by Lowell L. Kalapa, Tax Foundation of Hawaii

With legislators in the final throes of their debate over the state spending plan for the next two years they, along with their constituents, should take a moment to look back on the last 50 or so working days to see how they handled taxpayer funds.

Of course, the focus is on the state’s general fund budget, but taxpayers should also be concerned about what is not in the spotlight, that is expenditures made through the multitude of special funds. This is because there is very little that lawmakers, or taxpayers, can do about spending the monies locked up in special funds as the destiny of how those funds may be used has already been determined by a prior session of the legislature. While the monies in these special funds still have to be appropriated by lawmakers, what those funds can be spent on is pretty much restricted to the purposes for which the special funds were established.

So when the beneficiaries of these special funds come before the legislature each year, they don’t have to deal with the pressure of having to justify every request they make as the funds can only be used for the programs or services allowed under the terms of the special fund. Although lawmakers can question how the monies were used in the past, there is little they can do to withhold the funds for new appropriations.

Contrast that with the budget process when it comes to programs and services which are underwritten with general funds. Department heads, program and division managers must justify not only their request for the upcoming biennium, but they must also justify why they didn’t spend everything that they were given in the last budget go-around. That’s because if a department or program didn’t use every dollar they were given last time, then lawmakers might be a little skeptical about giving the program as much as it is requesting for the next two years.

If lawmakers don’t need to appropriate as much for a particular program, they know that they can redirect the funds to another program that they may deem of greater need or priority for those general funds. Because a multitude of programs are financed with general funds, the competition is fierce as department heads and program and division mangers justify why their program should be funded. This competition for general funds insures that taxpayers get the best bang for their buck as lawmakers decide the use of those funds from program to program.

Not only do lawmakers know how the general funds will be spent, but they can also question whether or not the strategy or planned use of the funds will be the best use and if it will accomplish the goals set for the program. In some cases, they may even be able to find out who will be the contractor on a specific project or perhaps even know what the design or implementation of the program or service will look like. Again, much of this information is shared with lawmakers as part of a department’s or division’s effort to convince lawmakers to fund their particular program, project or service.

With special funds, such may not necessarily be the case. For example, when the nickel per barrel fee on all petroleum products imported into the state was first established, lawmakers had no idea of how the money was to be spent except that it was to be used to clean up the shoreline should an oil spill occur. However, when a legislator made some inquiries, much to her surprise, she found that the money from that tax was being spent on trips for “training” and buying expensive filing cabinets and office furniture. The administrator’s excuse was that his staff needed training in how to clean up oil spills and the furniture was needed to house the staff that oversees the fund.

While those excuses may have been legitimate, it certainly does not meet the expectations of lawmakers when they approved the establishment of the tax and the special fund. And that’s the problem with the plethora of special funds spawned over the past two decades. At a time when politicians like to espouse “transparency,” special funds are the antithesis of accountability. Neither lawmakers nor taxpayers can be sure of how those monies in special funds are being spent. As they say, “Out of sight, out of mind.”

Finally, advocates of special funds argue that special funds indicate how important the programs they fund are to the public and to policymakers, for that is why the funds were approved. What they don’t like to admit is that those programs were of such low priority to policymakers that they could not compete for general funds.

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