Money – Re-run

by Senator Laura Thielen, March 25, 2013

I spent most of Sunday in a Senate Ways and Means Committee meeting going over our version of the budget.  Since we are still working on the final draft, the Chair has asked that we not release any information on the Senate draft budget at this time.

I am honoring the Chair’s request.  However, since money is on my mind, I’m re-posting a piece I posted at the end of January.  The January piece compares Governor Abercrombie’s 2014 budget request with Governor Burn’s budget request in 1967.  Since many readers have joined this blog after January, it will be new to some of you.  For you old-timers, I apologize for the re-run.

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Money, Money, Money – January 28, 2013

It’s hard being socially liberal and fiscally conservative.  Or as my dad calls me, “cheap.”  Big money has been on my mind lately, because I’m on the Senate budget committee, and will be voting on what we can afford and what we can’t.

Last Sunday the Star Advertiser’s re-printed a column from January 1967 reporting Governor John Burn’s budget request.

I entered the figures on an inflation calculator to see what Governor Burn’s 1967 budget would equal in today’s dollars.  Then I compared that 1967 budget in 2013 dollars to Governor Abercrombie’s 2013 budget proposal in front of the Legislature today.  I am not singling out Governor Abercrombie as the source of the budget growth.  The state operating budget has been steadily going up since 1967, except during notable economic downturns.

Hopefully this comparison table works in the blog post.  Numbers are in millions and rounded.  So $2,500 = Two billion five hundred million dollars.

Operating Budget: the day-to-day operating costs of the state.

CIP:  Capital Improvements Projects, building things with a lifespan of 30+ years

Two things jumped out at me in making this comparison.

First, our operating budget has increased more than 4 times since 1967 – even taking inflation into account. 

Second, we probably aren’t spending as much on CIP, our infrastructure, as is needed.

Growth in Operating Budget

It is not fair to compare 1967 operation costs with 2013 operation costs without also looking at the differences in obligations.  In 1967 medical costs were lower; federal mandates were fewer; and our population has almost doubled since then.  However, over this time we also grew the size of our state government and entered into contractual obligations for pension and healthcare costs.

It is fair to ask whether the size of the size of the increase in the operating budget is a reasonable one.

But in order to decide if the increase is reasonable, we need to know whether the increases were due to a few big-ticket items or many, many programs; and if they are due to a few big cost items, does Hawaii have the capacity to control future cost increases?

When I was at DLNR and the state was in the 2008 economic free-fall, I compared the various departmental budgets.  Education, health and human services and public safety make up the vast majority of the state budget.  We could have eliminated 12 departments entirely, and it wouldn’t have made a dent in the shortfall in General Fund revenue.

The exponential growth in the operating budget is due primarily to education, health and human services and public safety – the very areas that many people consider essential government services.  These are the areas we’ll need to focus on if we want to control the future growth in our operating budget.

Stagnation of the CIP Budget

The 1967 CIP budget was likely almost exclusively building new infrastructure.  We were a young state coming into the modern era.

Today, the infrastructure we built those many years ago is over 40 years old and needs upgrades and repair.  Anyone driving our roads feels that need.  At the same time, due to population growth and shifts, we still need some new infrastructure.

If we now have to replace outdated infrastructure and build new infrastructure, shouldn’t the amount we spend on CIP have increased at a rate greater than inflation?  If we were willing to increase our operating budget by over four times, why has our Capital Improvement Budget stayed close to what we were spending in 1967?

Perhaps one of the reasons our state’s CIP budget is restrained is because our discretion in CIP spending is constrained by outside forces.  Bond rating agencies examine our state financing and fiscal situation.  That impacts the interest rate on the bonds we issue to pay for the capital improvements.  If we get too out of line with our CIP spending, outside forces would lead to (a) fewer people buying our bonds; and/or (b) having to pay back the money borrowed for CIP at a higher interest rate.

But this raises the question whether we could have a better fiscal rating if we had more control over our operating costs?  In other words, if we restrained operating costs, could we do more infrastructure work?

Conclusion

Hawaii does not have the ability to change the rate at which our nation’s medical costs are growing.  But that makes it all the more important to make smart decisions on how to allocate the remainder of our operating budget, and whether to support new programs vs. realigning old ones.

When it comes to our operating budget, we’re going to have to learn to be good at self-restraint.  We are facing a combination of increasing health care costs; contractual pension and healthcare costs; reduced federal funds, and; a large backlog of aging infrastructure projects that need attention.

So if you were in my shoes, and on the Senate budget committee, what would you do?

FYI, if my figures are wrong, please comment, below.  I’m not advocating for a particular view here.  I’m just trying to get the numbers down at the start of session.

Your input is very welcome and appreciated.

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