Another Rainy Day Slush Fund

by Tom Yamachika, President, Tax Foundation Hawaii

Many of us in Hawaii are aware that we have an Emergency and Budget Reserve Fund, enshrined in chapter 328L, Hawaii Revised Statutes, to save money for a “rainy day,” that is to say, an emergency.  In the most recent legislative session, the state budget bill provides for an additional one billion dollars to be socked away into that fund, $500 million a year.

But, as it turns out, that’s not the only “reserve fund” we have.

As the Department of Budget and Finance kindly explains on its website, we have the Hawaii Hurricane Relief Fund (HHRF).  This fund was set up in 1993 to provide hurricane insurance coverage for property owners here in Hawaii Nei in case the private insurance market proved unreliable.  This was thought to be a good idea when Hurricane Iniki whacked us in 1992.

In the years since Iniki, however, private insurers returned to the market.  The HHRF shut down in 2002.  Section 431P-16(i), HRS, contemplates that when the HHRF dissolves, any net moneys remaining in the fund, after the payment of debts and other obligations, will go back to the State general fund.

Did that happen?  No.

Instead of dissolving the HHRF when it was clear that it was no longer needed, State officials decided to keep the money – just in case.  The Department of Budget and Finance says that there is now $186.7 million left in the fund.

A little more than ten years ago, lawmakers did in fact tap into the fund.  After the State’s budget took some hits from the Great Recession of 2008, laws passed in 2010 and 2011 appropriated millions of dollars from the HHRF to restore public school instructional days when our government found it necessary to furlough state workers to make ends meet.  (Do you remember “Furlough Fridays”?)  The law also allowed the Governor to tap into the HHRF fund to maintain program levels for essential government services, but required general excise tax revenues to be diverted in fiscal years 2014 and 2015 in order to pay back the fund.

As a result, we now have $186.7 million in this “just in case” fund that not too many people know about.

Our state government is taxing us, the taxpayers, at a very high rate to obtain money that just sits around doing nothing.  Not only are we failing to pull down federal moneys that have been made available for us, as we have written about on several occasions before, but we are squirreling away tens or hundreds of millions of dollars to gather dust in some bank somewhere, rather than putting the money to use fulfilling basic needs.  Obviously, our lawmakers were aware of this secret fund, as they used the money in 2010-11.  I wonder if our lawmakers today know about this as well.  If they do, why don’t they demand that the HHRF be dissolved with the balance of the fund transferred to the general fund, as the law requires?  Certainly, there is a need for some money to be kept aside just in case, but we already have a rainy day fund for just that purpose.  We fed $500 million to that fund last year and are on track to stuff it with another billion dollars this and next year.

Let’s make it easier for everyone.  If we are going to put money aside just in case, let’s have it in one place, the official Emergency and Budget Reserve Fund.  That way everyone knows where it is, why it is there, and how much is set aside.  No hoarding cash away in slush funds!