State budget windfall should be shared with taxpayers

by Joe Kent, Grassroot Institute

The following commentary was published originally on Jan. 8, 2022, in Hawaii Filipino Chronicle.
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Hawaii lawmakers are wracking their brains about how to balance the state budget, only this time, the problem isn’t too little money, it’s too much. And maybe some of it should go back to Hawaii taxpayers.

Here’s the background: Gov. David Ige drafted his proposed state budget for fiscal 2023 thinking that tax revenues for fiscal 2022 would be 4% greater than the previous year, based on projections from the state Council on Revenues. But on Dec. 20, he revealed that revenues for the first five months of fiscal 2022 had increased by 27.3%.

If that pace continues, the state could see up to $1.7 billion more in tax revenues than originally expected, according to Grassroot Institute of Hawaii calculations — and that is not counting the $1 billion Hawaii received in federal American Rescue Plan aid for the fiscal 2022 budget and the additional $286 million in such aid for fiscal 2023. It also does not include the $2.8 billion Hawaii is to receive from the recently enacted federal Infrastructure Investment and Jobs Act.

How could this windfall benefit Hawaii taxpayers?

Hawaii’s Constitution requires that any “excess revenues” be given back to taxpayers, if the revenues are over 5% for each of two successive fiscal years. That is exactly the situation we are in today, as the state’s revenues increased by 8.1% in fiscal 2021 and are projected to show a 6.3% gain by the end of fiscal 2022.

Unfortunately, the state Constitution doesn’t specify exactly how much should be returned, which is how lawmakers were able to give just $1 back to each taxpayer in 2008, when the constitutional requirements also were met. Then-Sen. Sam Slom rightly called the puny tax rebate “demeaning.”In the current situation, a more respectful option could be for the state to distribute $1 billion of its recent windfall cash to Hawaii’s 734,673 taxpayers, or $1,361 per taxpayer.

That would be a welcome amount for most Hawaii taxpayers, who have suffered considerably under two years of lockdown orders that have damaged all manner of economic activity in the state, squashing businesses and spiking unemployment.

But there is a hitch: Over the years, the constitutional tax-refund provision has been amended to also allow excess revenues to be saved for a rainy day or be used to pay down debt or unfunded liabilities.

In other words, the excess funds could be used to pay down Hawaii’s $26 billion of unfunded liabilities or $13.6 billion of bond debt, or they could put into the state’s rainy day fund, which, in fact, is what Gov. Ige is proposing to do, to the tune of $1 billion. All would be good moves, although Ige’s preference to replenish the rainy day fund, in particular, would prevent that money from being refunded to taxpayers.

However, even if the windfall were not refunded directly to taxpayers, there still would be plenty of room to lower state taxes, which would be a refreshing change from the deluge of tax-hike proposals we see each year.

Moreover, supporting tax cuts would be in step with Hawaii citizens, 70% of whom believe their taxes are too high, according to a recent poll of nearly 1,000 Hawaii residents conducted for the Grassroot Institute by marketing research firm Anthology.

At the very least, lawmakers should not add to the state’s tax burden, and the governor, to his credit, has stated that he is not planning any tax increases for fiscal 2023, which starts in July.

Ultimately, a tax refund and tax reductions would help Hawaii the most in the long run, since our economy typically ranks as one of the costliest places in the nation to start a business. Any gesture favorable toward economic growth would foster general prosperity and pay dividends in the form of greater tax revenues.