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Underscore Need to Balance Competing Interest

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By Lowell L. Kalapa
(Released on 10/18/09)

As the state muddles along against a backdrop of depressed revenues, now is the opportunity for elected officials to set priorities for what limited resources there will be in the near future.

Up until now, most elected officials viewed the possibility of going on a spending diet with cynicism, if not denial, that such a day would ever come. As a result, they continued to spend on their merry way wanting to satisfy the increasing demands from their constituents. After all, isn’t that the job of an elected official, to keep the constituents happy so that they will be reelected? And when they ran out of resources from the obvious sources called taxes (well they didn’t really run out, they were just too afraid to offend taxpayers for fear they, taxpayers, might actually get mad and lash back at the polls) they resorted to other “undiscovered” sources like user fees and charges. They figured no one would notice.

In other cases, they raised specific taxes that only a few taxpayers might notice. And when they had to take those funds back to bail out the general fund, they raised rates even higher. One of the most amusing attempts to pull the wool over the taxpayers’ eyes is the increase in the cigarette tax. When times were good, lawmakers raised the tax on cigarettes in the name of discouraging smokers from continuing to smoke. When certain groups came pleading for funding like the Cancer Research Center, the tax was again raised and

earmarked for the Cancer Research Center and community health centers.

But when times turned bad, lawmakers again raised the tax to shore up the general fund. What they do not realize is that the rate of tax has finally reached the point of no return. With the tax rate so high, the strategy to discourage smokers from continuing to smoke is beginning to work as smokers contemplate quitting, while others have found sources where the tax can be avoided. The result is consumption is beginning to decline. Thus, even with rate increases, the amount of revenues from this source may actually go down, if not level off. Those who are counting on growing revenues will find their pockets less full than they would be.

However, what is more disconcerting is that when programs receiving earmarked taxes or special user fees experience a decline in resources, advocates for those programs will be back asking for more resources.

The problem with that is that many of these programs have specific audiences and constituencies and probably could not garner enough support to be funded out of the general funds of the state. As a result, they were given specific earmarked resources, such as earmarked taxes or user fees. Thus, it will be difficult for lawmakers to find additional funds for these programs or services.

This is where both taxpayers and policymakers need to ask whether or not this particular program or service is really the responsibility of state or county government. The current fiscal dilemma underscores this question. For example, is it government’s responsibility to provide after school care when there was a whole network of providers before the state’s A+ after school care program was established? Sure, now there is a program where all parents can send their children for care after school, but should all taxpayers subsidize that program – and subsidize that program at the expense of, say, after school athletics?

Another example is the beverage deposit program which was supposed to encourage consumers to recycle their used beverage containers all in the name of cleaning up the environment. This boondoggle amounts to nothing more than another state bureaucracy that is sitting on millions of dollars. The nickel per container refund is not encouraging a behavior of recycling and respect for the environment as much as it is a financial reward or at least getting even by getting one’s nickel back. And consumers don’t really get all their money back as a penny of what is collected is kept and turned over to those who have to administer the program.

Then there is the plethora of other environmental programs from environmental assessment requirements to a whole new program for inspection for invasive species. New fees fund the latter program, fees that are hidden in the cost of everything imported into and exported out from the state. While such a program may be critical to preserving Hawaii as we know it, why is it not a high enough priority to be funded out of the current sources of revenues?

And that’s the root of the problem that government faces in Hawaii, the inability to set priorities for what limited resources there are and the inability to maintain the balance between “nice to have and need to have.”

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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