Overview of Proposed Special and Revolving Fund Analyses

From Hawaii State Auditor, 2016 Legislative Session, March 2016

None of the 2016 proposed funds reviewed met criteria

Legislation adopted to promote the efficient allocation of public funds between general fund and special, revolving, and trust funds seems to be having an impact. None of the 47 new special and revolving funds proposed during the 2016 legislative session met amended statutory criteria for establishing such funds. Only one fund in the past three years has met the criteria.

A proliferation of funds

In 2013, the Legislature amended Section 23-11, HRS, after the Auditor recommended changes to stem a trend in the proliferation of special and revolving funds over the past 30 years. Such funds erode the Legislature’s ability to control the state budget through the general fund appropriation process.

General funds, which made up about two-thirds of state operating budget outlays in the late 1980s, had dwindled to about half of outlays. Much of the trend was caused by an increase in special funds, which are funds set aside by law for a specified object or purpose. By 2011, special funds amounted to $2.48 billion, or 24.3 percent, of the State’s $10.2 billion operating budget. Also ballooning were revolving funds, which are used to pay for goods and services and are replenished through charges to users of the goods and services or transfers from other accounts or funds. By 2011, revolving funds made up $384.2 million, or 3.8 percent, of the State’s operating budget.

Further hampering the Legislature’s control over the budget process was a 2008 court case. In Hawai‘i Insurers Council v. Linda Lingle, Governor of the State of Hawai‘i, the state Supreme Court determined that under only certain conditions could the Legislature “raid” special funds to balance the state budget. In 2013, in order to gain more control over the budget process, the Legislature built new safeguards into the criteria for establishing special funds.

Despite the new criteria, special and revolving funds persist: in FY2015, the general fund comprised approximately 51 percent of the State operating budget, with special and revolving funds comprising 28 percent.

In 2012, there were 43 new funds proposed, increasing to 50 in 2013. Although the number dropped to 37 in 2014, it has increased in each of the past two years, 44 in 2015 and 47 in 2016.

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