​TANF Hoarding
 
One of the ways our government provides a safety net for those less fortunate is through a program called Temporary Assistance for Needy Families, or TANF.  TANF was enacted in 1996 as a program that replaced Aid to Families with Dependent Children (AFDC), which used to provide cash assistance to families with children experiencing poverty.  Under TANF, the federal government provides a block grant to the states, which then use these funds to run their own programs.  To receive federal funds, states must also spend some of their own dollars on those programs and face severe fiscal penalties if they fail to do so.  This state-spending requirement, known as the “maintenance of effort” (MOE) requirement, replaced the state match that AFDC required.

States can use federal TANF and state MOE dollars to meet any of the four goals set out in the 1996 law: (1) assisting needy families so children can be cared for in their own homes or the homes of relatives; (2) reducing the dependency of needy parents by promoting job preparation, work, and marriage; (3) preventing pregnancies among unmarried persons; and (4) encouraging the formation and maintenance of two-parent families.

These goals are broad, giving states lots of freedom to use these federal dollars in a way that they think brings about positive outcomes.

So what have we done with the federal TANF money?

We’ve let it pile up unused.

ProPublica, a nonprofit newsroom that investigates abuses of power, recently published an unflattering article that calls out several states for doing nothing at all with large sums of money.  It reports:  “According to recently released federal data, states are sitting on $5.2 billion in unspent funds from the federal Temporary Assistance for Needy Families program, or TANF. Nearly $700 million was added to the total during the 2019 and 2020 fiscal years, with Hawaii, Tennessee and Maine hoarding the most cash per person living at or below the federal poverty line.”

​Source:  U.S. Department of Health and Human Services

As this graph shows, the “unobligated balance” of the federal block grants, meaning federally authorized money that we haven’t spent, has been rising steadily over the last five fiscal years.  In federal fiscal year 2020 (the year starting Oct. 1, 2019, and ending Sept. 30, 2020), our unobligated balance was $364 million, equivalent to almost $3,000 per person living in poverty.

Certainly, we have been using part of the TANF money.  But we have been spending quite a bit of our own funds:

According to ProPublica, a Hawaii state spokesperson said that our state government plans to use its surplus to extend employment services like job coaching and placement for noncustodial parents who have children receiving TANF and to provide diaper assistance to families that are eligible for the program.  The state is also considering increasing benefits and offering monthly housing assistance.

The question, however, is why has it taken so long for our bureaucrats to come up with ways to put that money to good use?  It certainly won’t help alleviate poverty if it’s sitting in some bank somewhere.

Legislators and other interested people:  Here’s your chance.  The Legislature is now grilling each of the Executive Branch departments for answers on how they plan to spend your hard-earned dollars.  It’s a great time to ask the Department of Human Services what the heck is going on with their steadily growing wad of unused TANF cash.

​The New County TAT Earmarks Aren’t the Real Problem
 
Honolulu, just like most of the other neighbor Island counties, has passed a 3% addition to the Transient Accommodations Tax (TAT).

It had to.

The State was giving it millions of dollars a year in revenue sharing, but in 2020 the Governor shut off the spigot using his emergency powers and in 2021 the legislature made that permanent.  “We’ll keep the money permanently,” they said, “but you counties can enact a TAT of your own.”

Here in Honolulu, enactment of the county TAT was pretty much a foregone conclusion.  But there was lots and lots of debate over earmarking the money.  This much goes to the General Fund.  This much goes to the Transit Fund (i.e., rail).  The final version of the bill also sets up a special account in the general fund, which must be used to “mitigate the impacts of visitors on public facilities and natural resources, including the restoration, operations, and maintenance of beaches and parks,” and to “supplement, and not supplant, any funds regularly appropriated for those purposes.

May I suggest, though, that these debates are meaningless.

Suppose I had three bank accounts, one called “General,” one for “Vacation,” and one for “House Maintenance.”  I dutifully put some money into each account every month, pay my house maintenance expenses out of the House Maintenance account, and pay other expenses out of the General account.

Then tragedy strikes!  My spouse gets sick and has to go to the hospital.  Because I don’t have a diamond-studded platinum health plan, the health insurance only pays a certain percentage of the hospital bill, leaving a good chunk for me to absorb.  My mortgage is due in a few days, and my General account doesn’t have enough to pay it.  Do I preserve the other two accounts, let the mortgage fall into default, and cringe while waiting for the foreclosure notice?  Not a chance.

The Honolulu rail project is hitting some serious bumps in the track. 

The wheels don’t fit the rails (or the rails don’t fit the wheels). 

Someone forgot that there’s electric power needed to get a train moving – a lot of power –every time a train leaves a station, so that other customers on the power grid might be impacted if the trains simply pull power out of the grid without doing anything to protect the other users.

And now, HART needs to start building the rail track in urban Honolulu, which is going to be quite a bit more complicated, and may contain more surprises, than building in the suburbs or in rural areas.

These surprises may require more than the Transit Fund is going to have.  Are we going to preserve the General Fund and the visitor mitigation (or whatever it’s going to be called) fund while letting the City & County of Honolulu go into default, wrecking its bond ratings in the process? 

Although that decision may be made by future City Councils and not this one, we can bet that we won’t be worrying about the integrity of the special funds as much as we would be worrying about how to pay the City’s bills.

Which is why, when we are examining county council actions like this one, we need to pay more attention to the reality of the action (a new tax is being imposed) rather than the “earmarks” on that tax (which may become entirely meaningless once financial reality sets in).  As voters and taxpayers, I suggest we be more watchful of what issues are threatening to give us even more cost overruns, and that we insist that our politicians who are (or want to be) in that office give us some action on those issues now.

​Tax Isn’t a Peanut Butter Cup
 
Once upon a time there were some property developers on Oahu.

They thought that agricultural development would be a good thing.  There were lots of tax incentives associated with agricultural development.

Then they got the idea that putting some solar panels on the land would be a good thing too.  There were lots of tax incentives associated with renewable energy.

So, they put some solar panels on the agricultural land too.

We have agriculture.  And we have renewable energy.  Are these two great tastes that taste great together?

Come on.  Let’s be real.  We’re talking about property tax, not a peanut butter cup.  It turned out to be a recipe for disaster.
Clearway Energy Group, for example, submitted testimony to the Honolulu City Council of their plight.  These folks built two solar projects on agricultural land, and, they said, incorporate compatible agriculture into their ongoing operations.  Solar energy generation is an allowable use on agricultural zoned land under the city’s Land Use Ordinance, they argued.
But the real property tax folks saw the situation a little differently.

To get the special ultra-low property tax rate for agricultural use, the landowner had to make a “dedication agreement” with the tax authorities.  Basically, the landowner promised to use the property for agriculture for a certain period of time.  The tax folks saw solar panels on the properties and said, “Uhm, that’s not agriculture.”  So, they took away the ultra-low tax rate, and, while they were at it, they took away the property’s agricultural classification.  It’s industrial property, they said, which happens to be taxed at a rate more than double the agricultural rate even without any dedications.

At the end of the day, Clearway had a real property tax bill of $30,154 for the 2020-21 tax year (they go with a fiscal year ending June 30), but for the 2021-22 tax year the bill jumped to an eye-popping $835,710.

Clearway’s tale of woe attracted a lot of attention, so much that the Council is now considering Bill 39, which is supposed to address this problem, and state agencies aplenty, including the Governor, the State Energy Office, and DBEDT, have weighed in.

One of the reasons behind this kerfuffle is that this is not just Clearway’s problem.  Any solar project that is located on agricultural land is subject to this kind of reclassification, and the financial impact would vary depending on how much solar went on the land and how much of the land was previously subject to the ultra-low rates for land dedicated to agriculture.

And then, of course, there is the issue of who is going to pay the enhanced tax if the real property tax folks’ methodology is upheld.  Clearway and the other power producers have long-term agreements with power buyers such as Hawaiian Electric.  If this enhanced charge becomes Hawaiian Electric’s problem, it then becomes a problem for all of us who pay electric bills.  If the enhanced charge impacts the developers, it will send shock waves through the industry of people who finance renewable energy projects because of the risk of a property developer getting overwhelmed by this tax surprise and thereby going into default on its financing.

What a mess!

Ultimately, the City might legislate itself out of this situation, making some allowances for solar and agriculture peanut butter cups.  But for the rest of us the moral of the story is that two great tax-favored tastes won’t always taste great together, and one must be extremely careful when mix-matching tax incentives.