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Kicking The Can Won’t Solve Budget Problems

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By Lowell L. Kalapa
(Released on 1/9/11)

As noted earlier, the new administration promised as part of its campaign rhetoric to restore public employee pay and eliminate “furlough Fridays” and more recently promised to bring back all those who are incarcerated on the mainland. This all against a backdrop of another looming budget shortfall.

So, one might ask, how can these incongruent promises versus fact be reconciled? Where is the new administration going to find the money to accomplish all those campaign promises? Rumor has it that the money will materialize when all the vacant positions in government are eliminated. While this may just have to happen over a period of time, immediate elimination of ALL vacant positions will only result in bringing state government to a grinding halt as employees are already complaining that they are overwhelmed with the added work burden.

But putting added work loads on remaining employees does not have to be. If state government is willing to invest in new ways of delivering those important and essential government services, changing how those services are delivered is crucial. Again, it should be noted that the Auditor has recommended that the state update and modernize its information technology system and utilize a single system for all departments. Doing so could relieve the work burden for employees who still record or document services with pen and paper and then store them in endless miles of filing cabinets.

And while state administrators believe that they can trim expenditures to address the multimillion dollar shortfall, they should also remember that expenditure of public dollars is not limited only to the dollars that lawmakers appropriate through the state budget and other spending bills, but expenditures also take place out the back door with the use of tax credits and tax incentives.

Last year, lawmakers in the House proposed eliminating exemptions granted under the general excise tax and to begin taxing those exempt activities, albeit at a lesser rate of one percent. While lawmakers attempted to cut off the high technology tax credits, their efforts were turned back by the administration. Well, those credits expired at the end of last year. However, the “hangover” of those credits will persist for another four years as the credit is claimed over a five-year period following the initial claim. And there still are a number of tax credits available to taxpayers including the ethanol facility tax credit and the renewable energy credits, not to mention the credits to encourage digital media and filming in Hawaii.

Before lawmakers jump on the bandwagon of eliminating general excise tax exemptions by imposing the tax on those activities that are currently exempt, they should evaluate whether or not the tax incentives currently on the books are necessary and whether or not they should be unlimited in size and scope. At least the film tax credit is limited by an absolute dollar amount, but it is still not clear as to what is a qualifying production. Is it a single episode of a television series or is it the entire season of episodes? In any case, if the general excise tax exemptions are going to be on the table, so should tax incentives which have yet to be proven to be effective.

Finally, it is time again that officials look at the overlap and duplication of services and responsibilities between the state and county governments. While public officials looked at this issue beginning back in 1974, very little has been done to effect some of the recommendations that have been made to eliminate duplicate services. By far the most glaring duplication of services is in the area of roads. Repair and maintenance of the highways is basically identical, pour the asphalt, smooth it out, paint the stripes, why should there be work crews doing the same thing at both the state and county levels?

Going beyond that, what about services that are currently being provided by the private sector such as janitorial and yard maintenance services? Could these not be done more efficiently by a private contractor who, if they were not doing a good job, could be fired and another contractor hired? To those who would argue that this would mean the elimination of jobs, one needs to remember that those private contractors will need workers who know how to service the new contracts secured from the state and counties.

The savings realized would be in the cost of overhead, the unwieldy and inefficient civil service system, and unfunded liabilities of pension and health care benefits. Yes, it is possible to address the budget shortfall without raising taxes! As one local economist opined about the national situation, this is the worst time to raise taxes.

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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