This week the annual kabuki theater, known as the state legislature, will begin its pursuit of ways to fill the more than $800 million shortfall which appears to be growing larger as the administration works on its spin to the current and upcoming biennial budget.
Given that most elected officials and public administrators are well aware of the shortage of general funds, it came as a surprise that the budget chief announced that the administration will be seeking nearly another $100 million to shore up the state budget for this year alone. The reasons range from eliminating “furlough Fridays” to filling in for expenditures that were covered by temporary federal emergency funds, to increases in debt service and Medicaid to restoring the 60-40 cost sharing ratio for public employee health premiums.
Many of these expenditures will fulfill the administration’s campaign promises to the public employees. While those promises made on the road to the executive mansion may have sounded good at the time, the hard reality seems to have yet set in for those in the driver’s seat: there is no money. And that is what stunned lawmakers as the administration outlined what they believe will be the financial plan for the current fiscal year and the upcoming fiscal biennium. Having struggled over that past two years to squeeze the last red cent out of the state washcloth, lawmakers had to resort to raising taxes in order to balance the state budget.
Lawmakers raised nearly every tax they thought they could rationalize as acceptable, from the TAT — “which only visitors pay;” to the personal income tax — “but only on high income individuals;” to the conveyance tax — “which no one sees when they buy a house;” to the usual suspects like the cigarette tax — “after all smoking is bad for your health;” even to the newly expanded “barrel tax” which is supposed to raise money to help Hawai‘i get off its dependence on fossil fuel and insure our food is “safe” only to have 60 cents of the new one dollar rate go into the general fund. So much for commitment to energy self-sufficiency!
So you can imagine the disbelief in the room as lawmakers were told that not only would the administration be asking for more emergency funding for the current fiscal year but that the administration planned to go over the constitutional spending limit for the executive branch by 10.5 percent for fiscal year 2012, and by 1.7 percent for fiscal year 2013.
Administration officials were quick to point out that they were exceeding the limit as it applied to the executive branch and not the overall limit. But lawmakers had to pause as the amount was so large that if the overall general fund spending was to remain within the limit for all three branches of government, then that will mean the legislative and judiciary budgets will have to give up any margin they might have. Thus, there is a great likelihood that if all of the administration’s requests are approved and the judiciary and legislative branches appropriate as much as is allowed under their respective spending ceilings, the overall general fund expenditure limit will be exceeded.
What came as an even bigger surprise to lawmakers is the possibility that the administration may not be able to submit their budget game plan until the middle of March at which time lawmakers will be nearly half way through the session and the House of Representatives must have their version of the budget put together and sent over to the Senate. That means the House will not see the administration’s plan until they have wrapped up their version of the budget.
Finally, if general fund tax revenues do not materialize as the Council is forecasting, lawmakers will again be searching for new resources to make up the gap in the state budget. Since the administration has precluded any kind of increase in the general excise tax, where will lawmakers turn for those revenues?
Will lawmakers again resort to the art of singing one tune and dancing to another all with the skill of the bizarre theater? Hang on to your wallets and pockets as the annual kabuki is about to begin compounded with the fact that those in the driver’s seat have not come to grips with the fact that there is no money for all those campaign promises.
• Lowell Kalapa is president of the Tax Foundation of Hawai‘i, a private, nonprofit, non-partisan, educational organization established to research issues confronting governments in the area of public finance, taxation, and public administration. It is supported entirely by private contributions. Visit www.tfhawaii.org for more information.
