A spending spree, really?

by Keli’i Akina, PhD, President Grassroot Institute, March 26, 2021

Imagine you have a cousin who is having problems with debt. He keeps telling everyone in your family that he really needs $1,000 or he won’t be able to get through the year.

As a gesture of understanding, you give your cousin $900. Later, you learn that he had a little luck with an unexpected job and made an extra $400. So you figure he should be able to get out of the red and put a little aside for future expenses. A week later, however, you learn that he took your gift and his windfall and instead of paying off all his debts, he bought a new TV.

That’s exactly what our legislators just did. Only, unlike your cousin, they didn’t even bring over a box of malasadas as a “thank you” gift.

In the case of our legislators, they were facing a bad financial situation when the 2021 Legislature convened in January. The COVID-19 lockdowns, in place since last March, had decimated Hawaii’s unemployment fund, tax revenues were well below what was needed and real spending cuts were being considered. State employees were facing furloughs, and the big question was whether legislators would increase taxes in an effort to cover some of the shortfall.

Then there was a small lift in the economy. The state Council on Revenues adjusted its tax-revenues forecast upward by $893 million, enough to ease some of our most pressing concerns. 

Next, state lawmakers were given $1.6 billion in federal aid to help address its budgetary shortfall, as part of the American Rescue Plan Act.

With both these new funds, Hawaii’s legislators could have chosen the prudent path. They could have continued to cut spending, used their twin windfalls to help address the mountain of state debt that has been accumulating for years, and basically put the state’s budget house in order.

What they did, however, was the equivalent of your cousin spending his lucky money on a new TV. 

Rather than paying off debts and planning for the future, state House members voted 51-0 to go on a spending spree. If approved by the Senate and the governor, their spending bill will increase state spending for fiscal 2022 by 7.7% to a record-high $16.8 billion. That includes a 6.5% increase in state general fund spending to a record-high $8.2 billion.

While the House did spend $740 million of its federal funds on unemployment debt and $314 million on debt service, it made no move to address the state’s billions of dollars in unfunded liabilities. Instead of reversing the governor’s decision to skip mandated payments to the Hawaii Employer-Union Health Benefits Trust Fund, the House continued to kick that can down the road, ensuring that the $2 billion saved now will end up costing taxpayers $8 billion in the end.

The state is also still carrying most of the debt incurred in December when the governor borrowed $750 million to cover the state payroll.

In short, despite the generous influx of money, Hawaii is drowning in debt. 

For a brief moment, it looked as though we might have learned our lesson and planned for the future. For a few weeks early in the year, legislators demonstrated that they knew how to cut spending. Then they got the windfalls and common sense went out the window. 

It’s not too late for lawmakers to practice sound budgeting. Instead of setting new spending records, Hawaii lawmakers can focus on long-term solutions. They need to follow the example of so many local families and tighten their belts to help us get through the hard times. Paying down the debt, including the mandatory EUTF payments, should be a top priority. 

If our lawmakers want to generate more revenues, they should focus on growing our economy rather than depending on more bailouts. 

After all, you wouldn’t give your cousin any more money after you saw his new TV, would you?

E hana kākou! (Let's work together!)

Keli'i Akina, Ph.D.
President / CEO