SUBJECT: MISCELLANEOUS, Diversion of Penalties to Create a DLIR Special Fund
BILL NUMBER: SB 2801, CD-1
INTRODUCED BY: Conference Committee
EXECUTIVE SUMMARY: The bill as introduced mandates that the collections of civil fines and penalties be deposited into a new enforcement special fund. This would reduce transparency and accountability by bypassing the normal appropriations process.
SYNOPSIS: Adds a new section to HRS chapter 371 to establish the labor law enforcement special fund. States that the purpose of the fund is to provide for sufficient operating costs to collect penalties assessed by the department, and that moneys in the fund may be used for: (1) Personnel and operating expenses; (2) Staff development, training, fees, and expenses; and (3) Litigation expenses, including but not limited to transcript costs, and interpretation and translation services. Provides that the unencumbered balance of the fund exceeding $500,000 at the end of every fiscal year shall go to the general fund.
Amends sections 388-10 and 396-10, HRS, to redirect the civil fines and penalties imposed under those sections to the new special fund.
EFFECTIVE DATE: July 1, 2018.
STAFF COMMENTS: This bill is part of the Administration package and is sponsored by the Department of Labor and Industrial Relations. It is designated LBR-01 (18).
In 2002, the Legislature set requirements for establishing and continuing special and revolving funds. Sections 37-52.3 and 37-52.4, HRS, now state that the criteria used to review special and revolving funds are the extent to which each fund:
- Serves a need, as demonstrated by the purpose of the program to be supported by the fund; the scope of the program, including financial information on fees to be charged, sources of projected revenue, and costs; and an explanation of why the program cannot be implemented successfully under the general fund appropriation process;
- Reflects a clear nexus between the benefits sought and charges made upon the program users or beneficiaries, or a clear link between the program and the sources of revenue—as opposed to serving primarily as a means to provide the program or users with an automatic means of support, removed from the normal budget and appropriation process;
- Provides an appropriate means of financing for the program or activity, that is used only when essential to the successful operation of the program or activity; and
- Demonstrates the capacity to be financially self-sustaining.
We are concerned that the diversion of civil fines and penalties from the general fund to the new special fund to support additional positions subverts the appropriation process. DLIR explained, in the justification sheet submitted with SB 2801, that it now has a backlog of cases and more than $2.7 million in accounts receivable; however, it did collect $5.1 million in Occupational Safety and Health penalties over a two-year period. Thus, DLIR reasons that if it can just scoop the penalties, its enforcement function will be self-sustaining.
News flash to DLIR, as well as the Department of the Attorney General: Enforcing the labor laws is your job. It always has been your job. The backlog is a good argument for the Legislature to appropriate more money to support DLIR’s enforcement responsibilities. It is not a good argument for using a special funding mechanism as opposed to the normal general fund appropriations process.
The bill relies upon earmarking civil fine moneys for its success. As with any earmarking of revenues, the legislature will be preapproving each of the programs fed by the fund into which the monies are diverted, expenses from the funds largely avoid legislative scrutiny, and the effectiveness of the programs funded becomes harder to ascertain. It is also difficult to determine whether the fund (or the departments involved) has too little or too much revenue.
Next, we expect our departments and agencies to enforce the laws fairly and impartially. How impartial can a DLIR enforcement employee be if: (1) his (or her) job is funded by the special fund, (2) the fund is fed by fines and penalties, and therefore (3) if the fines and penalties don’t come in, the employee’s job may be in jeopardy?
The fact that this type of bill is being introduced, furthermore, raises questions about how DLIR has been managed. Its enforcement cases have been allowed to back up, so has it really been giving sufficient priority and resources to enforcing the laws over which it now has responsibility?