Seek better ways to fund, run schools


POSTED: Monday, November 16, 2009

Victims of layoffs, wage reductions or Furlough Fridays may be surprised that Hawaii is not included among 10 states spotlighted in a report as “;particularly affected”; by the national recession. While they are likely to take exception to the report's criticism of temporary solutions instead of tax increases to reach balanced state budgets, short-term fixes should not preclude gradual changes in Hawaii's tax system.

Given the state's fiscal quagmire and dismal outlook, now may well be the time to examine how Hawaii schools, for example, are funded and operated—and explore a better way.

Last week's report by the Pew Center on the States found that “;California's problems are in a league of their own.”;

Other states on the report's “;top 10 of recession-stricken states”; facing similar problems are Arizona, Rhode Island, Michigan, Oregon, Nevada, Florida, New Jersey, Illinois and Wisconsin.

Hawaii is included among five states “;close behind”; in their struggle to balance budgets. Coping with a revenue drop of 10.2 percent, slightly below the national average, Hawaii faced a 2010 budget gap of 19.1 percent, compared with the national average of 17.7 percent.

The report notes that California legislators were “;constrained by several voter-imposed restrictions,”; including a requirement of a two-thirds majority for tax increase, which created “;a recipe for gridlock.”;

Likewise, it says, “;Arizona lawmakers relied on one-time fixes to balance its budget instead of making long-term changes,”; because “;they were hamstrung by voter-imposed spending constraints,”; the report says.

It points out that income tax and sales tax increases in California, Hawaii and many other states “;can be politically risky to pursue.”;

Personal income taxes were raised this year in Oregon and Hawaii, which now are tied for the nation's highest personal income tax rate of 11 percent.

Hawaii's income tax rate is necessarily high because, unlike any other state, it is used, along with the multi-layered general excise tax, to pay for schools. Across the country, schools, while receiving state assistance, are financed largely by revenue from more flexible and less controversial county property taxes.

Hawaii's unique statewide school district is an extension of a kingdom-wide system created in the 1840s by Kamehameha III and operated by missionaries. In the early days, property tax rates were kept down by powerful mega-landowners and have remained among the lowest in the country.

As a result, Hawaii faces fiscal problems unlike any other state, relying on revenue from the most controversial taxes to pay for the school system.

A sudden switch to tax uses and school system funding similar to other states and counties would be intolerably disruptive, but changes should be sought to deal with the islands' special problem.