Hawaii former state Rep. Cynthia Thielen, in a 2018 video pleading for fiscal notes

Fiscal notes could help Hawaii avoid fiscal calamity

by Jonathan Helton, Grassroot Institute, April 4, 2021

Fiscal notes by themselves would not solve Hawaii’s financial crisis, but they could help rein it in.

Hawaii is experiencing its worst economic depression ever, yet state lawmakers seem determined to drive the state deeper into long-term debt,1 push the state’s tax rates to record highs,2 and avoid necessary spending cuts to appease powerful special interest groups.3

There are many things that need to be done to correct this situation, but perhaps one of the easiest would be to require that lawmakers use “fiscal notes” before adopting any new legislation. Almost all states already require fiscal notes for all or most all their legislative bills. But not Hawaii.4

The purpose of fiscal notes, also called “fiscal impact estimates”, is to gauge how a legislative proposal might affect — good or bad — the state budget, any existing programs within the state budget, or the state economy overall. In short, fiscal notes provide cost-benefit analyses of proposed bills, enhancing sound budgeting and transparency.

Hawaii’s rejection of fiscal notes bewildering

That Hawaii lawmakers do not already use fiscal notes is bewildering. In 2015, the national Center on Budget Policy and Priorities released a list of best practices for bills with budgetary impacts.5 First on the list was that fiscal notes should be prepared for all proposals. 

It also recommended that the notes:

>> Include long-term estimates, “because the costs may rise rapidly in the years beyond those covered by a short-term fiscal note.” 

>> Be constantly revised as the legislation goes through the legislative process, because “if a fiscal note is not updated for material changes in a bill, the note no longer serves its purpose.”

>> Be free from partisan pressure.

>> Be posted online “in a manner that is accessible to the general public.”6

The Aloha State met zero of the center’s five criteria for reliable fiscal estimates, placing it in the bottom five of states nationwide. 

It is true that sometimes in the Hawaii Legislature will contain clauses that specifically require cost “impact assessments.”7 There also is a legal requirement that the state auditor analyze all bills that propose to establish new special or revolving funds.8 But for the most part, Hawaii lawmakers are just guessing about how their proposed bills will affect Hawaii’s economy. 

In January 2020, University of Hawaii economists James Mak and Robert Ebel recommended fiscal notes as a tool to “pare down future government spending in the face [of] slowing economic growth.”9 That was just before the state’s economy crashed due to the coronavirus lockdowns, imposed in March 2020, giving new meaning to the concept of “slowing economic growth.”

Similarly, House Speaker Scott Saiki introduced a bill in the 2020 legislative session to implement “economic impact statements,” which in effect would have been similar to fiscal notes. Considering the status of the sponsor, the bill might have stood a chance. But like most bills unrelated to the COVID-19 crisis that year, Saiki’s measure died in committee.10

States that do have fiscal notes have made good use of them. Texas lawmakers, for example, learned about the potential costs of a proposed business property tax break through a fiscal note. 

The note estimated that initially the proposal wouldn’t cost the state much, but over a decade it would total $100 million. The Texas Legislature subsequently killed the measure.11

In Maryland, a bill on oyster repopulation died following a fiscal impact statement that found it would have damaged small businesses. While there are always a multitude of reasons a measure fails, columnists Katherine Barrett and Richard Greene reported in Governing magazine that the fiscal note “informed the discussion.”12

Fiscal notes not a new idea

In Hawaii, the effort to enact fiscal notes is not new. In 2011, the Grassroot Institute of Hawaii touted two bills that would have mandated fiscal notes, but neither was approved.13

In 2016, Institute President Keli‘i Akina testified in favor of SB2719, which would have required fiscal notes for all bills requiring significant funding.14

“Requiring a fiscal impact statement on legislation that would call for an appropriation or have a significant fiscal impact would go a long way towards balancing the state budget,” Akina said.

Two years later, in 2018, there was yet another effort to enact fiscal notes, this time led by Hawaii state Reps. Andria Tupola, Lauren Matsumoto, Bob McDermott, Cynthia Thielen and Gene Ward. The measure would have required the Office of the Legislative Analyst to produce certain details about each bill, including: 

>> Its estimated cost.

>> Its projected fiscal impact over the next five years. 

>> The number of government employee positions it would create.

>> The source of its funding, whether federal or state or a combination of the two.15

Rep. Thielen even produced a video for the campaign, with the theme, “Show us the price tag.” She noted that her colleagues had recently made decisions about funding for the Honolulu rail project “without an inkling of how much the project would have cost.”16 She lamented how the costs of the project had escalated drastically from the original estimates, and asked, “Would you have wanted that bill with a price tag of $10 billon?”17

In other words, a fiscal note might have inspired reconsideration. 

Nevertheless, the fiscal notes proposal did not make it out of committee, possibly because the five representatives who sponsored it were all Republicans, versus the 46 other members of the 51-member House who were all Democrats.18

Had the bill been approved, Hawaii would have met at least two of the CBPP’s recommendations: Apply fiscal notes to all or almost all bills, and project the estimates out at least four years.

As mentioned, the House Speaker introduced a bill in the 2020 Legislature calling for “economic impact statements,” but that was derailed by the coronavirus crisis.

In the 2021 legislative session, the idea has been missing in action entirely. 

So the campaign for fiscal notes in Hawaii continues.

It would be helpful if lawmakers could know in advance how much their proposed bills might cost in the long run. Fiscal notes by themselves would not solve Hawaii’s financial crisis. But they certainly could help rein it in.

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LINK: Footnotes