Ka Wai Ola - Office of Hawaiian Affairs, Volume 6, Number 2, 1 February 1989 — Taxes and You [ARTICLE+ILLUSTRATION]

Taxes and You

"Spend Today, Taxpayers Will Give Us More Tomorrow"

Lowell L. Kalapa Tax Foundation of Hawaii

With the spotlight back on government as the state legislature reconvened last month, the question of taxes, tax rebates, and what to do with that huge surplus is a topic of conversation. Although there have been indications that there will be a refund of some sort or an adjustment of

the tax structure, these issues are peripheral to what should be a major eoneem to all taxpayers. At the end of fiscal 1988, the cash balance in the general fund commonly referred to as "the surplus" stood at nearly $471 million, growing by nearly $132 million during the 12 month period from July 1, 1987 to June 30, 1988. It is projected that the surplus will remain at that level when the current fiscal year comes to an end on June 30 this year. This belief is based on revenues equaling the amount of expenditures already authorized by the legislature for this year.

It is this looming surplus that has caught the eye of a number of people. Although there are those who are calling for the surplus to be rebated to taxpayers and others who believe it should be "banked" for a rainy day, some of the "key" players in this whole scenario believe that it should be

spent on some "worthy" initiatives and causes. Taxpayers should be deeply concerned that leading this charge to spend the surplus is the state administration. Included as part of the state message and outlined in general numbers is the recommendation from the state administration to spend an initial $250 miilion in environmental and educational initiatives during the next fiscal year. This is to be followed by another $150 million to be spent on education during the fiscal year 1991.

These initiatives will be in addition to cost of pay raises of public employees. While those pay raises have yet to be worked out at the bargaining table, there is already speculation that the stakes will be high as a result of that large surplus. Obviously the public employee unions have had their eye on the surplus target. While pay raises are certainly a topic for labor negotiations, it also appears that the public employee unions are looking to add certain fringe benefits to the pay package whieh over the long term could add substantially to the cost of operating government.

The state administration is also recommending that during fiscal 1990 nearly $262 million in general fund cash be used for capital improvement projects whieh represent public facilities or buildings. This is nearly double the amount of cash that was called for in the emergency rehabilitation of the state's school facilities two years ago. Generally, capita! improvements are financed with money borrowed through the sale of bonds. This allows a major facility whieh will serve generations of tax-

payers to be paid by those who will use the facility. Using cash to pay for such a facility merely speeds up the construction time as government does not have to undertake the lengthy task of going to the bond market to borrow the money. Thus projects ean be "delivered" sooner than they otherwise would be if financed with borrowed money.

So why should there be such a great eoneem for taxpayers? It appears that the state administration is delivering all of these promised public services. The key point to remember is the level of spending. As proposed, the administration's budget will go over the constitutionally mandated eap on general fund expenditures. Of course, the budget would have to be adopted by the legislature, but the very fact that the state administration is calling for the ceiling to be exceeded sets a bad precedent.

Under the provision proposed by the 1978 Constitutional Convention and adopted by the voters, general fund expenditures are not to grow any faster than the growth in the state's economy. The rationale was that government would be allowed to grow in direct proportion to the growth in the eeonomy that pays the taxes whieh keep government running. Of course, the ceiling is not hard and fast and does provide a mechanism by whieh the ceiling ean be exceeded. However, the intent was that state government should try to live within a reasonable budget relative to the state's economy.

Some might argue that since there is a surplus, government might as well spend it; besides, these initiatives sound pretty good. The fallacy in this argument is that onee over the spending limit,it will be even easier in the future to ignore the constitutional mandate. At that point, there is really no use for having a spending ceiling. Others might argue that these initiatives and eapital expenditures are "one-shot" deals and that this one-time blip on the screen will not mean added costs in the future. Certainly onee a building is constructed, it's built, you can't ignore it, it's there. On the other hand, someone has to sweep the floors daily, the electricity bills have to be paid and sooner or later, it will need a coat of paint or for that matter a new swimming pool will need a lifeguard. Definitely, these are not one-time costs.

Some might argue that the surplus should not continue to sit out there as a target for public employees collective bargaining or for organizations to whittle away at to get government support or for that matter to expand existing public programs. Those who subscribe to this school of thought are, intentionally or not, ignoring the taxpayer and the fact that perhaps the burden of taxes should be lowered on the poor soul.

Perhaps the greatest insult to the taxpayer eame last month in the state's resporise to the counties' request for more state financial assistance. In essence, the counties were told to go raise their own funds and not to look for some of the surplus dollars, as those surplus dollars "belong to the taxpayers." Little did state officials acknowledge that they are going whole hog in spending those dollars while throwing crumbs to taxpayers. Finally, if the legislature adopts this plan to exceed the spending limit, and the economy sours in the next few years, will the state be able to reduce or eliminate programs that cannot be funded because revenues are not sufficient or will the easy alternative be to raise taxes?

If it is a matter of having an embarrassing large state general fund surplus, then perhaps the only reasonable alternative is to return some of those moneys in the form of a reduction of tax rates. Exceeding the spending limit as is being proposed merely reflects the fact that public officials cannot set priorities, as "they would like to have their eake and eat it, too."