Federal COVID Money
By Tom Yamachika, President

This week our Legislature will be recessing after working on one of its important tasks:  figuring out how to spend $1 billion of federal money that is being made available to Hawaii under the CARES Act.

This federal money is being made available for expenditures that are (1) necessary and incurred due to the COVID-19 public health emergency, (2) not budgeted for as of March 27, 2020, and (3) incurred before December 31, 2020.

Senate Bill 75, House Draft 1, gave the Neighbor Islands a share of that money because only Honolulu received a direct allocation of federal funds; gave a few state agencies some money for state COVID response; and then squirreled away the balance, about $636 million, into the emergency and budget reserve fund (also known as the “rainy-day fund”).

Why was it put there?  According to Senator Thielen’s article in Civil Beat, it was put there so the governor couldn’t touch it.  Apparently, the plan is for the Legislature to recess until mid-June, come back into session, and then appropriate the balance of the money so it can be spent by the end of the year.  Senate Bill 75 requires that the money to go a new, separate account within the rainy-day fund, which perhaps would make it easier to say that expenditures out of this account came from the COVID-19 money rather than the $395 million that is already in the fund.

Some have pointed out that the rainy-day fund statute, HRS section 328L-3, not only prevents the money from being spent by the Executive Branch without a legislative appropriation, but also prevents the Legislature from appropriating more than 50% of the total balance of the fund in a fiscal year.  True; if that statute is left alone, it would prevent the Legislature from using all the federal money, which would result in forfeiture of some of the federal funds that have been set aside for Hawaii. 

Thus, the Legislature’s plan must be to also amend the rainy-day fund statute in some way to allow the appropriation.  Can they do this?  Sure, if the Governor is willing to sign the resulting appropriation bill.

But remember that the Governor doesn’t have to play by the rules either.  We have seen that he isn’t shy about using his emergency powers to suspend laws.  His most recent Eighth Supplementary Proclamation has a list of suspended laws that is 20 pages long, and we have already written about how this Governor has suspended a law that affected distribution of tax revenues to take control of moneys that the Legislature had earmarked for the counties. 

If push came to shove, he could easily suspend the rainy day fund statute and take control of that money as well, relying, perhaps, on HRS section 26-8 which gives the Department of Budget and Finance custody of all state funds. 

What all of this means is that the Governor, the Legislature, or both could get into a big, messy argument on how to best use the billion dollars that our federal government has graciously provided.  We need to remember that if we don’t reach agreement on how to use this money, and then actually use it, by the end of this calendar year that the money will return to (or stay in) the United States Treasury. 

We can park the money in the rainy-day fund as a short-term solution, but we don’t have time to argue about it!  We need both parties to come to the table, come to some agreements and understandings on how best to use this money toward helping the general welfare of this State, and then do it before time runs out.

Download "Road map to prosperity "

The institute urges best practices for a successful recovery

HONOLULU, May 22, 2020 >> The Grassroot Institute of Hawaii today published a new policy brief, "Road map to prosperity," that offers almost two dozen proposals regarding how Hawaii can recover and even excel after the state's economically devastating coronavirus lockdown.

As the document states, Gov. David Ige and the state’s four county mayors were able to shut down Hawaii’s economy quickly in early March, "but restarting it is a different matter. It is not as simple as flipping on a switch. Even with the best of intentions, our state and county governments do not have the resources or ability to bail out every business or family in the state. Nor is it possible to manage away all health and safety risks."
Urging Hawaii policymakers to "focus on the fundamentals," the brief lists almost two dozen policy options that could help get people back to work in Hawaii, covering economic opportunity, healthcare, transportation and the state budget.

It challenges the many calls for greater government spending, borrowing and taxing, reminding that all such practices ultimately fall on taxpayers, whether now or in the future.

Acknowledging the calls for greater economic diversification, the policy brief states: "The reality is that tourism will always be an essential part of Hawaii’s economy. Thus, the regrowth of the industry must occur with the input of both the large and small businesses that rely on tourist dollars.

"Along the way, the governor, Legislature, mayors and county councils should roll back the many laws and regulations that stifle the industry, from high taxes and excessive regulations aimed at the industry generally to the draconian rules and fines aimed specifically at short-term vacation rentals.

"The biggest hurdles for the tourism industry right now are the 14-day quarantine and widespread fear of tourists being possible carriers of the coronavirus. But at some point, Hawaii residents will need to accept the risks of welcoming visitors back to the islands, and whenever that happens, lawmakers should get out of the way and allow the vacation industry to pursue its own strategies to attract customers."
Other policy recommendations include:

>> Cut nonemergency state spending and department budgets by at least 10%.

>> Defer discretionary public construction projects.
>> Lower barriers to the use of private contractors for the delivery of public services and nonunion contractors on public works projects.
>> Reform the state’s public pension system.
>> Create a state spending cap protected by a vote of the people.

>> Reject any new taxes or fees, including tax or fee increases, for at least two years, at both the state and county levels.
>> Permanently exempt food and medicine from the state general excise tax.

>> Exempt healthcare providers and services from the state general excise tax.

>> Make permanent the emergency measures that expanded telehealth and allowed out-of-state doctors to practice in Hawaii. Consider expanding them to include other medical professionals.
>> Encourage more housing development by expanding urban boundaries, reforming zoning laws on existing urban land and streamlining the permitting process.

>> Enact tort reform to protect businesses during the reopening period.

>> Create a semi-independent airport corporation to manage the state’s airports system.
>> Urge Congress to reform the Jones Act by modifying the U.S.-build requirement.
>> Pause construction of the Honolulu rail for a thorough cost-benefit evaluation.

In the short run, these and other policy recommendations presented by the institute would help revitalize Hawaii's economy quickly, while in the long run they would help it excel.

As the policy brief states:

"The coronavirus pandemic and accompanying shutdowns have created a difficult challenge for Hawaii policymakers. But there is a clear road map, based on historical precedent and best practices, that can put Hawaii back on the road to a strong, healthy and vibrant recovery. All that is needed is for policymakers to embrace the principles of economic freedom."

To learn more about the report, or arrange an interview with Keli'i Akina, institute president, contact Mark Coleman at 808-386-907 or info@grassrootinstitute.org.
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The Grassroot Institute of Hawaii is an independent 501(c)(3) nonprofit policy research organization that seeks, in the spirit of “E hana kakou!” (Let’s work together!), to educate people about the values of individual liberty, economic freedom and accountable government.

Money Laying Around?
By Tom Yamachika, President

During this period of emergency and with our State facing revenue shortfalls of Brobdingnagian proportions, the State Auditor has been busy at work trying to find options for legislators to consider for getting the state budget back on track.

In Report No. 20-07, the auditor focuses on three special funds.

One of them is related to a program known to almost everyone:  the deposit beverage container program, or HI-5 as it is sometimes called.  Previous auditor’s reports, some of which we commented on in this space, complained of irregularities. Even after all of that, however, the program’s special fund has been steadily swelling over the years, to the tune of around $5 million each year.  It now holds nearly $49 million.  What is that money now doing?

The report also mentioned DLNR’s Special Land Development Fund, which is fed by, among other things, ceded land revenues.  In the three years covered in the auditor’s report, the fund collected $47 million in revenues, paid 20% of them to OHA as the statute requires, and then kept more than half of the rest.  The auditor and DLNR then got into a big dispute (see Report No. 19-12) about whether DLNR was allowed to spend that money for its own purposes, thereby bypassing the appropriation process.  The fund now has $36 million in it.

The third fund was also from DLNR, this time its Land Conservation Fund.  This fund is primarily fed by a Conveyance Tax earmark that is limited to $6.8 million per year.  However, its expenses are capped at $5.1 million per year.  The fund now has $33 million in it, of which $16.6 million had not been set aside for projects or program expenses – sitting idle, in other words.  And by the way, many of the projects backed by that fund took multiple years to complete.  Four projects now in the pipeline had been pending for 5 years or more.

In Report No. 20-06, the Auditor performed simple mechanical tests on all the funds in the State’s accounting system.

First, it found that 64 accounts had no deposits or withdrawals in five years.  Most of them are small, but four collectively hold $73 million.  No attempt was made to ask the agencies holding those funds why they still exist; the Auditor left that part up to any legislators who may be interested.

Second, it focused on accounts with average balances for the past three fiscal years were more than double the amount of the outflows (expenditures and transfers out).  The idea was to figure out which funds had cushions in them.  Again, no attempt was made to ask the agencies holding those funds why the cushion was there.  Out of 1,877 special and revolving fund accounts reviewed, 257, collectively with $2.28 billion, met the criteria. 

Some examples are the Dept. of Budget and Finance’s rainy day fund, with $325.9 million and average cash out of zero; DBEDT’s dwelling unit revolving fund, with $154.9 million and average cash out of $17.2 million; DBEDT’s rental housing revolving fund, with $362.7 million and average cash out of $61.7 million; a Department of Transportation account related with the Kapalama Military Reservation improvements, with $109..9 million and average cash out of zero; and its Passenger Facility Charge special fund, with $211.7 million and average cash out of $17.1 million.  These are the five biggest ones, but there is plenty more where they came from.

Can some or all those millions be redirected to other areas of need?  If they cannot, should those funds be paying for things that other, less restricted funds (such as general fund moneys) are now paying for?  These questions need to be asked and answered before we consider more painful revenue raisers like tax hikes.