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High On The Agenda: Amend Spending Limit

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By Lowell L. Kalapa
(Released on 10/17/10)

More than thirty years ago amidst the clamor of Proposition 13 in California, the delegates to the last state Constitutional Convention thought it would be prudent to contain the growth of government within the means of the community that is asked to support it.

News of the precedent setting limitation on increases in real property taxes by the adoption of Proposition 13 in California stirred Con-Con delegates to consider slapping a similar hold on state taxes as delegates knew that Hawaii is one of the highest taxed states in the nation. It was this heavy burden of taxes that delegates believed drove spending to unprecedented heights during the fledgling years of statehood. Now that much of the state’s infrastructure was in place, delegates questioned whether that burden was stalling economic growth.

Thus, it was out this concern that Con-Con delegates turned their attention the growth in the state’s spending. Since nearly all of the programs in the state, except for transportation activities, were funded out the state general fund, delegates sought to limit the amount of general fund spending to the growth in the state’s economy. They reasoned that, unlike Proposition 13 which limited the growth in real property taxes to a set percentage, growth in state general fund spending should be allowed to grow at the same pace as the growth in the economy that produces the tax revenues to support that spending.

That was a reasonable assumption, at least back then when all spending occurred through the state general fund except for transportation activities such as airports, harbors, and highways that were funded through their respective special funds because the federal matching funds dictated that those resources had to be held in a special fund. Thus, the 1978 Constitutional Convention adopted a limit on general fund spending that provides that growth in spending could not exceed the growth in the economy.

And the legislature pretty much abided by that constitutional provision through much of the following decade until the end of the 1980’s when the general fund surplus began to swell due largely to the new transient accommodation tax that was supposed to have been earmarked for the construction of the state’s convention center but instead went into the general fund because no site had been agreed upon. Of course, lawmakers and the administration at the time didn’t want to give the growing general fund surplus back to taxpayers. So enter the birth of the special fund.

Initially lawmakers tucked general funds into these newly created special funds, but when the economy went south they raided these special funds in order to keep general fund programs funded. But the concept of special funds flourished allowing lawmakers to fund additional programs and services through these special funds by enacting or adopting new fees and user charges. In some cases existing general fund taxes were increased and the amount from the increased rates went into these special funds. None of the delegates nor the staff at the 1978 Constitutional Convention ever dreamed that lawmakers would be able to grow the size of government by setting up these special funds, but that is just what has happened.

So while the Con-Con delegates didn’t want the growth of government to get out of hand by imposing a limit on the growth in general fund expenditures, they never counted on the accounting chicanery lawmakers devised with special funds. What would be interesting would be to fold special fund expenditures back into the general fund and figure out just how large state government has grown in the past two decades.

What taxpayers will find is that state government spending by all funds, except those special funds established for transportation programs, has exceeded the growth in the economy over the past thirty some odd years since the constitutional spending limit was adopted. Much of that additional spending came at the expense of higher taxes and new and increased user fees which again means less capital in the private sector to grow the economic base and create the jobs that we need.

Taxpayers should demand that we bring state spending back under control as it is obvious that our state leaders do not have the discipline to set priorities for our tax dollars. The constitutional spending limit should be amended to apply to all expenditures other than those from the transportation 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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