I Can’t Believe He Said That!

by Tom Yamachika, President, Tax Foundation of Hawaii

For several years, the Tax Foundation has been beating up on "special funds." These are hundreds of little (and in some cases, not so little) pots of money sprinkled throughout Hawaii's departments, agencies, and other governmental units. Each fund has a stated purpose, and the agency to which it is attached can spend money out of the fund as long as the spending furthers the fund's purpose.

Most agencies receive an appropriation of general fund money from the legislature. They diligently go about doing their work, and at the start of the next year they appear before the legislature, saying, "Here are all the things we did for the good of the people of Hawaii. We would like to continue running these programs or providing these services, so may we continue to receive an appropriation?” At that point the legislature does one of their toughest jobs, namely reviewing the problems and issues facing the State, and making decisions about where our hard-earned tax dollars are going to be spent.

For the most part, a special fund bypasses this process entirely. The agency doesn't have to go to the legislature to justify what it did in order to get the fund money, because the money is already there. The agency need not answer the tough questions. It can just go on spending. But there is one practical problem. Spending can't go on forever unless there is income. A number of special funds are automatically fed by earmarks on specified state taxes. For example, there is a law saying: "Of the [conveyance] taxes collected each fiscal year, ten per cent shall be paid into the land conservation fund." This law gives this special fund recurring income from a specific tax, in this case the conveyance tax.

This session there were bills introduced to limit the amount of money being diverted to special funds. When the House Finance Committee heard the bills, a string of testifiers, beginning with the government agencies involved, opposed these bills. But what was their argument? “Fund X supports government programs A, B, and C. Programs A, B, and C provide a great benefit to the State and the State will suffer grievous and incalculable damage if the funding to Programs A, B, and C is cut.”

Excuse me? No one is talking about cutting the programs. We are talking solely about the funding mechanism. If Programs A, B, and C are providing great benefits to the State, there should be no problem getting them funding from the general fund through the normal appropriation process.

Faced with this line of reasoning, one of the testifiers from a conservation advocacy group – and I absolutely marvel at his courage to say this – said, in effect, “No! We don’t trust you legislators to provide proper funding for such critical and important programs. You should be leaving such decisions to the experts in the field who are employed by the government agencies.” (I still can’t believe he actually said that and expected to leave the room with all body parts intact.)

The Finance Chair, Representative Sylvia Luke, replied, in effect, “But nature conservation isn't the only pressing issue facing the State. Are we going to be funding this and letting education go? Are we going to let hospitals close down? The voters have put us here to make those decisions, and these special funds are in the way.”

We at the Foundation are on the side of government transparency and don’t like the idea of the fox guarding the chicken coop. Go, Sylvia, go!

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