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TAXWatch: Do We Really Have a Spending Ceiling?

This week, we look at another provision that was passed by the 1978 Constitutional Convention to assure our fiscal health—and what our lawmakers have done to marginalize it.

As we mentioned in June, Hawaii Constitution Article VII, sections 8 and 9 limit general fund expenditures by an “expenditure ceiling.”  It says that the Legislature is to establish a General Fund expenditure ceiling to limit the rate of growth of General Fund
appropriations, excluding federal funds received by the General Fund, to the estimated rate of growth of the State’s economy. The Legislature did enact laws, now codified in HRS chapter 37, part V, to implement this requirement.

However, if the governor is proposing a budget that would breach the ceiling, the governor needs to specify by how much the ceiling would be breached, and why. The legislature then can approve appropriations that breach the ceiling by passing a bill with
a two-thirds vote in both houses which will “set forth the dollar amount and the rate by which the ceiling will be exceeded and the reasons therefor.” Neither is a high hurdle to jump, and the resulting bills haven’t even been considered newsworthy.

In this past session, for example, the Governor’s budget contained some language buried in the appendix to the budget: “Total proposed appropriation measures from the general fund … will exceed the appropriation ceiling by $36:7 million (or 0.5%) in FY 19. The reasons for this excess are the substantial costs of social assistance entitlements, support for public education, fringe benefits and other critical requirements.”

In other words, “government costs money” is the reason for breaching the spending ceiling. There is nothing in those reasons to indicate that this year’s fiscal situation is surprising or unexpected. Furthermore, breach of the spending ceiling now appears to be a routine occurrence.

Even in 2001 when the Felix Consent Decree was the justification put forward for busting the spending ceiling yet again, we in the Foundation argued that even that wasn’t a good enough reason to disregard the limitations.

As my predecessor wrote at the time:

“Again, the intent of Con-Con delegates was that state government general fund spending should grow no faster than the growth in the state’s economy. … If state spending begins to exceed that growth rate, then there is no doubt that somewhere down the road the state will run smack dab into another financial crisis where state spending cannot be supported by the economy.

“If the argument is that the Felix programs are mandated by the court, then our state administrators and lawmakers need to find programs for which spending can be reduced so that the Felix programs can be accommodated. This is a process of setting budget priorities. … Again, the pat response here seems to be as with education in the past, just spend more money rather than
finding the difficult solutions to the real problems.

“Instead of merely spending more money, taxpayers should demand that the money be better managed and the spending ceiling be honored.”

Was my predecessor correct in his predictions?

If we do have a constitutional convention this year, one of the items the delegates should consider is whether to tighten up this rule so it too can’t be routinely broken and rendered meaningless.

The MAUIWatch Community Network invites readers to express their views in the Community Viewpoint. Community Viewpoint columns should be on or around 800 words. Community Viewpoint submissions are subject to editing. We do not print letters announcing events to come, extensive quotations from other material, open letters or form letters. Send to contact (at) mauiwatch (dot) com.

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About Tom Yamachika

Tom Yamachika
Tom Yamachika is the President of the Tax Foundation of Hawaii, a private, nonprofit educational organization dedicated to informing the taxpaying public about the finances of our state and local governments in Hawaii. Tom is also a tax attorney in solo practice and has been since early 2013. Prior to 2013, he was with the accounting firm Accuity LLP, which was formed in 2006 from the Honolulu office of Coopers & Lybrand (which later became PricewaterhouseCoopers). Before that, he served as an Administrative Rules Specialist in the State of Hawaii Department of Taxation from 1994 to 1996, where he drafted rules, interpretive releases, and legislation on several different state taxes. Prior to that, he practiced litigation and tax law with Cades Schutte Fleming & Wright in Honolulu.

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