Why Care About the Dam Special Fund

by Tom Yamachika, President, Tax Foundation Hawaii

About a year ago, we wrote about a special fund that we called the Dam Special Fund, and that we were suing the State over it.

Our state constitution has a number of provisions in it that are designed to control how our government spends our money.  (Not “their” money, hmph.)  Most of these provisions are in Article VII.

Section 11 of Article VII contains what we call the Lapse Provision.  It basically says that when lawmakers appropriate taxpayer money (from the general fund or from general obligation bonds, which are borrowings against taxpayer money) to a state agency, the agency has three years to spend it or encumber it (meaning that the state has a binding contract to spend that money).  If it doesn’t, the money would return to the general fund, to be available for appropriation by the lawmakers who are then in power.  According to records from the 1978 Constitutional Convention where the provision was drafted, the purpose of the Lapse Provision was to encourage agencies to review the programs that they had.  If a program wasn’t working, the agency could get rid of it; if it was, the agency could get reauthorization from current lawmakers so the program could continue.

Some agencies, however, were not on board with the idea.  They tended to view money appropriated to them as “their” money (as opposed to taxpayer money).  They naturally preferred to spend their money when and as they saw fit, without having to be bothered with going back to the square building on Beretania Street again.

Not too long after the constitutional provisions were adopted, someone had a bright idea for a workaround.  The Lapse Provision only applies to spending of general fund money and general obligation bond proceeds.  It does not apply to spending from special funds.  So, they said, the problem is solved if money is simply moved from the general fund to a special fund.

Agencies marveled at the simplicity of this workaround.  Soon, non-general funds began popping up like weeds.  The State Auditor began warning that such funds led to “insidious” financial results  when there were only 166 of them.  Over the years, the number ballooned.  There were more than 1,800 in 2020.  Some are legitimate, such as special funds for self-sustaining programs, as the constitutional convention committee explained.  Some, however, are there to work around the constitutional expenditure controls like the Lapse Provision.  There are now so many special funds that it is impossible for anyone to say with certainty how much money our state government has.

The Dam Special Fund, established by Act 232 of 2024, uses taxpayer money to subsidize repairs on aging dams to mitigate the public safety risks from catastrophic events such as dam failures.  This is a perfectly legitimate use of taxpayer money, as long as it is in line with lawmakers’ priorities which, naturally, change over time.  That is why it needs to be reauthorized periodically and was in fact reauthorized in the 2025 budget bill.  However, the Dam Special Fund was set up — and the bill itself says this — specifically to avoid the possibility of funds lapsing.  We saw the fund as illegitimate and asked the court to declare it so.

The Circuit Court saw the matter a little differently.  It saw only one appropriation of general fund money in Act 232 — a transfer from the general fund to the special fund, which was accomplished within the three-year period.  No constitutional issue.  End of case.  Final judgment is in favor of the State.

But is it really that easy to avoid the constitutional expenditure controls? 

It looks like we will need to ask higher courts to weigh in on this matter.