The State Council on Revenues significantly reduced the revenue growth projections that are used to determine the budget spending levels for the two upcoming fiscal years. Specifically, the Council lowered the revenue growth forecast for FY 2014 from 3.3% to 0% and for FY 2015 from 7.4% to 5.5%. This downward forecast is important because it will be used by the legislature in the current budget negotiations. At the present time, only the Governor and the House have formally introduced their respective drafts of the state operating budget. However, the House budget is expected to cross over to the Senate this week and the Senate is expected to release its version of the state operating budget in the following weeks.
Now, what are the implications of the current forecast with respect to the various budget drafts and the $844M carry-over surplus?
The downward forecast means that the state has now fewer projected revenues that could be used to fund some of the proposed spending initiatives. As Table 1 indicates, both the Governor and the House budget drafts are not in balance. Because of the imbalance, more than $500M of the current $844M carry-over surplus is projected to be swept away.
In addition, what is largely excluded from the discussion in the media is the fact that the current budget doesn’t account for the required payments the state is obligated to make to pay down its unfunded liabilities for the EUTF. The EUTF is the health insurance trust fund for current and retired state and county employees. Last year, the governor signed into law ACT 268, which requires that the state in FY 2019 will have to pay 100% of the annual required contribution that is needed to pay down the current $13 billion unfunded liability for the EUTF. Under the current budget proposals, only $100M of the required $500M is included. In absolute terms, it really means that the projected carry-over balances in FY 2015 are not somewhere around +$300M but rather closer to -$100M.
Finally, what does the downward revenue forecast signal about the overall economy?
Last year’s $844M surplus has often been politicized and interpreted as a sign of an improved economy. Coming out of the recession, many states experienced significant budget surpluses similar to Hawaii’s. However, according to The Rockefeller Institute, “Any of the unexpected surges in state revenue growth in 2013 is (sic) at least in part borrowed from the future. It will be tempting to treat unexpected revenue growth as a sign of continuing economic improvement, when it could mean instead that future revenue will be lower.” This week’s Council on Revenues confirms the notion that last year’s surplus is not based on an improving economy and that the legislature should be cautious with respect to spending decisions on new initiatives.
 State Budget Crisis Task Force: Final Report, page 4. (2013). http://www.statebudgetcrisis.org/wpcms/wp-content/images/SBCTF_FINALREPORT.pdf
by Paul Harleman, Senate Minority Budget Director
To the majority of taxpayers who are not accountants, the amount of money that government is currently spending in the esoteric categories of “tax exclusions,” “tax exemptions,” “tax deferrals,” “preferential tax rates,” and “tax credits”–though significant–essentially becomes invisible.
Senator Slom is firmly committed to transparency in government, and has introduced SB2153 to require the Department of Taxation to provide an annual report on the estimated costs of all tax expenditures, as well as an analysis on whether or not the expenditures have achieved their intended purposes. This way, state government is held accountable for the cost-effectiveness of every type of tax expenditure.
by Lisa Davidson, posted 2/6/14
Senator Slom talks to Lowell Kalapa of the Tax Foundation of Hawaii.
State Senator Sam Slom talks about taxes, the economy, government, the legislature and more in this latest edition of HawaiiReporter.com‘s News Behind the News.
February 12: Senate Floor Session, Day 17: No floor votes. Several bills passed 2nd reading and moved on to the next committee.
February 11: Senate Floor Session, Day 16: The State Senate passed 4 bills on Third Reading to the House of Representatives. They are SB 328 “Relating to Animals” (landlord-tenant code, security deposit); SB 1116 “Relating to Definition of Public Housing Project”; SB 319 “Relating to thrill-craft” (use of thrill-craft in ocean clean-up); and SB 454 “Relating to Water Conservation” (gray water irrigation).
February 8: Senate Floor Session, Day 15: The State Senate passed 3 bills on Third Reading. This included HB 26 HD1 “Making appropriations to provide for the expenses of the Legislature, Auditor, the Legislative Reference Bureau, the Ombudsman and the Ethics Commission.” This is the first bill that crossed over from the house to be approved by the senate this year. The bill now awaits the approval of the Governor.
Reports from the Field
The House of Representatives committees on Water and Land (WAL) and Finance (FIN) committees passed HB 1133 to repeal the Public Land Development Corporation (PLDC) on February 11. In the Senate, the Economic Development, Government Operations & Housing committee (EGH) as well as the Water & Land (WTL) committee voted to pass an amended version of SB 707 out as an SD1 in which the PLDC is also repealed. Senator Slom supports legislation to repeal the PLDC.
New Tax on Sugary Beverages Pass: The Senate Health (HTH) committee passed SB 1085 which “imposes a fee on sugar-sweetened beverages. Establishes the Obesity Prevention Special Fund to support obesity prevention programs.” In a nutshell this is a new tax on every ounce of any sugary drink purchased by consumers. Senator Slom who opposes all new taxes and the creation of new special funds was the only Senator in the committee to vote against this new tax. The Senator will continue to oppose this bill and the tax as it moves to WAM and third reading votes.
In the Transportation Committee hearing yesterday (Feb. 11) Senator Slom also voted against the red light camera proposal (SB 693) that would allow a camera to take a picture of drivers and car license plates as they cross intersections against red lights. Senator Slom also voted against this bill 2 more times in the Public Safety (PSM) and Technology & Arts (TEC) committee since all 3 committees were at a combined hearing.
Top Photo: Senator Sam Slom commenting at the Senate TIA Hearing.