers will have to sharpen their budget cutting knives even more. While the administration has indicated that laying off public employees is the last thing it would propose, there are now hints that public employees may be asked to take unpaid furloughs in order to save approximately $8 million a month.

One alternative that lawmakers might want to explore is the possible consolidation of functions or offices into fewer agencies or offices. Over the years, functions that were administered under one of the 18 departments suddenly morphed into offices of their own, usually under the office of the governor. For example, the Office of Planning used to be part of the Department of Business, Economic Development and Tourism. At that time the department was called the Department of Planning and Economic Development.

Speaking of planning, the legislature decided to take over the redevelopment of Kaka’ako and created the Hawaii Community Development Agency, absconding the planning and development powers of the City & County of Honolulu partly because it was argued that the state had more resources and better coordination of all functions, but most suspect lawmakers wanted to take that power away from the then mayor of Honolulu.

While suggesting such consolidation will stir the ire of those constituents who have a vested interest in some of the free-standing offices, what is the alternative? Lay off public employees or raise taxes? For example, does there need to be a free standing office for the executive office on aging or for that matter a separate office for the status of women?

Of course any suggestion for change from the status quo to something new and different will elicit howls from those who are affected. Just look at the reaction from parents when the superintendent and board of education recommended that the state consider closing schools with dwindling enrollments and consolidate the students from those schools with those of neighboring schools. The response was, “How dare they take our schools from our community!”

And no matter how much money it would save the department of education, parents and community leaders dug in their heels to keep those schools open. But, of course, that was well before the most recent bad news about both the economic and revenue outlooks. Will there be as much opposition when the alternative is no textbooks for the classroom or possibly a four-day week as teachers are furloughed? Given the severity of the decline in revenues, every stone must be turned. Lawmakers must not shrink from the politically unpopular positions if it is essential to saving core public services.

Similarly, lawmakers must make the effort to improve the outlook for the economy with or without economic recovery at the national level. Although they may be tempted to enact some sort of selected incentive, similar to the last economic downturn with tax credits for construction and renovation, they must realize that all businesses and employees will come under the strain as the economy stalls. Such targeted strategies fail to recognize that all types of businesses will be suffering from the dislocations in the economy. Instead of targeted incentives, lawmakers should consider overall relief for individuals and businesses if Hawaii is to survive this drastic downturn in the economy.

So the task before lawmakers will be challenging, if not daunting, as they make spending cuts on the one hand and find necessary ways to not only stimulate the economy, but to improve the business climate for struggling businesses and their employees.

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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