Why Do Lawmakers Want More Special Funds?

by Tom Yamachika, President, Tax Foundation Hawaii

After going through the hundreds of bills introduced in the 2020 Legislature, a few themes appear to be emerging.

One of them is that there is a plethora of requests for “special funds.”

Special funds are pots of money that exist for a specific purpose, and largely bypass the legislative appropriation process.

The existence of hundreds of these special funds has often confounded those who seek answers to simple questions like “How much money does the state have?”

This year, for example, bills have been introduced to establish:

1. A cigarette litter abatement special fund (Senate Bill 2301) which would be funded by a new cigarette litter abatement tax;
2. a wildlife conservation special fund (House Bill 1675, Senate Bill 2509) which would be funded by a barrel tax increase;
3. a solid waste management research and development special fund (House Bill 1684) which would be funded by diverting 1% of all general state revenues;
4. a climate change countermeasures special fund (House Bill 1686) which would be funded by 1% of all insurance company assessments;
5. a clean vehicle special fund (House Bill 2493, Senate Bill 3022) which would be funded by a surcharge of up to 75% on GET on sales of gasoline powered vehicles;
6. a “Blue Lives Matter” special fund (House Bill 2728) to benefit law enforcement officers, which would be funded by a new tax on overseas arrivals and departures; and, last but not least,
7. a quality education special fund (House Bill 2144) which would be funded by hefty increases in the individual and corporate income taxes.

There are many others. A number of these measures involve tax increases or revenue diversion (which probably would lead to tax increases after the agency or agencies whose revenue was diverted figures it out and screams bloody murder).

Our Legislature is supposed to be the steward of all state moneys, but special funds make it very easy to lose track of where the money is and how it is being spent.

Departments are supposed to tell the Legislature if they have special funds and how much is in them, but they don’t always. Recently, in Report No. 20-01, the State Auditor took the Department of Business, Economic Development and Tourism to task for failing to report $6.5 million in non-general fund moneys. DBEDT’s response? Just that they’ll “take corrective action.”

Not even a “Whoops! We screwed up and promise to do better next time!”

This followed closely on the heels of Report No. 19-16, where the auditor found that $1.04 million in non-general fund moneys administered by the Hawaii attorney general wasn’t reported. That department responded that they “shall establish procedures to assure required reports are issued.”

Is it any wonder that it’s getting harder and harder to follow the money and rein in government spending?

Another tactic that appears to be gaining traction among special fund supporters is “scope creep.” It involves expanding the scope of what the special fund moneys may be spent on.

If special fund moneys can be spent on more and more things, then there tends to be more spending, and then the funds need to be fed more and more to stay afloat.

Then who is going to do the feeding? Probably we, the taxpayers.

The moral of the story is that special funds are often used to obfuscate and confuse, to put a smokescreen between those who spend the money and those who are charged with making sure the money is well spent.

Let’s do all of ourselves a favor and get rid of the special funds we don’t really need, and make sure that the operations of the ones we do need are transparent and accountable.