Budgeting Backwards

by Tom Yamachika, President, Tax Foundation Hawaii

Most of you have heard by now of the massive tax cuts just signed into law by Governor Green.

At the press conference held at the signing ceremony, some very good journalists asked him: “With such massive cuts, are you going to be able to maintain public employee salaries and social services?“

“Yes,” he said.  He said that there is now, government-wide, about a 30% vacancy rate in the number of authorized positions. He said that the departments are going to do a “deep dive” into why these positions are vacant. If they’ve been vacant for four years in a row, for example, it would be presumed that the department really doesn’t need those positions.  If they did, they’d need to tell the Governor why; if it turns out that a particular position is needed but can’t be filled because the private sector pays a lot better, for example, then they would consider paying more money for that position to be competitive for the talent the department needs.

Adding to the problem, although perhaps not discussed at the press conference, is a very arcane budgeting practice that we wrote about in 2017.  Apparently, departments are not allowed to budget for things like vacation pay and paid sick time, although such expenses are incurred whenever you have a work force. Instead, the departments are supposed to pay for such things out of the money that is allocated for the positions that are vacant.

We, for one, can’t see any good reason why vacancies have to be used in this manner.  At the very least, it seems deceptive to taxpayers, labor unions representing the employees, and others interested in the budgeting.

Anyway, back to the deep dive the Governor spoke of.  Looking at the budget in that way seems a little backwards. In the best of all worlds, the departments do their deep dives first and come up with a number by which their budget can be cut. Then you add all of the numbers from the departments, and you know how much you can cut taxes.

But this is not the best of all worlds. Human nature being what it is, if the so-called deep dive was done first, no sane department head would voluntarily offer up their department to the chopping block.  Instead, we would expect the department heads either to say that they really need everything they now have.  Or, if they are a bit more devious, they would offer up a ton of rank-and-file positions (as opposed to civil service exempt positions in management), which would cause the government union leaders to go ballistic and, maybe, force the department to keep the positions.

So, instead of doing this charade, we do the big tax cut first. Then the department heads have to scramble to justify their piece of the much lower pie. Is it an exercise in cruelty?  We don’t think it has to be. If anything, the resulting chaos will lead to departments being much more transparent about what they are spending and why. For the bigger departments, such as Education, Health, and Human Services for example, the process may cause a lot of pain. But that pain results from the opacity of the budget as it exists today. We’ve written before about the Department of Education.

Governor, we wish you the best of luck on this project to right-size our government. Somebody has to do it. We now hope that you can get it done.