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Priorities Beg Attention

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By Lowell L. Kalapa
(Released on 5/17/09)

In the final blows of the 2009 legislative session as the battle of the budget and tax increases roared between lawmakers and the administration, it became increasingly clear that neither side of the aisle has a clue on how to set priorities for funding of programs.

For years elected officials swooned over the idea of zero-based budgeting and how beginning at ground zero would help to set priorities for the state’s limited resources. But when pressed this year, the legislature and the administration took two different courses to achieve a balanced budget as required by the state constitution. In the case of the legislature, they scrapped away what spending would not offend any major constituency group and then decided they had done enough to show that they tried to shave spending and resorted in the end to raising more money from tax increases.

The administration, on the other hand, banked on squeezing concessions out of the public employee unions. The mistake was to wait until more than half of the legislative session was over before making it known that was the strategy. This left budget makers in the legislature with little, if any, time to wait on negotiations with the unions to come up with a firm idea of how much in savings, if any, could be cranked into the state budget.

But all of that wrangling is behind us and it is time to move on and take advantage of the opportunity the downturn in the economy and state revenues has provided both the legislature and the administration. Hopefully, both sides will use the interim to construct a measure by which both administration officials and lawmakers can ascertain which programs are essential to the health, safety and welfare of the community and which programs should not be the responsibility of state government.

In the minds of various individuals, this or that program is important, but given the fact that there are insufficient resources, someone has to make some hard decisions about what state government is all about.

Although lawmakers resorted to raising more revenues this year as a way to balance the budget, they must carefully consider the impact that higher taxes will have on the overall economy. Without a healthy economy, lawmakers can expect continued struggles for families and businesses as they try to cope with unemployment, the high cost of living and doing business, and ultimately less than spectacular growth in tax revenues.

Lawmakers and administration officials also need to bite another bullet and that is the practice of earmarking revenues for specific activities or programs of government. Earmarking revenue resources that bear little relationship to the programs they are supposed to fund insures that there is no accountability between the people who are asked to pay the tax or fee and those who will benefit from the proceeds of the tax or the fee.

This is the case with the earmarking of the conveyance tax and the funding of the natural area reserve program and affordable housing that bears little relationship between the demand for either service and the fact that someone bought or sold real property. As a result, there is a mismatch between the needs of the programs that are being funded and the amount of revenues being produced by the conveyance tax. And as lawmakers discovered this year, with such volatility in the real estate market, the beneficiary programs can’t count on a dependable stream of resources to fund the respective programs.

Thus, in times when the real estate market was booming, these programs enjoyed more than enough resources that they were expanded and additional bodies were hired. When the market contracted this past year, suddenly there wasn’t enough money to meet all the obligations that had been engendered by the bountiful resources produced during the good times.

So the response this year was to merely raise the tax rates without any attention given to what impact the higher rates will have on real estate transactions and what those higher tax rates will eventually mean as far as the prospect for job creation and the cost of the goods and services for Hawaii’s families and businesses.

Finally, lawmakers and administrators need to realize the impact of a high tax burden on the state’s economy and on the families of Hawaii. Sure, Hawaii has always had a high tax burden, but have lawmakers ever made the link between the tax burden and the outlook for the state’s economy?

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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