California’s Surplus to Deficit 

by Tom Yamachika, President Tax Foundation Hawaii

“Lucky you live Hawaii,” the saying goes.  Long-time readers of this column may chuckle at that because we have been pointing out lots of ways the government here could be improved.  But sometimes our sister States get themselves into big piles of pickles that makes our situation look a lot better by comparison.

Take California, for example.

California went through pretty much the same kind of budget calamities that other states did.  They also received a ton of federal aid.  They received much more than us here in Hawaii because they have lots more area and population than we do.

In fact, last year California was projecting a surplus of about $98 billion.  That makes the Hawaii budget surplus for fiscal year 2022, a whopping $2.6 billion, look like chicken feed.

In 2023, California’s latest government projection is a $22 billion deficit.  That, of course, means that the $98 billion disappeared quickly and then some.  According to reporting in California, the disappearance was a combination of a couple of things:  first, some of the revenue predicted failed to materialize; and second, that the revenue that did materialize was spent in a flash.  California state law required state lawmakers to spend much of the surplus on public schools and reserve accounts.  Some of it was in new spending, such as expanding health care to all low-income undocumented immigrants.  The state also made lots of one-time expenditures in areas such as homelessness and infrastructure.  And the state sent some of the money back out to taxpayers in the form of stimulus payments, just like we did.

The result is that just one year later, California‘s state government is now planning on spending more than it is going to take in. As a result, California‘s Senate leadership is now making noises about “common sense revenue options that protect the middle class and small businesses” which, of course, means tax increases.  It’s too early in California’s legislative session to tell what’s going to happen ultimately, but you can bet it’s not going to be pretty.

So, here at home, can we learn from California’s experience? We would certainly hope so.  There are many constituencies that benefited here from the increase in spending in 2021 while we still had lots of money. They naturally will be screaming for that amount or more money next year, or even this year, regardless of the amount of surplus we do have. While it may be tempting to make these constituencies happy by giving into their demands, taxpayers don’t have wallets of unlimited size.  That means we simply can’t satisfy everybody. We have to live within our means.

In the meantime, we need to engage in responsible budgeting.  The public needs to be able to figure out where the money comes from and where it goes, which is nearly impossible now because of special funds and other off-budget financial devices.  We need to clean those up and make the resulting budget transparent.  We can’t continue to hide behind excuses like “the computer system won’t allow that” and “the public isn’t allowed to see budget documentation.”

To quote the California Senate leadership, we need to “Protect Our Progress by Maintaining Commitment to Responsible Budgeting & Resiliency, Even in Tough Times.”  Hopefully, when we apply these principles it won’t drive our current whopping surplus becoming a billion dollar deficit in a single year.

So we can be lucky we live Hawaii.