The fiscal problems of the state continue, as lawmakers will have to deal with another budget shortfall before the end of this legislative session. However, it does not appear they will go to the tax increase well again this year.
The fiscal problems of the state continue, as lawmakers will have to deal with another budget shortfall before the end of this legislative session. However, it does not appear they will go to the tax increase well again this year.
Taxpayers might wonder if this is all a result of the poor economic situation of the last few years or a more systemic problem. Hawaii has created the financial crisis it faces today over the last 25 years as a result of elected officials pandering to their voting constituents. It is not only the elected officials of today who have contributed to the fiscal woes of the state, but also those who left a legacy of financial mismanagement.
To a large degree, it is the voters of these elected officials who have failed to hold them accountable and, in some respects, are at fault for encouraging these elected officials to be less than responsible.
Over the years, the squeaky wheel has asked for more and more services to be provided by state government, figuring if there was money to be had, why not ask. In the past 30 years, when there was extra money, lawmakers and administration officials spent whatever was in the till.
The result is what we find today: State government is involved in more services than ever before and, in many cases, delivers services that are already being provided by the private sector. The latest venture that has caught the eye of lawmakers is the creation of a state bank. “What,” you ask, “a state-run bank? How do lawmakers expect to run a bank when they don’t even seem to be able to run the state in a sound financial position?”
A group of constituents believes the state would be able to help poor borrowers who are about to go under or people who want to secure loans from commercial banks but can’t. What that really means is that state lawmakers think the taxpayers should get into the business of making risky loans or bailing out folks who probably should never have taken out such loans because they did not have the financial wherewithal to repay the note.
These lawmakers want taxpayers to take on what would otherwise be consider toxic loans, or as in the last debacle, make sub-prime mortgages.
Again, taxpayers are about to be fleeced, just because some lawmakers want to respond to a specific constituency. Can you blame these lawmakers? They have learned well from their predecessors about spending money on services and goods that should never have been the responsibility of government.
That’s the very problem with what has happened with the state of government finances over the past 30 years, beginning with the adoption of the hotel room tax, or TAT, in 1986. The tax had been proposed at a 2 percent rate, to be earmarked for building a convention center and ended up at a 5 percent rate with no earmarking of tax proceeds at all for nearly seven years.
The TAT dollars flowed to the general fund and lawmakers spent the proceeds, funding every conceivable wish list item presented by constituents. Even so, they couldn’t spend the money fast enough and the general fund surplus grew to more than half a billion dollars. While they gave some of that surplus back in refund tax credits, they hid most of it in newly created special funds or earmarked a portion of the general excise tax to go for school repairs and maintenance.
The problem with the latter effort, which designated $90 million to be earmarked, was the state bureaucracy could not spend that much in any one year, and that fund began to bulge with excess funds. When hard times hit in the mid-1990s, they took back the earmarking of the general excise tax revenues.
Through the difficult years of the 1990s, lawmakers kept many of those nonessential programs alive by tapping into the funds they had hidden in special funds, or as the health department is now doing, created and raised user fees to fund those programs.
Let’s also not forget the unfunded liabilities of the state retirement system and employee health fund can be traced directly to the fact lawmakers scooped the earnings from the retirement system over and above the 8 percent threshold they were allowed to — by a law they had adopted. More than likely, if those excess funds had remained in the fund and been reinvested, the fund would not be in the pickle it is today.
