Please! Spend More!

by Tom Yamachika, President, Tax Foundation Hawaii

The holiday season is upon us, but our topic today is not about spending for presents. We are going to talk about government spending – too little spending.

Why should we be concerned about too little government spending when we don’t have boatloads of money to spend?

It turns out that a number of our government agencies are receiving federal grants. Yes, Uncle Sam is giving us money. But we are not spending that money so the federal agencies are saying, “Looks like you don’t need this, so why should we give you any more?”

On November 5, our Senate Ways and Means Committee held a hearing on this matter. It heard from our Department of Transportation, which has a backlog of over $650 million in federal funding for highway projects – and the federal agency wrote us a letter “praising” us for reducing the balance down to that number from, well, 2010 when the unspent balance was $940 million. There is an additional backlog of about $66.5 million for airport projects. The Department of Hawaiian Home Lands can’t spend $55 million in federal housing funds for Native Hawaiians, so HUD is suspending additional funding. The Department of Health must commit $28 million in new loans and spend $7.6 million by the end of January, or Hawaii stands to lose $8 million for improving our drinking water infrastructure.

Why can’t we spend the money? Let's look at the highway funding, which represents the biggest chunk. It was given to us for large construction projects, mostly bridges and highways. DOT told the Senate committee that there were “various issues that delayed these major construction project[s], including environmental issues, bid protests, utility and rights-of-way issues, and others.” We pointed out in a previous article that Hawaii was found to have spent $90,000 in administrative costs per state-controlled highway mile while Kentucky spent $900…it’s worth looking into what the prior study found to see how (not if) administrative processes can be overhauled. If we look into the other agencies' issues, the problems probably will be similar.

The State Auditor’s Office recently issued a study of state departmental engineering sections that manage capital improvement projects. Almost all of the backlogged work is for such projects. The auditor asked agencies whether these projects should be managed centrally, perhaps by the Department of Accounting and General Services, and the response she received was an overwhelming “No!” As justification, the agencies cited issues relating to, for example, managing federal funds. Meaning, "We can do this right, so we don't need any kind of central oversight"?

In the Senate hearings, the Department of Budget and Finance noted that it uses software called the Federal Award Management System, or FAMS, which can track the progress of federal awards – if it gets the cooperation of the agencies involved.

This is not a small problem. The State receives about 300 separate federal awards each year that account for about $2.5 billion in federal funds. This makes up roughly 20% of the State’s revenue so we shouldn’t waste time with turf fights.

Let’s be clear here. We better not mess around when it involves receiving federal money. If we do, the Feds may close their wallet and our government will have to make up the cost somehow – most likely by coming to us taxpayers to pick our pockets once again. It’s not unreasonable for a federal funding agency to ask us to spend the grants that they award. And state agencies should not have a problem with Budget and Finance looking over their shoulders to see if there are inefficiencies and hold-ups on our side. If issues are found, they need to be rooted out. Now. So we can spend more, courtesy of Uncle Sam's generosity.