Maintenance of Effort

by Tom Yamachika, President, Tax Foundation Hawaii

At the top of my list of pending legislation this week is the “maintenance of effort” bill, House Bill 611 and Senate Bill 815. What it says is if the appropriated budget of the Department of Education (DOE) drops from one year to the next, the difference in the appropriations is immediately scooped out of general excise tax collections and plopped into a “public education stabilization trust fund” that the Department of Education can then use “to fund any program in the state budget.”

And that’s not all. Another provision of the bill directs that if the state reduces the amount appropriated to DOE, then the amount appropriated will automatically change to “the aggregate proportion of the department's annual appropriations from the state general funds over the preceding ten years.”

So how would that work? Let’s say the DOE is budgeted $2 billion this year, fiscal 2022, which constitutes 13.5% of a total state budget of $15.4 billion. In general funds, it gets $1.7 billion, which is 21% of $8 billion of the total general funds spent. Let’s suppose that the bill passes and that in fiscal 2023, the DOE is budgeted $1.9 billion, 12.3% of a total budget of $15.5 billion. Of general funds, DOE gets $1.5 billion, 19.7% of $7.8 billion total. The provisions in the bill would sequester $100 million from general excise tax collections and put it into the stabilization fund, and it would unbalance the budget by changing the $1.5 billion general fund appropriation to the 10-year average proportion of the total general fund, perhaps 21% of the $7.8 billion or $1.63 billion. So, DOE would get $130 million more in general funds than budgeted, and another $100 million would be clawed out of the general excise tax collections. That $230 million would need to come at the expense of something else. Or a whole bunch of something elses.

Bills like this one illustrate the creativity and the lengths to which proponents of a particular activity are willing to go to avoid the annual appropriation process.

Appropriation is not supposed to be difficult. Lawmakers, with the help of our Council on Revenues, figure out how much money we’re expected to collect. They listen as the various executive agencies and departments show them what their respective programs have achieved for the people of Hawaii. Lawmakers then decide which programs and services are worthy of how much of our hard-earned taxpayer dollars, and off we go for another fiscal year.

This, however, isn’t enough for some people, who are absolutely fixated on securing a “dedicated funding source” for their favorite program or department. A dedicated funding source usually means setting up a special fund, which is tougher to police using the appropriation process, and a grab on tax revenues before they can be counted with the rest of state realizations during the budgeting processes. Dedicated funding sources can and do protect inefficient or questionable programs and expenditures.

Legislators argue that the Legislature exercises more than adequate oversight over these special funds even though they aren’t covered in the normal appropriation process. But how does that explain findings like the State Auditor’s Report No. 20-06, which found more than $75 million in accounts associated with inactive special or revolving funds? Or Report No. 20-07, which found tens of millions of dollars in special funds that swelled in size over the years, indicating an imbalance between the so-called dedicated funding source and the programs and services it was supposed to fund? Or Report No. 20-08, which built on Report No. 20-06 and made the bold statement, “More than $483 million in excess moneys may be available to be transferred from 57 special and revolving fund accounts to the General Fund without adversely affecting programs”?

Maintenance of effort is supposed to be earned. If a program or service efficiently delivers value to the people of Hawaii, then it is worthy of our continued support. It’s not supposed to be forced by tax grabs, special funds, and other gimmicks. We need to start recognizing that this “dedicated funding source” rhetoric is taking us down the wrong path.