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Understanding What It Will Take to Right Size Government

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By Lowell L. Kalapa
(Released on 10/4/09)

Recognizing that taxpayers can no longer afford the government we have here in Hawaii, calls for restructuring state government have been made in response to the current financial crisis.

While some may be envisioning the change as a restructuring of state government, for taxpayers the effort should be called right-sizing government to a shape and form that taxpayers can afford and for which they are willing to pay. In order to make a good call of what size and shape is “right-size” taxpayers, as well as government leaders, need to know exactly what the current size of government is.

The problem in discerning just how large is government is the fact that so many programs are hidden from plain sight, disguised with funding sources that are not readily apparent. This is because those programs are underwritten with special funds that may be funded with taxes the proceeds of which are earmarked or with user fees and charges which only a select constituency pays. As a result these programs are not “on the table” so to speak because they do not compete with other programs since they have their own special source of funding. For example, domestic violence programs get funding from the marriage license fee while a portion of moving violation fines is designated for a neurotrauma program. Thus, unless both general fund programs and special fund financed programs are put on the table, neither public officials nor taxpayers will know the true size of government and just how much of it is coming out of the pockets of taxpayers, both residents and non-residents. Only when all programs are lined up against one another can we really begin to ask the question of which programs and services are truly essential to the health and safety of the community.

The State Auditor already is tasked with determining whether or not a particular special fund is appropriate based on the nexus between the beneficiary and the person who is asked to pay for that program. All special funds that have been deemed to be inappropriate should be the first to go and the question needs to be asked as to whether or not the service that was paid for by that special fund was really a function of government.

Then there are those taxes that have been earmarked that were once were receipts of the state general fund. Among these are the cigarette tax and the conveyance tax on real estate transactions. The earmarking of these taxes has created special interest constituencies who don’t even pay the tax but like getting the benefits. As a result, they keep on urging lawmakers to continue raising these taxes to the detriment of either those who do pay these taxes or to the stability of these tax resources.

Some actually make no common sense. For example, a portion of the tax on cigarettes is earmarked for the Cancer Research Center. Meanwhile anti-smoking advocates claim that a higher tax on cigarettes will discourage smokers from continuing to smoke. Okay, so if the goal is to stop people from smoking, there go the resources to fund the Cancer Research Center. If support for the Cancer Research Center is so important to the community, then it should be funded out of general funds so all taxpayers know where their taxes are being spent. Using earmarked funds that have no relationship to the function being funded allows taxpayers, as well as policymakers, to abdicate their responsibility to insure such programs are supported.

What it all comes down to is a matter of setting priorities for what limited resources taxpayers can afford to pay for state government programs and services. Until the current crisis, lawmakers and other public officials, as well as union leaders, looked at taxpayers as the bottomless barrel. If there were not enough revenues, just dream up another tax or fee to collect even more money.

But that scenario has put the state in its current predicament of too many programs, too many public workers and not another source that can be tapped to keep the behemoth called state government going, that is without destroying what tattered economy Hawaii has left. So as Hawaii rolls forward with another legislative session on the horizon, a list of steps to “right-size” state government must be assembled. Taxpayers cannot wait for lawmakers to come back into session only to watch them squirm in an attempt to reshape state government in the 60-day session. No, the work needs to begin now. Decisions need to be made about which ways are best in bringing back state government to within the taxpayers’ ability to afford that government.

To stall in making this paradigm shift will mean the task will be all that more painful when right-sizing state government.

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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