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Tuesday, January 6, 2015
Special Funds Allow State to Dodge Balanced Budget Requirement
By Sen. Sam Slom @ 4:15 PM :: 4174 Views :: Hawaii State Government

Excessive use of special funds impacts us all

News Release from Office of Sen Sam Slom January 5, 2015

HONOLULU— The Auditor of the State of Hawaii recently released a report on the University of Hawaii's use of special funds.  Today Senator Sam Slom expressed his view in reaction to the report.

Senator Slom said, “Our state Constitution requires a balanced budget.  That means the state should not spend more than it takes in.  Unfortunately, the use of special funds has grown over recent years and it has become a habit of some members of the Legislature and Executive to use special funds to avoid the Constitutional requirement of balancing the budget.  The recent Auditor’s report is evidence that hundreds of millions of dollars can bypass legislative and public scrutiny and distort Hawaii's budgeting process as a result.”

In the December 2014 report, the State Auditor recommended that 17 existing UH special funds, revolving funds, and trust funds be discontinued for falling short of four key legislative criteria.  (The Auditor of the State of Hawaii, Review of Special Funds, Revolving Funds, Trust Funds and Trust Accounts of the University of Hawaii.  Report No. 14-18, released December 29, 2014. (also attached in pdf format)  The four key legislative criteria include that a special fund must:

  1. serve the purpose for which it was originally established;
  2. reflect a clear nexus between benefits and charges made upon the users or beneficiaries of the program;
  3. provide an appropriate means of financing the program or activity; and
  4. demonstrate the capacity to be financially self-sustaining.

In 2013 Senator Slom pointed out the difficulty imposed by special funds on the Legislature’s ability to put together an accurate operating budget in the Hawaii Senate Minority Office’s Alternative Biennium Budget.  Slom stated, “The creation of special funds is troublesome, because appropriations that are made out of special funds are not subject to an equivalent level of legislative scrutiny as those appropriations from the general fund. In addition, most special funds are not used for the purpose they were established for and ultimately are “raided” by the Legislature for other purposes in the general fund.”  (Senator Sam Slom and Paul Harleman, Hawaii Senate Minority Alternative Biennium Budget For the Fiscal Years 2014-2015: A Blueprint to Fiscal Sustainability and Economic Prosperity.  Released April 3, 2013.  Attached in pdf.)

Non-general funds, like special or revolving funds, are separate from the general fund.  Any revenues from state taxes, like the General Excise Tax (GET), Individual Income Tax or Motor Vehicle Tax, flows into the general fund.  In contrast, non-general funds (like revolving funds, trust funds and special funds) are revenues earmarked for specific purposes.  Examples of non-general funds include the State Highway Fund and the Mental Health and Substance Abuse Fund.  By law, these non-general funds must be evaluated regularly to determine whether they meet the four key legislative criteria.

Slom indicated his position on special funds saying:  "A special fund should not be considered unless there is a direct revenue stream like a tourist ticket price or the like.  It should not be some made-up revenue stream like ‘the legislature will put in an amount, plus a portion of this tax, and all donations by individuals, corporations, etc.’  In addition I believe that all taxes should go directly into the general fund budgeting process so the people can clearly see what comes in and what goes out.  Transparency of government is my number one goal.  The people of Hawaii should always know what their government is doing."

Special funds accounted for almost a quarter of the state operating budget as of 2012.  (The Auditor of the State of Hawaii, Study of the Transfer of Non-general funds to the General Fund.   Report No. 12-04, released July 2012.  Attached in pdf.)  Since being elected to office in 1996, Senator Slom has voted against the creation of every new special fund.      

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