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State budget on a seesaw


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POSTED: Tuesday, May 26, 2009

If everyone agrees the state budget is balanced, why is there such an unending controversy about it?

The fuss is about how the budget was balanced and how long it will stay that way.

Unlike the federal government, the state can only spend money it has in the bank because the state Constitution requires the budget be balanced.

But this year, lawmakers and Gov. Linda Lingle alternately accused each other of drafting budgets that could not match revenue with spending. Both sides, when the Legislature closed, said the $5 billion-a-year general fund budget was balanced, but question how long it will remain so.

"The Legislature created a budget passed on the March Council on Revenues estimates," said Georgina Kawamura, state budget director. "So based on that projection and everything they did this session there, as long as we have a positive fund balance in all six years of our financial plan, I would consider that a balanced budget."

Kawamura, the county budget director when Lingle was mayor of Maui, was brought to Honolulu by Lingle. In times of financial crisis, like now, the budget director becomes the most powerful person in state government next to the governor.

"Budgets are cut by B&F and department heads are required to determine how those cuts are to be apportioned. ... The director is the figure through whom appeals must go," writes the University of Hawaii's director of the Public Administration Program, Richard Pratt, in his book "Hawaii Politics and Government."

New programs cannot be started, and old ones are subject to Kawamura's review. Now that Lingle has ordered a new 2 percent cut in discretionary funds, Kawamura's power is all the more complete.

Even Kawamura acknowledges that for something that looks like a hard set of numbers, the budget has a startling amount of wiggle room.

Freshman Rep. Isaac Choy, a certified public accountant who also served on the state Tax Review Commission, plowed through about 12 inches of budget books to prepare for his position as a Finance Committee member. After reading all the reports, including the numbing Hawaii Comprehensive Annual Financial Report and the accompanying variance tables, Choy said the budget is not precise.

"They don't account for money very well, if you look at all the footnotes and the restatement of their financial statement. The tolerance level for accuracy is probably $25 million, plus or minus," said Choy (D, Manoa).

Sen. Donna Mercado Kim, a veteran legislator who has served in city or state elective office for 26 years, said Choy's estimate "sounds about right."

"We don't just pull numbers out of the air. The numbers are all based on something, but there are a lot of assumptions built into the budget," said Kim, Ways and Means Committee chairwoman.

For instance, Lingle said in the budget that the Tax Department will collect $10 million more next year from tax cheats and add an extra $10 million in revenues to the budget, but Kim said there is nothing to ensure that figure.

And, the Legislature tacked on a law that allows the state to agree to a national effort to collect state taxes on sales via the Internet. Supporters of the bill said it would bring in an extra $60 million a year, while the state Tax Department estimated just $1 million.

"We compromised at an extra $10 million," Kim (D, Kalihi-Moanalua) said.

Adding to the uncertainty is the money in state special funds. The money is part of the budget, but it is directly earmarked for specific programs. Today more than $2 billion is sitting in more than 160 special funds, ranging from the Airport Revenue Special Fund to the Sport Fishing Revolving Fund.

According to critics such as Marion Higa, state auditor, state money dedicated to a special purpose does not get much legislative scrutiny, and if the fund has more than is needed, it sits there and is unavailable for other projects.

Kim agrees, acknowledging that special-fund money does not get as much of a review as usual, but adds that her committee will review the multimillion-dollar airport fund this summer because of problems with airport programs.


Understanding all the numbers

Question: How much money is in the state budget?

Answer: The state Legislature approved a budget of $10,803,950,152 for fiscal 2010 and $10,467,329,973 for fiscal 2011. That includes all means of financing: general, special, county, trust, revolving and federal funds; private contributions; and interdepartmental transfers. The Legislature and the media usually note just general fund spending of $5.1 billion and $5.3 billion for the next two fiscal years.

Q: We keep hearing that the state has a budget shortfall. What happened to the money? Who got it?

A: Nobody took the money; it just never showed up. The state's budget is based on assumptions, the biggest being how much the state will collect in taxes. The assumption is made by the Council on Revenues, a seven-person panel made up of economists appointed by the governor and Legislature. If they say tax collections are going to go up, the state has more money to spend. But this year the council has lowered the estimates, so there is less money—about $1.8 billion less than projected last year.

Q: Why is there a Council on Revenues?

A: Before the 1978 Constitutional Convention, the administration and the Legislature would make wildly different predictions. In 1977, for instance, Gov. George Ariyoshi's administration said revenues would decrease 8.4 percent, while the Senate said there would be an increase of 10.1 percent. Now the council meets regularly and gives an official prediction. Today the council is predicting that tax collections will be 5 percentage points less than last year. The council meets on Thursday and is expected to lower that forecast again.

Q: Gov. Lingle and the Legislature's budget leaders keep fighting about the budget. Is this because they are from different political parties?

A: The Legislature sets policy for the state, but the governor gives the Legislature the budget, which also includes policy, so the two sides are both setting policy and destined to disagree. When the Democrats controlled both the governorship and the Legislature, the two sides were often at war because the governor refused to spend what the Legislature appropriated. Thirty years ago, loyal Democrat and former House Finance Chairman Jack Suwa even wanted to sue Gov. Ariyoshi if he did not spend all the budget.