Posted on: Tuesday, April 22, 2003

EDITORIAL
Special funds are no real budget solution

With almost all proposals for tax increases apparently dead for the year, Hawai'i lawmakers have returned to what has traditionally been one of their favorite budget-balancing devices: using money set aside in special funds.

At one level, there is some logic to this technique. If a special fund has more money in it than is needed for the operation it supports, why not use the excess cash to help balance the overall budget?

According to staff writer Johnny Brannon, lawmakers have proposed siphoning some $70 million out of a variety of special funds to shore up the general fund budget. That's actually not a huge amount, in the context of the nearly $1.8 billion contained in more than 1,800 special funds.

But this budget-balancing effort has several shortcomings, both immediate and long-term.

For starters, if a special fund is running a hefty surplus, then clearly the state is collecting more than it needs for that particular function. By rights, the excess should be returned to the users.

In other cases, the "surplus" might be illusory. Expenses fluctuate, and a surplus this quarter might be needed to cover higher expenses next quarter. Taking money in that case would help one area of government at the direct expense of another.

Already, some department officials are warning of layoffs or service reductions if legislators follow through on the full $70 million special fund drawdown.

Beyond the technical issues, however, loom larger philosophical concerns:

Balancing the budget by cobbling together whatever excess money can be found is a classic Band-Aid approach to a larger structural problem. It is a way of avoiding what should be obvious: The state does not collect enough in general fund taxes to support the general fund budget at its current size.

Dealing with this situation directly calls for either cutting the budget back to fit today's income or raising taxes. Understandably, neither option appeals. So the inevitable is postponed one more year by grabbing cash out of special funds.

If all those special funds are indeed collecting more money than they need, then they should be restructured or abolished. And then, if higher taxes are not going to be on the table, then the budget should be slimmed down to a size that today's economy can support.