Money Laying Around?

by Tom Yamachika, President, Tax Foundation Hawaii

During this period of emergency and with our State facing revenue shortfalls of Brobdingnagian proportions, the State Auditor has been busy at work trying to find options for legislators to consider for getting the state budget back on track.

In Report No. 20-07, the auditor focuses on three special funds.

One of them is related to a program known to almost everyone: the deposit beverage container program, or HI-5 as it is sometimes called. Previous auditor’s reports, some of which we commented on in this space, complained of irregularities. Even after all of that, however, the program’s special fund has been steadily swelling over the years, to the tune of around $5 million each year.  It now holds nearly $49 million.  What is that money now doing?

The report also mentioned DLNR’s Special Land Development Fund, which is fed by, among other things, ceded land revenues. In the three years covered in the auditor’s report, the fund collected $47 million in revenues, paid 20% of them to OHA as the statute requires, and then kept more than half of the rest. The auditor and DLNR then got into a big dispute (see Report No. 19-12) about whether DLNR was allowed to spend that money for its own purposes, thereby bypassing the appropriation process. The fund now has $36 million in it.

The third fund was also from DLNR, this time its Land Conservation Fund. This fund is primarily fed by a Conveyance Tax earmark that is limited to $6.8 million per year. However, its expenses are capped at $5.1 million per year. The fund now has $33 million in it, of which $16.6 million had not been set aside for projects or program expenses – sitting idle, in other words. And by the way, many of the projects backed by that fund took multiple years to complete. Four projects now in the pipeline had been pending for 5 years or more.

In Report No. 20-06, the Auditor performed simple mechanical tests on all the funds in the State’s accounting system.

First, it found that 64 accounts had no deposits or withdrawals in five years. Most of them are small, but four collectively hold $73 million. No attempt was made to ask the agencies holding those funds why they still exist; the Auditor left that part up to any legislators who may be interested.

Second, it focused on accounts with average balances for the past three fiscal years were more than double the amount of the outflows (expenditures and transfers out). The idea was to figure out which funds had cushions in them. Again, no attempt was made to ask the agencies holding those funds why the cushion was there. Out of 1,877 special and revolving fund accounts reviewed, 257, collectively with $2.28 billion, met the criteria. Some examples are the Dept. of Budget and Finance’s rainy day fund, with $325.9 million and average cash out of zero; DBEDT’s dwelling unit revolving fund, with $154.9 million and average cash out of $17.2 million; DBEDT’s rental housing revolving fund, with $362.7 million and average cash out of $61.7 million; a Department of Transportation account related with the Kapalama Military Reservation improvements, with $109..9 million and average cash out of zero; and its Passenger Facility Charge special fund, with $211.7 million and average cash out of $17.1 million. These are the five biggest ones, but there is plenty more where they came from.

Can some or all those millions be redirected to other areas of need? If they cannot, should those funds be paying for things that other, less restricted funds (such as general fund moneys) are now paying for? These questions need to be asked and answered before we consider more painful revenue raisers like tax hikes.