Standardless Spending, Part 2?
By Tom Yamachika, President

A few weeks ago, we wrote about how the State’s procurement law was suspended by Governor’s Emergency Proclamation.  We argued it meant standardless spending, and we were delighted to report last week that the issue was addressed in the most recent Emergency Proclamation. 

In a prior article and a follow-up, we followed $1.25 billion of federal money that the CARES Act set aside for Hawai’i.  We could have it if we could actually spend the money by year’s end. 

The Legislature spent much time figuring out how to allocate those funds between the agencies that wanted them and passed an appropriation bill. The Governor line-item vetoed more than $300 million of those appropriations, and then used the $300 million for the Hawai’i restaurant card program.
 
Now, I don’t think the restaurant card program is a bad thing, but I do have a concern with how the money got there. The Legislature is supposed to dole out our money between competing priorities. The Governor is spending $300 million on something else. 

As for the other $500 million that the Legislature did appropriate, we are worried about standardless spending there, as the State Auditor pointed out in a recent report. 

As we mentioned, the federal money has strings attached. It must be spent on previously unbudgeted, COVID-19 related, expenses.  The State needed to designate a point of contact for the Federal Government so they could figure out if the conditions were being complied with.  That contact was in the Department of Budget and Finance (B&F).
 
So, what kind of oversight is B&F exercising over the $800+ million in appropriated and non-appropriated money, to make sure it meets federal requirements as well as normal budgetary procedures and controls?
According to the Auditor’s report:  None. 

B&F basically told the departments, “Here’s your money.  Go spend it.”

Are we going to “spend every penny,” as the Governor promised, before year end?  And in accordance with federal requirements?

It’s going to be tough.  Already the Auditor has noticed inconsistencies in how money is being tracked.  “In our review of CRF funds [Coronavirus Relief Fund, i.e., CARES Act money] reports,” the Auditor wrote, “we found significant discrepancies in the State’s accounting of moneys allocated, encumbered, and, most importantly, expended.  This inconsistent monitoring and tracking of CRF moneys raise concerns about the State’s ability to distribute the funds in a proper and timely manner.”

Uh-oh.  It looks like we may be going down the path of standardless spending again.  That path has a much higher risk of undesirable outcomes.  If we can’t figure out how much we’ve spent, we might spend too much and thereby spend money we don’t have.  Or we might not be spending enough or for the right things, either of which could result in having to repay Uncle Sam.  To get off this path, we need coordinated tracking, and we need standards.  This is something we can’t afford to get wrong!

Where's All the Money?
By Tom Yamachika, President

For most of us, if we are asked how much money we have (perhaps by a bank or credit union that is considering lending us money), answering the question isn’t terribly difficult. Look up a bank account or two, add a brokerage account if we are fortunate enough to have one, and we go from there. 

For our State government, apparently it’s not so easy. Not only do the state accountants need to deal with general funds and the money there, but we have hundreds of special funds—little pockets of money held for different purposes. Sometimes there’s an associated bank account, sometimes not. Sometimes there is a law establishing the special fund, sometimes not (agencies can and do establish funds administratively). 

In an attempt to keep track of the money, the Legislature passed a law requiring agencies to report on the special funds they have, and then they sent the State Auditor to check up on the agencies to make sure they did that.  According to the Auditor’s reports, some of which we have covered in this space, sometimes agencies comply with the law, sometimes not. And there are no real penalties for disobeying the law—the Auditor can’t put a delinquent director in the imu at the next luau with a pig roast, for example. 

Does it matter?  Well, consider Auditor’s Report No. 20-08, which concluded: “More than $483 million in excess moneys may be available to be transferred from 57 special and revolving fund accounts to the General Fund without adversely affecting programs.”  That report followed another report, No. 20-06, which “identified $2.28 billion within 257 accounts associated with departments’ special and revolving funds that either had no financial activity during the past five fiscal years (FY2015 through FY2019) or had fiscal year ending balances that were significantly more than necessary to support the associated programs, based on the funds’ average outflows over the past three fiscal years.”  

There are idle funds holding money.  Lots of money.  And this is only for the funds that the Auditor knows about.

If our government wants to take extreme measures such as cut back on core services and ask Joe and Jane Taxpayer to dig ever deeper into their pockets, there better not be millions or billions of dollars just laying around.

So, what we need to do is something a little more radical to make sure we know where the money is.

Let’s pass something that says that ALL funds—general, special, or revolving, statutory, administrative, or anything else—are maintained by the Department of Accounting and General Services (DAGS), the folks who are supposed to cut all or most of the State’s checks now. Agencies can spend the funds to the extent they can do so now, but DAGS gets the bank statements.  (Of course, if the Legislature doesn’t like the extent to which a certain agency is spending money, it can change the law.) 

If an agency tries to pull the wool over DAGS’ eyes, the responsible party can be punished for theft.  People can go to the hoosegow for that.  By the way, our law (HRS sec. 708-830) already defines theft to include “failure to make required disposition of funds.”

Once we have a single agency responsible for keeping track of all the State’s money and measures in place to ensure that other agencies aren’t stashing cash in a closet somewhere, we should be able to figure out how much money we have.  Then we, as the public, can have more confidence that our government can figure out its financial condition and tell us in the public the truth about it.

A Ham-Fisted Way of Getting Folks Back to Work
By Tom Yamachika, President

Here in the City and County of Honolulu, lots of people are out of work, especially in the hospitality industry.  At some point the economy will reopen, and people will start occupying hotels again.  Then, according to a proposal before the Honolulu City Council, we force the hotels to rehire people to their old jobs.  Or comparable ones. 

The proposal is called Bill 80.  One of its first provisions says, “A hotel employer shall recall to active employment the same number of employees in substantially the same classifications as the hotel employer’s active workforce on March 1, 2020, adjusted by the ratio the occupancy of the hotel bears to 100 percent.  A hotel employer must clean and sanitize every occupied guest room every day and must employ a number of housekeeping employees to ensure that this standard is met.”

The bill then mandates that an employer offer its laid-off employees all job positions which become available for which the laid-off employees are qualified.  Qualified means that the employee held the same or similar position at the enterprise at the time the employee was laid off, or the employee is or can be qualified for the position with the same training that would be provided to a new employee.

The positions the employer would need to offer would need to be in the same classification or job title with substantially the same employment site (with some exceptions), duties, compensation, benefits, and working conditions as applied to the laid-off employee before March 21, 2020.

The provisions in the ordinance could be enforced by private lawsuit, and if the employee wins the employer would need to pay the employee’s attorney’s fees.
So far, the hotel workers’ unions are pushing the bill and are getting individual employees (or former employees) to testify in favor of it.  The hotels are screaming bloody murder.  The bill has been cleared by one Council committee, paving the way for it to receive a public hearing before the Council.

One of the fundamental questions this bill raises is, how far does government power extend?  We as a country brag about the free enterprise system in our economy.  But is it really free when government can dictate who to hire and how much to pay?
We raised concerns about minimum wage legislation which is, when you look at its structure, a prohibition upon hiring unless the employer can pay a certain amount.  The upshot is that employers are given a disincentive to hire.  The same can be said here.  Would hotels really want to reopen if the government shoves hiring decisions down their throats?

There are also sovereignty issues.  Our federal government has a National Labor Relations Act, and the Supreme Court held in San Diego Building Trades Council v. Garmon, 359 U.S. 236 (1959), and many cases since, that the Act displaced state and local power to regulate broad aspects of labor relations.  We also have a State Department of Labor and Industrial Relations, and various statutes that regulate the balance between management and labor.  If those statutes are to have meaning, counties arguably should not have the power to upset that balance.

It seems to us that rehiring and recall decisions should not be made by a government less acquainted with the economic damage that has befallen employers as well as employees.  The weighing of woes, the back-and-forth, and the agreements can and should be made at the bargaining table. 

And while we’re at it, perhaps we should be re-examining other employer and employee mandates, including payroll taxes, to see if they really are necessary or are at an appropriate level, especially when the normal management-labor dynamic has been scrambled by the pandemic.