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The Honolulu Advertiser
Posted on: Sunday, March 21, 2010

We'll all pay the price for kicking the can

Kicking the can down the road. It's a cliche that's been getting a lot of airtime lately.

It's been a favorite meme of Gov. Linda Lingle, who has long criticized legislators' practice of avoiding the tough work of reducing the size of government. More recently, House Speaker Calvin Say and state Rep. Marcus Oshiro, House finance chairman, have charged that Lingle's the one "kicking the can" by pushing the payment of some major bills into the future.

The truth of it is that everyone in charge of salvaging a balanced budget, for this year and the next, is guilty of a little can-kicking. A reasonable budget at this point should involve a combination of new revenue, downsizing and, yes, some delayed bill-payment. And nobody's got the mix quite right.

On Friday, the governor continued what's been a week filled with budgetary battles. In a speech to Rotarians, she called out the Legislature's tax-and-spend practices, especially the Senate's bid to hike the general excise tax by 1 point, which represents a 25 percent increase.

She's got a point here: Even if it's temporary and has a break built in for lower-income people with an earned-income tax credit, ratcheting up a broad-based tax such as the GET by 25 percent is a demonstrably bad idea, especially on the upslope of a weak economic recovery.

Some senators disingenuously try to equate the GET with a sales tax and argue that it's comparatively low, but we've all been around long enough to know this isn't true. The GET is not a sales tax. It gets added at every stop along the supply chain, from the farmer to the wholesaler to the grocer to the customer. That compounding makes it the equivalent of about an 11 percent sales tax.

So let's at least get our terms straight: It's a 25 percent increase, compounded with each transaction.

The House budget plan also raises taxes, but in a more targeted way. It removes a variety of GET exemptions, mostly for businesses, and imposes a 1 percent GET on some previously exempt transactions. It also reduces or eliminates many tax credits, including the controversial Act 221 technology credits.

Not great for job creation, but better than hitting everyone with a tax increase.

The biggest complaint from lawmakers involves the governor's plan for managing the current deficit. Lingle plans to push payments of $275 million in tax refunds and $300 million in Medicaid payments to insurance companies beyond the June 30 close of the fiscal year, so that this year's budget can end in the black.

The Democrats say this is the worst sort of can-kicking; for her part, Lingle mocked the House's own budgetary math as "shibai," because leaders propose cutting some spending required by state law.

Great. Once again, political debate lapses into juvenile tit-for-tat. Where are the grownups when you need them?

In fact, a compromise could be reached, if people would only listen to each other.

There's no great sin about postponing the tax refunds until the legal deadline, which Lingle has pledged to observe. At a Senate hearing on Thursday, she also said her staff would put a priority on issuing checks to those meeting a to-be-defined threshold of need the poor, the jobless, etc. That would be helpful.

But delaying Medicaid payments is a habit Hawai'i shouldn't develop. At that budget hearing, Georgina Kawamura, budget and finance director, underscored in the administration's six-year plan that Medicaid costs are expected to climb steadily, which Lingle believes will compel future cutbacks in services. Given these expectations, compounded by the fragile economic state of Hawai'i's health care system, it would be smarter to get on top of these expenses now.

The can being kicked by the Democrats is the biggest one of all. Even when the economic recovery plays out, there's no guarantee that business activity and revenues will grow to past levels anytime soon.

Even with all of the cuts and keep in mind that the Legislature's plans call for restoring hundreds of the jobs Lingle eliminated Hawai'i has a government that's bigger and costlier than its economy can reasonably support, mostly because of generous pay and benefits for workers and inflexible work rules that hamper efforts at efficiency.

A full recovery isn't expected until 2012, but even if that rosy scenario comes true, the relentless growth of pension and benefit costs means revenue can't realistically catch up with expenses.

And yet nobody within the majority has made any real, systematic attempt to "right-size" government, or even to discuss rewriting Hawai'i's notoriously rigid civil service rules.

What's missing is a willingness among many Democratic legislators to rethink the rules that govern how the entire army of state employees is deployed. Are some fulfilling a function no longer essential, while core services go lacking?

As we pointed out in an editorial last week, it is simply mind-boggling that an agency with 2,000 employees like the Department of Health has only nine people assigned to inspect 9,000 food-service establishments.

Everyone is kicking the can, including voters who don't show up or simply keep electing the same people and then wondering why things never change. In November, we should all commit to saying, the can stops here.