'Raids' raise scrutiny of state's special funds

By Johnny Brannon
Advertiser Staff Writer

The Legislature is poised to siphon more than $70 million out of several special funds to help balance the state budget, a strategy that officials have repeatedly relied on in tight economic times.

But fiscal watchdogs say the larger issue is that special funds have unnecessarily proliferated and led to a breakdown in scrutiny of how public money is handled.

"They become self-perpetuating and territorial," said Tax Foundation of Hawai'i President Lowell Kalapa. "We wouldn't be 'raiding' them if the money went to the general fund in the first place."

According to state accounting records, there was more than $1.8 billion in some 1,844 special and revolving funds at the end of February, the period for which the latest comprehensive figures are available.

The funds pay for everything from inspecting seafood to maintaining highways, and many were created as repositories for fees and fines that pay for work performed by the departments that collect them.

State Comptroller Russ Saito said any public perceptions that the money falls into a black hole and can't be accounted for are simply inaccurate. The funds are closely tracked and their balances can readily be determined, he said.

But Saito acknowledged that it is fairly common for funds to accumulate more cash than will be expended for the account's original purpose.

"People conclude that 'you haven't used it, so let's use it for another purpose,' " Saito said. "Typically, when legislators are looking for money during the budget process, that's almost automatic. They're looking for dollars, and they see dollars that haven't been expended."

And that often makes perfect sense, he said.

"There are a lot of emotional statements about 'raids' on special funds, but it's a fairly logical process if you think about it," Saito said. "When you're in a tight economic situation, it doesn't make sense to have these funds sitting there."

But problems arise when there's a move to drain more from a fund than is needed to cover contractual and salary obligations.

Gov. Linda Lingle's administration originally proposed transferring $42.7 million out of special funds this year, but lawmakers set their sights on $26.4 million more. That led to warnings from department heads that layoffs and major service reductions could result.

The bill that would authorize the fund transfers, HB 1152, is now headed to a conference committee of House and Senate lawmakers who will determine its final form.

Kalapa said one problem with having so many special funds is that once the Legislature or governor create them, they often receive little scrutiny unless there is a budget shortfall or they accumulate a very large surplus.

"When you have an earmarked resource, why do you need to justify what you're doing?" he said.

By contrast, when programs and initiatives are paid for through the general fund, officials are more likely to find themselves explaining how the money will be spent so that lawmakers will release it.

Another problem is that special funds tend to provide an opportunity to constantly increase the fees that feed them, Kalapa said, with the money going to programs unrelated to the fund's original purpose.

But some special funds are absolutely necessary for such purposes as handling federal grants that can't be commingled with other money, or providing for debt repayment, he said.

The proliferation of special funds led to a series of reviews over the past decade, and dozens of funds have been repealed. The state auditor is required to go over all revolving and trust accounts every five years and determine whether they continue to meet their original purpose.

Pearl Imada Iboshi, manager of Lingle's policy team, said the administration reviews those recommendations closely.

"There's a continuing look at whether the special funds make sense," she said. "There's always a concern that money is not just parked someplace, and that funds are being spent appropriately."

The administration does not favor the creation of any new special funds unless there is a clearly demonstrated need, she said.

The bill transferring special fund money would also abolish several funds deemed no longer necessary, including the Petroleum Products Control Fund, Hawai'i Film Facility Special Fund, Clean Hawai'i Fund, Disaster Revolving Loan Fund, Hawai'i Innovation Development Fund and Statewide Planning and Geographic Information System Special Fund.

Other pending bills would set up new funds. Among them are:

• HB 1182, to establish a special fund for emergency medical services, to be paid for with a new vehicle registration fee;
• SB 16, to set up the Hawai'i Educator Incentive Special Fund to assist college students who agree to become Hawai'i teachers;
• SB 635, to create the Problem-solving Courts Special Fund to use money from traffic tickets to pay for substance abuse treatment programs.

Reach Johnny Brannon at jbrannon@honoluluadvertiser.com or 525-8070.