Constitutional Expenditure Controls

by Tom Yamachika, President, Tax Foundation Hawaii

Recently I was reading through the proceedings of the 1978 Constitutional Convention.  The last time our State had a constitutional convention was almost fifty years ago.  The delegates to that convention included several people who are political luminaries now.

One of the things that the delegates were trying very hard to do was to give our lawmakers flexibility to do what needs to be done for our people, while also being fiscally responsible.  To do that, they proposed, and the voters approved, expenditure controls.

And, over the last fifty years, our lawmakers have tended to regard those provisions as bothersome annoyances, to be worked around or avoided.

For example, the convention proposed a provision saying that when our general fund balance is more than 5% of general fund revenues for two years in a row, then lawmakers would be obligated to enact a tax refund or tax credit to give some money back to the people, but the provision didn’t specify how much.  As we previously wrote, lawmakers gave us a measly $1 for 15 out of 19 years in which the requirement was triggered between 1981 and 2009.  After that, voters approved a legislature-proposed amendment that allowed the legislature to feed our rainy-day fund instead of giving us credits.  No general income tax credit has been enacted since then.  Later constitutional amendments allowed the legislature to satisfy the requirement by depositing money in other funds, and in recent years the legislature money committees routinely consider a bill to either bring back the general income tax credit (which is always cut from the final version) or feed one or more of the other specified funds.

The convention also proposed, and the voters adopted, a provision imposing an expenditure ceiling on our government.  It directs the legislature to establish a General Fund expenditure ceiling to limit the rate of growth of General Fund appropriations, excluding federal funds received by the General Fund, to the estimated rate of growth of the State’s economy.  But the provision also said that the ceiling can be breached with a 2/3 vote in both houses by a bill specifying the reasons for the breach.  We wrote about that provision more extensively in 2018.  Now, as then, such a bill is routinely considered and passed by the money committees, and our legislature has passed this bill so often that such a bill merits nary a mention in any of our news media.

There is also a “lapse provision” saying that agencies need to spend their appropriations within three years.  This is to prevent any legislature from tying up money and preventing it from being used by future legislatures.  But our legislators have worked around this requirement as well, primarily by enacting special funds that, at least in theory, are not subject to the three-year lapse provision and also do not count toward the spending ceiling.  Although special funds are supposed to be used only for self-sustaining programs and thereby have little or no budgetary impact, special funds have proliferated out of control.  The State Auditor complained about such funds in Report No. 16-02 where there were only 729 non-general funds; by 2020, in Report No. 20-06, the number of special and revolving funds had swelled to 1,877.  This year, as we reported earlier, legislators proposed 86 more special funds, and the State Auditor found that exactly zero of them met statutory criteria that define a legitimate special fund.

Lawmakers, we hope that someday you realize that these expenditure controls were designed to protect our government from itself.  We have enough financial crises to worry about without dealing with one of our own making!