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Capitol View

By Richard Borreca

Wednesday, May 10, 2000

Hawaii’s budgetary
magic show

THE March miracle showed up a little late this year, but when the boys in the back room needed the bucks, the money was there, thanks to Hawaii's annual budgetary magic show.

For the second year in a row, the Legislature has saved the state budget by dipping into the extra money stashed away in the state Employee Retirement System.

Last year the Legislature was able to fashion a budget after passing a law saying that excess money in the fund belonged to the state.

This year the move was even more ham-handed. The legislature found money that the state mistakenly put in the ERS. More about all that later.

If Hawaii balances the budget with found money and relying on the generousity of strangers, how do other states make the economic scales balance?

Here's what is happening in California this month. Long-time Sacramento Bee columnist Dan Walters notes: "California's red-hot economy is pumping as many as 13 billion extra dollars into the state treasury."

That is 13 billion extra, more money than it would take to run everything and pay every bill for the state of Hawaii for two years.

California is already set to increase the state school budget by $1.6 billion this year and now there is speculation that Gov. Gray Davis will double it. If he does so it will increase the amount California spends on each pupil by $700.

This largess is not unique to the Silicon Valley-fueled California economy. Economic expansion is making this spring a time of growth for budgets across the nation.

"You are starting to see -- among Republican governors, by the way -- budget increases of 6, 7, 8 percent a year. States are continuing to cut taxes, too. But the money is coming in so fast they haven't kept pace," says Stephen Moore, an economist at the conservative Cato Institute in Washington.

Some examples: Gov. Tom Ridge of Pennsylvania plans a $100 rebate for each of the state's 3.3 million homeowners; Gov. Jesse Ventura of Minnesota is handing taxpayers $1.3 billion in sales-tax rebates and New York's Gov. George Pataki is lopping $1.25 billion from the state's debt.

The booming mainland economy has just not hit Hawaii.

Real economic growth means real job growth. Hawaii's economy is better than it was last year, but when you are dealing in percentages, things can only go down so far before they start to stabilize.

HERE'S an example. Remember Michigan, remember Detroit with its 10 percent unemployment and closed factories? A series of tax cuts re-primed the pump and the state is now booming.

"Automobile workers are working overtime and earning an average of $60,000 a year. On top of that, they are collecting $8,000 and $10,000 annual bonuses -- all taxable income that feeds the surplus," the New York Times reports.

This is not the same as discovering overpayments to the retirement system one year or chopping contributions above 10 percent as the Legislature did last year.

Give or take a few stock market twitches, the ERS is worth $9 billion, so there is reason to look to it for a budget-balancing act.

But can the stock market go down, can the ERS keep growing and can the Legislature keep its hands off the pot next year?

Eventually, there will be no more March miracles. The Legislature will either run the check book into the red or the state economy will start making jobs and real growth.

Legislature Directory
Hawaii Revised Statutes
Legislature Bills

Richard Borreca reports on Hawaii's politics every Wednesday.
He can be reached by e-mail at

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