Budget Primer JULY 2018 Hawaiʻi - An Overview of How Hawaiʻi Invests in Our Future and Our People - Hawai'i Budget & Policy Center

Budget Primer JULY 2018 Hawaiʻi - An Overview of How Hawaiʻi Invests in Our Future and Our People - Hawai'i Budget & Policy Center
JULY 2018

An Overview of How Hawaiʻi Invests
in Our Future and Our People
Budget Primer JULY 2018 Hawaiʻi - An Overview of How Hawaiʻi Invests in Our Future and Our People - Hawai'i Budget & Policy Center
Hawai‘i Budget &
Policy Center

Better information.
Better policy.
Better Hawai‘i.

Advisory Board
Randy Moore, Chair
Norm Baker
Joy Barua
Betsy Cole
David D. Derauf, MD
James Koshiba
Jerry Rauckhorst
David J. Reber, Esq.
Jennifer Sabas, Esq.
Jeanne Unemori Skog
Leslie Wilcox
Kalbert Young
Sylvia Yuen

Beth Giesting, Director

JULY 2018                                               1


            Introduction and Overview            3

            Basics of Hawaiʻi’s State Budget     4

            Budget Lifecycle and Process	        8

            Hawaiʻi’s Fund Categories           10

            Revenue: Hawaiʻi’s Taxes and Fees   14

            How Hawaiʻi Spends Its Money        19

            County Budgets at a Glance          26

            In Conclusion: Get Involved         30

            Appendix: Snapshot of Executive
            Departments and Agencies            32

            Appendix: Appropriations Bills
            Passed for FY2019                   36


“Don’t tell me what
you value. Show
 me your budget,
 and I’ll tell you
what you value.”
          —Joe Biden
JULY 2018                                                                               3

                                                                                 INTRODUCTION AND OVERVIEW
Introduction and Overview
Hawai‘i’s budget is a powerful foundation of daily life and a demonstration
of our state’s priorities. It sets out where we get our money and what and
who we spend it on. It dictates the investments we make in our schools, our
environment, our health, and our economy. It is the blueprint for Hawai‘i’s
current and future prosperity and is an economic engine in itself, making up
20 percent of the state’s gross domestic product.
Every budget cycle, our elected leaders need to make tough decisions.
     Will the state raise additional revenue by increasing taxes or fees?
     Will the state add or cut services for people, and if so, what will be
     affected—public health, public education, economic development?
     Who will bear the brunt of or benefit from the changes—keiki, kupuna,
     the poor, the wealthy?
     How will we invest in Hawai‘i’s future? How much money will we spend
     on affordable housing, the environment, and transportation? How much
     will we save for a rainy day?
Despite the importance of the budget, for all but a few people, its process
and substance are incomprehensible. The Hawai‘i Budget and Policy
Center’s Budget Primer seeks to address that hurdle for policy makers, other
individuals and groups wanting to understand and have a say in the decisions
about our budget. This primer serves as an entry-level course covering the
components of the state budget, how it is created, and the priorities and
choices it reflects.
In this primer, we focus largely on the state’s executive branch budget.
It allocates funding to all state programs and services and is the largest
budget that the Legislature passes. The executive budget, as passed by
the Legislature in 2018 to be spent in fiscal year 2019, was $17.5 billion for
operating and capital expenditures plus other appropriations measures.1
Reflecting the different branches of government, the Legislature also passes
separate budgets for the Judiciary, Legislature, and Office of Hawaiian
In addition, this primer provides a high-level summary of county budgets,
important in their own right in collecting and spending public money to meet
local needs.
4                                                                                  HAWAIʻI STATE BUDGET PRIMER

    Basics of Hawaiʻi’s   What is the State Budget?                Fiscal Year/Biennium Budget
                          Our budget is a plan for spending        For the Hawai‘i state government,
    State Budget          based on available revenues. It          each fiscal year (FY) begins on
                          reflects the priorities and values       July 1 and ends on June 30 of the
                          of the state as it addresses the         following year and is referred to
                          operational and capital needs of         by the calendar year of its end
                          the executive branch, the Judiciary,     date. For example, FY2019 starts
                          the Legislature, and the Office of       on July 1, 2018 and ends on June
                          Hawaiian Affairs. The Legislature        30, 2019. Hawai’i operates on a
                          also appropriates funds to meet          fiscal biennium budget, meaning
                          other priority needs through grants-     each budget covers two fiscal years.
                          in-aid and appropriations bills.         Fiscal biennium 2017-2019 (FB17-
                                                                   19) covers fiscal years 2018 and
                                                                   2019, spanning July 1, 2017 to June
                          Who Decides?
                                                                   30, 2019. The budget details the
                          Each branch of government                expenditures and revenues for a
                          provides a proposed budget for           given biennium.
                          its operating and capital needs to
                                                                   The executive branch accounts
                          the Legislature, which considers,
                                                                   for 99 percent of the state budget
                          amends, and appropriates funds
                                                                   by paying for the programs and
                          for these budgets during the
                                                                   services managed by the 17
                          annual legislative session. In
                                                                   administrative departments, the
                          addition, other appropriations
                                                                   University of Hawai‘i system, and
                          bills are introduced and grant-in-
                                                                   the governor’s and lieutenant
                          aid proposals are submitted for
                                                                   governor’s offices. Smaller
                          legislative decision-making. The
                                                                   appropriations are made to support
                          legislative session provides the
                                                                   the other independent branches
                          public the most information and
                                                                   of government in Hawai‘i: the
                          the best opportunity to express
                                                                   Legislature, the Judiciary, and the
                          opinions about state-supported
                                                                   Office of Hawaiian Affairs. The
                          programs, operating budgets and
                                                                   Legislature approves operating and
                          bills that affect other appropriations
                                                                   capital budgets for each branch.
                          and revenues such as taxes.
                                                                   The Legislature also funds grants-
                                                                   in-aid, which support operating
                                                                   or capital requests from non-
                                                                   governmental applicants, approves
                                                                   state bond issues, and makes other
JULY 2018                                                             5

                                                             BASICS OF HAWAIʻI’S STATE BUDGET
                  Hawai‘i FY2019 Budget
                     Vital Statistics

     Operating and Capital Projects:
            Executive:                     $16.8 billion
            Judiciary:                     $185 million
            Legislative:                    $42 million
            OHA:                              $9 million
     Grants in Aid:                         $30 million
     Appropriations bills:                 $481 million
     TOTAL:                               $17.5 billion
     Permanent Positions:                        48,222
     Temporary Positions:                          4,067

     Source: HBPC analysis of FY2019 budget worksheets and
     appropriations bills, 2018 session
6                                                                                                        HAWAIʻI STATE BUDGET PRIMER

                                     Legal Requirements for Hawaiʻi’s Budget
                                     Balanced Budget: The Hawai‘i Constitution provides that no public money shall be
                                     expended except as appropriated by law. In addition, it requires that controlling the
                                     rate of expenditures or reducing expenditures of appropriated state moneys shall be
                                     made by law. It states that general fund expenditures for any fiscal year shall not exceed
                                     the state’s current general fund revenues and unencumbered cash balances, except
                                     when the governor declares that the public’s health, safety or welfare is threatened, as
                                     provided by law.

                                     Excess Revenues: The state constitution requires that “whenever the state general
                                     fund balance at the close of each of two successive fiscal years exceeds five percent of
                                     general fund revenues for each of the two fiscal years,” during the next regular session
                                     the Legislature shall do one of the following: 1) provide a refund or tax credit; 2) deposit
                                     funds into the state emergency reserve; or 3) prepay debt service obligations, pension,
                                     or other post-employment benefit liabilities.

                                     Council on Revenues: The Hawai‘i Constitution requires that there be a Council on
                                     Revenues. This Council is established by law and administratively attached to the
                                     state Department of Taxation. The Council on Revenues is made up of seven unpaid,
                                     volunteer members, three of whom are appointed by the governor for four-year terms
                                     and two each who are appointed by the President of the Senate and the Speaker of the
                                     House of Representatives for two-year terms. Members of the Council are not subject
                                     to term limits. The Council is required to provide its latest forecast of revenues to the
                                     governor and the Legislature by June 1, September 1, January 10 and March 15 of each
                                     year. The revenue estimates cover the fiscal year in progress and each of the ensuing
                                     fiscal years.

                                     The Council also provides its estimates of state total personal income in order to
                                     establish the state expenditure ceiling mandated by the Hawai‘i Constitution. Forecasts
                                     of total personal income are reported to the Director of Finance, the governor, the Chief
                                     Justice and the Legislature each August 5 and November 5.

                                     Estimates prepared by the Council are considered by the governor in preparing the
                                     state budget, recommending appropriations and controlling expenditures, and are
                                     considered by the Legislature in appropriating funds and enacting revenue measures.
                                     South Carolina may be the only other state that has a group performing functions similar
                                     to Hawai‘i’s Council on Revenues.
           The Hawai‘i Legislative   Expenditure Ceiling: The Hawai‘i Constitution provides that “the Legislature shall
                Reference Bureau     establish a general fund expenditure ceiling, which shall limit the rate of growth of
       (lrbhawaii.org) has a quick
                                     general fund appropriations…to the estimated rate of growth of the State’s general
    link to the state constitution
                on its homepage.
                                     economy as provided by law.” By statute, the expenditure ceiling is set by the rate of
                                     “state growth” as determined by averaging the annual state personal income growth
                                     during the three preceding calendar years. This average rate of state growth is used
                                     to adjust the immediate prior fiscal year expenditure ceiling. The Legislature may not
                                     authorize appropriations that exceed the ceiling unless two-thirds of each house votes
                                     to do so and they explicitly state the agreed-upon dollar amount, rate by which they are
                                     exceeding the ceiling, and the rationale for this action.

                                     As noted by the Department of Budget and Finance (budget.hawaii.gov/budget/about-
                                     budget/), “The governor is required to submit to the Legislature a plan of proposed
                                     aggregate appropriations for the State which includes the executive budget, proposed
                                     grants-in-aid to private entities, any specific appropriation measures to be proposed
                                     by the executive branch and estimates of the aggregate proposed appropriations of
                                     the judicial and legislative branches of government. In any year in which this plan of
                                     proposed General Fund appropriations exceeds the estimated expenditure ceiling, the
                                     Governor must declare the dollar amount and the rate by which the expenditure ceiling
                                     would be exceeded and the reasons for proposing appropriations in excess of the
                                     ceiling amount.”
JULY 2018                                          7

                                          BASICS OF HAWAIʻI’S STATE BUDGET
Revenue and Spending Trends
The Legislature is responsible for
approving the budget—the state’s
spending plan—but the Department
of Taxation oversees the collection
of tax revenue and other fees, the
Council on Revenues analyzes past
and future revenue trends, and
the governor and Department of
Budget and Finance are responsible
for controlling the purse strings,
complying with the approved
budget within the constraints of
available resources. Revenues
and expenditures are affected by
inflation, population growth, the
economy, tax law changes, and
other factors. Figure 1.3 and 1.4
show projected increases in both
revenue and spending.2

Historic Revenue and Spending
With the exception of recent budget
surpluses, Hawai‘i typically fully
expends all general fund revenues
on an annual basis. The recession
created a gap between revenues
and expenditures in 2009 (Fig 1.5),
but in most years revenues modestly
exceed expenses.3 The total amount
available to spend is based on the
Council on Revenues’ quarterly
projections. In addition, individual
budgetary items have spending
ceilings that are linked to the overall
growth of the economy.4

Comparative Spending
Hawai‘i comes in fourth among states
in per capita spending of state-
generated revenues. Alaska spends
the most ($13,522), Florida spends
the least ($3,509), and Hawai‘i spends
$9,685. The national average is
8                                                                              HAWAIʻI STATE BUDGET PRIMER

    Budget Lifecycle   The budget process involves many individuals and entities, including the
                       governor, the state Legislature, the Council on Revenues, the Department of
    and Process        Budget and Finance, and all the executive departments and agencies. The
                       budget process shown here summarizes information from the Department of
                       Budget and Finance.6
                       Due to the biennial timeframe, the Legislature passes a new budget every
                       odd-numbered year and a supplemental budget every even-numbered year.
JULY 2018                                                                                                                         9

                                                                                                                           BUDGET LIFECYCLE AND PROCESS
April to September                     balance of the current fiscal year        two-thirds vote of each house.12
The budget process begins in           and expectations for the next six
the spring and summer with             fiscal years. In the state Legislature,
                                                                                 July through September
program structure updates by the       the Senate Ways and Means
                                                                                 and Beyond
Department of Budget and Finance       Committee (WAM) and House
                                       Finance Committee (FIN) conduct           The budget is adopted and funds
(B&F) and the many departments.
                                       public hearings with executive            are allocated based on legislative
In August/September, B&F issues
                                       departments and agencies and              appropriations and action by the
budget preparation instructions to
                                       prepare revised versions of the bill      governor (e.g., vetoes or restrictions)
the departments.7
                                       and budget worksheets. FIN reviews        for the biennium starting July 1
                                       the bill and worksheets, and after        of the odd-numbered calendar
October to December                                                              year. The governor has the power
                                       three readings (votes), the whole
Agencies submit their budget           House of Representatives passes a         to release or restrict funding that
requests to B&F. After submitting      version of the budget. WAM then           was appropriated. Restrictions are
budget recommendations to the          reviews and makes modifications,          most frequently imposed when
departments and going through          and the Senate passes its own             the Council on Revenues lowers its
an appeals period, the governor        version after three readings. Finally,    revenue projections.
prepares the proposed executive        House and Senate members meet
branch budget. B&F is largely          in a conference committee to              The Following Year
responsible for crafting the           reconcile their versions of the bill
                                                                                 The Legislature is not legally
proposed budget, in discussion         and worksheets. Both the House
                                                                                 required to amend the biennium
with the executive departments         and Senate must then vote to pass
                                                                                 budget during the following
and state agencies. The governor       the final conference version of the
                                                                                 legislative session (even-numbered
submits this proposed budget to        budget bill.9
                                                                                 year), but it almost invariably does
the Legislature in December, at
                                                                                 update the executive budget. The
least 30 days before the Legislature
                                       May                                       governor proposes an executive
convenes. The Council on Revenues
                                       The budget bill goes to the               supplemental budget, and the
provides quarterly forecasts of
                                       governor, who can sign or veto it.        Legislature passes another budget
future revenues to inform the
                                       The governor also has “line item”         bill that amends the budget passed
budget process.8
                                       veto power, which means that he or        in the first (odd-numbered) year.
                                       she may veto particular items in the      The supplemental budget bill may
January to April/May                                                             change a department’s authorized
                                       budget by striking out or reducing
No later than January 10, the          those items.10 11 If the governor         funding and staffing for the second
Council on Revenues must share         vetoes anything, the Legislature can      year in the budget biennium.13 14
with the Legislature its quarterly     reconvene to amend and pass the
general funds forecast for the         budget or override the veto with a
10                                                                                                      HAWAIʻI STATE BUDGET PRIMER

     Hawaiʻi’s Fund
     Taxes and other revenues collected
     by the state are credited to discrete
     funding categories which are drawn
     upon to support the state budget.
     The largest revenue depositories
     are the general fund, special funds
     for various purposes, federal funds,
     and bond proceeds. Figure 3.1
     shows how Hawai’i tax revenues are
     distributed into these funds.15

     General Fund
     The general fund is the state’s
     largest fund, most subject to
     constitutional restrictions, and
     most open to legislative discretion,
     yet it supports only 52 percent
     of ongoing executive operations
     and makes up 45 percent of all
     executive funds when adding in
     capital improvements and other
     appropriations bills.16 All revenue not
     specifically accounted for elsewhere
     goes into the general fund.17             except in certain circumstances.21      on high-income filers, and imposed
     The general fund is mainly                However, revenue projections that       a temporary tax credit cap. These
     comprised of tax revenue, with            miss the mark or leftover deficits      decisions bolstered revenue in the
     the largest sources being general         from prior years sometimes result in    years following the recession.23 Post-
     excise and use, personal income,          expenditures that exceed revenues.      recession general fund revenue-
     and transient accommodation taxes.        Trends in General Fund Revenue:         enhancing measures include a
     Most of the general fund comes            As seen in Figure 3.2, general fund     change in income tax brackets in
     from state taxes,18 but general           revenue dipped during the recent        conjunction with enacting an Earned
     fund revenue also comes from              recession, even without accounting      Income Tax Credit for lower-income
     investment earnings and money             for inflation or population growth,     wage earners in 2017.24
     from fines, licenses, and permits.19      but has climbed steadily since.22 As    Hawai’i reached an unprecedented
     Of all tax collections, 86 percent        a response to recession-flattened       $1 billion general fund surplus at the
     was distributed to the general fund       revenues, the Legislature increased     close of FY2016,25 and continuing
     in FY2017 (Fig. 3.1).20                   cigarette and tobacco taxes,            surpluses allowed the Legislature
     The state constitution mandates           temporarily increased the hotel         to appropriate significant funds to
     that general fund expenditures may        room tax, increased taxes on the        affordable housing and other needs
     not exceed general fund revenues          transfer of large properties, created   while also contributing to the rainy
     and unencumbered cash balances,           temporary new brackets and rates        day fund in 2018.26
JULY 2018                                                                                                                  11

                                                                                                                         HAWAIʻI’S FUND CATEGORIES
Federal Funds
Federal funds are an important
source of support for state
programs, contributing $3 billion
to a $15 billion executive budget
($14.4 billion for ongoing operations
plus $480 million for one-time
appropriations). Federal funds are
largely devoted to health, human
services, and education (Fig 3.3),
making up:
    •       63 percent of the Department of Human
            Services budget, contributing more than
            half the cost of Medicaid and CHIP (the
            Children’s Health Insurance Program)
            and substantial portions of program
            costs for adoption and foster care, TANF
            (Temporary Assistance for Needy Families),
            SNAP (the Supplemental Nutrition
            Assistance Program), and housing
    •       8 percent of the Department of Health
            budget, paying for such services as
            behavioral health care and WIC (Women
            Infants and Children) program.
    •       11 percent of the Department of Education
            budget, supporting special education
            programs and other initiatives.
    •       32 percent of the funding for the Office
            of the Attorney General budget to pay for
            child support enforcement and criminal
            justice information and identification.
    •       26 percent of the Department of Hawaiian
            Home Lands’ budget to manage and
            develop trust lands.
                                                         In FY2019, federal funds will support 17 percent of
    •       33 percent of the Department of Defense
                                                         Hawai‘i’s $17.5 billion state budget, either as matching
            budget to mitigate physical disasters.
                                                         percentages or as grants. The vast majority—82 percent—
    •       10 percent of the Department of Labor        of federal funds awarded go to health and human services
            and Industrial Relations budget for          programs, nine percent towards education, and nine
            workforce development.                       percent to all other programs.28
    •       10 percent of the Department of Land         A study by the Center on Budget and Policy Priorities
            and Natural Resources budget for             for FY2017 showed that 17.5 percent of the funding in
            fisheries, forests, and general ecosystem    Hawai‘i’s state budget came from federal grants, which
            protection.27                                put Hawai‘i last among all states (Fig 3.4). By this measure,
12                                                                                                     HAWAIʻI STATE BUDGET PRIMER

     Michigan received the largest share
     of federal funding at 41.9 percent,
     while the national average was
     31.3 percent.29 Looking at federal
     funding as part of the state budget
     in another way, Hawai‘i ranks 28th
     on a per capita basis, drawing in
     $1,800 per resident. This is well
     behind first-place Alaska at $5,177
     per head but better than last-place
     Ohio with $1,075 (Fig 3.5).30
     A distinction should be made in
     accounting for Hawai‘i’s share of
     federal funds: a large amount of         dependence of state government          Fund, which receives surcharges
     federal dollars come to Hawai‘i          on federal funds.”32 In response, the   from wireless phone users to fund
     because of a strong military             Department of Budget and Finance        the 911 emergency system.38 While
     presence and defense spending            issued its interim report to the        special funds may not be diverted to
     here.31 These expenditures contribute    Legislature in January 2018 outlining   any other purpose, they must still be
     to the gross state product and related   initial steps and listing federal       appropriated through the budget
     tax revenues, but not directly to        grants by state department.33           process in order to be spent.
     crucial programs supported by the                                                Figure 3.6 shows projected changes
     state budget. Only the latter are        Special Funds                           in special fund balances between
     reflected in Figure 3.5.                 Special funds are established by        FY2017 and FY2023.39
      In 2016, the Legislature passed         the Legislature with revenues from
      SB2550 (Act 225), amended in            specified sources that are dedicated    Reserve Funds
      2017 by SB102 (Act 178). These          to supporting an identified purpose      The Emergency and Budget Reserve
      bills direct the administration to      related to the revenue source. They      Fund (EBR), which was created in
      study and report on federal funds       are restricted funds that may not        1999, is devoted to emergency and
      supporting state programs in            be allocated by the Legislature or      “rainy day” purposes.40 The EBR is
      order to understand the impact of       governor for any other purpose.34        funded by legislative appropriations
      possible major reductions in federal    A variety of sources contribute          and surpluses from tobacco
      funds. The first act calls for policy   to special funds, including eight        settlement moneys. Interest earned
      recommendations that address            percent of state tax revenues.35         on the EBR is deposited to the
     “conditions for using federal funds      Special fund revenues include            general fund.41
      as the means of financing the           fuel taxes, motor vehicle taxes,
      salaries of state employees” and        unemployment insurance taxes,           According to the Pew Charitable
     “circumstances under which the           revenue from public undertakings,       Trusts,42 Hawai‘i’s rainy day fund had
      state government should continue        fees collected for medical services,    15.2 days’ worth of general funds
      programs or projects with state         and other sources.36 Special funds      at the end of FY2017. The national
      funds after federal funds are no        will pay for 18 percent of the          average for that year was 19.8 days,
      longer available for those programs     total FY2019 budget, including          with Alaska having the highest
      and projects.” The subsequent           transportation, hospitals, housing,     reserve level at 383 days and four
      directive in Act 178 reads, in          education, environmental                states having none. Hawai‘i’s 2017
      part, “the Legislature intends for      management, tourism, and other          rainy day balance ($311 million as
      the study to result in a policy from    areas.37 An example of a special        of FY2017) represented 4.2 percent
      the governor that reduces the           fund is the Wireless Enhanced 911       of general fund expenditures
JULY 2018                                                                                                                 13

                                                                                                                        HAWAIʻI’S FUND CATEGORIES
compared to 5.4 percent for the national average.43
Figure 3.7 shows increasing rainy day balances for
Hawai‘i. The Legislature appropriated an additional
$125 million to the EBR in 2018.44
The Hawai‘i Hurricane Relief Fund (HHRF) was
established in 1993 in response to private insurers
withdrawing from the Hawai‘i market after Hurricane
Iniki. It ceased operations in 2002 when private
insurance again became available. At its termination
the fund amounted to $187 million, which is kept in
HHRF in the event its services are required in future.
However, HHRF has served as a de facto budget
reserve, helping tide the state over through the
recession. Legislation was passed to restore funds
via tax revenues in fiscal years 2013 through 201545

Bond Funds and State Debt
The state constitution defines the kinds of bonds
and debt obligations the state can undertake and
requires that the Legislature approve all bonds. The
constitution limits the debt that the state may incur,
providing that general obligation bonds may be
approved only if the principal and interest payable
in any fiscal year is no more than 18.5 percent of
the average of general fund revenues over the            principal on the bonds. Debt service payments amounting
preceding three years.46 This provision is intended      to $795 million were included in the FY2019 Department of
to ensure that the state’s bond obligations do not       Budget and Finance budget.49
jeopardize operating funds. The state issues an
annual statement of outstanding indebtedness and         Other Funds
projects annual bond issues and debt obligations         These include:
(Fig 3.8).47 On July 1, 2017 this statement noted the
following: $6.9 billion for general obligation bonds,       •    Private Contributions, usually related to launching
$2.9 billion for revenue bonds, and $1.4 billion for             or piloting a special project or purpose.
special purpose revenue bonds.48                            •    County Funds such as the surcharge imposed by
The Department of Budget and Finance manages                     the City and County of Honolulu to fund the rail
most state bonds and debt. These include general                 project or fuel taxes imposed by the counties.50
obligation bonds, revenue bonds and special facility        •   Trust Funds, which invoke the state’s fiduciary
revenue bonds issued by state agencies, special                 responsibility for assets held to benefit those
assessment bonds, mortgage credit certificates,                 with a vested interest in the assets, such as the
short-term loans, and municipal lease financing.                Employer-Union Health Care Trust Fund.51
The department also issues and manages special
                                                            •    Interdepartmental Transfers, which deploy funds
purpose revenue bonds, which are instruments that
                                                                 to support a program in a different department.52
fund airports, harbors, highways, and public housing
as well as some private projects operated for the           •    Revolving Funds, which are “funds from which
public good, such as hospitals and electric utility              the costs of goods and services is [sic] paid for by
plants where private parties pay the interest and                charges/fees that are levied on the public.”53
14                                                                                                       HAWAIʻI STATE BUDGET PRIMER

     Revenue: Hawaiʻi’s
     Taxes and Fees
     Revenues, particularly taxes, drive
     the budget. Compared to other
     states, Hawai‘i’s tax structure relies
     heavily on income and consumption
     taxes and less on other fees and
     taxes.54 Hawai‘i has the fifth lowest
     local taxes (which are county taxes
     in Hawai‘i) as a share of total state
     funding; however, most services
     that are funded at the local level       Changes in tax revenue collection         to 25 percent of the general excise
     in other states are state functions      as shown in Figure 4.1, resulted from     tax.58
     here. One example is that Hawai‘i        the combined effects of recession         While Hawai‘i ranks high in tax
     is the only state in which the public    and recovery, inflation, population       collections per capita, it falls closer
     school system functions as a school      increases, and tax policy changes.        to the average on overall tax as a
     district system funded and operated      In fiscal year 2017, Hawai‘i collected    percentage of income, a measure
     by the state.55 In other states,         $7.3 billion in taxes, including:         of the impact of tax policy upon
     public education is supported               •    Net general excise and            residents. According to the Tax
     at the county or municipal level,                use tax collections of $3.2       Foundation, Hawai‘i residents paid
     often relying on property taxes                  billion (44 percent of total)     the 14th highest share of their
     for funding. In Hawai‘i, only the                                                  income to state and local taxes. In
     counties have constitutional                •    Net individual income tax
                                                      collections of $2.2 billion       Hawai‘i, 10.2 percent of income
     authority to levy property taxes,                                                  went to state and local taxes, which
     which are used for county services               (30 percent of total)
                                                                                        is only slightly higher than the U.S.
     unrelated to education. (A ballot           •    Other state taxes, including      average of 9.9 percent.59 Although
     initiative has been proposed for                 the transient accommodation       the percentage of income paid in
     the 2018 election that would allow               tax, fuel tax, and motor          taxes is close to national averages,
     property tax collection at the state             vehicle tax of $1.9 billion (26   taxes on the poor in Hawai‘i are
     level to support certain educational             percent of total)56               much higher. The bottom 20
     costs.)                                                                            percent of Hawai‘i families pay
                                              Taxes Per Capita                          approximately twice the state and
                                                                                        local tax rate as the top one percent,
                                              In FY2015, Hawai‘i ranked third
                                                                                        the second heaviest tax burden in
                                              highest in per capita state tax
                                                                                        the nation for those in poverty (Fig
                                              collections, with a per capita
                                              collection amount of $4,530.57
                                              However, it should be noted that
                                              states with large numbers of tourists,    General Excise and Use Taxes
                                              like Hawai‘i, have a portion of their     The general execise/use tax is
                                              state’s total revenue generated           Hawai’i’s largest source of public
                                              by taxes paid by visitors. Various        revenue (Fig 4.3) and was singled
                                              studies estimate that toursits pay up     out to be the source of “catch-up”
JULY 2018                                                                                                                       15

                                                                                                                             REVENUE: HAWAIʻI’S TAXES AND FEES
contributions to fund post-employment public worker
benefits.61 In 2017, GET revenue amounted to $3.2
billion.62 General excise tax is imposed on business
activity that takes place in Hawai‘i while the use tax
is applied to services or goods acquired from an
unlicensed seller located outside of Hawai‘i. The use
tax is primarily imposed to reduce the price advantage
that out-of-state sellers would otherwise have over
Hawai‘i sellers.63
The GET assessment is four percent on most activities
but 0.15 percent on insurance commissions and
0.5 percent on wholesaling.64 Since 2007, O‘ahu
transactions at the four percent rate have also been
subject to a surcharge of one-half of one percent to
pay for the development of a commuter rail system.65
Hawai‘i relies on the GET for almost half of its tax
revenue, and Hawai‘i’s GET is uncommonly high. The
state GET of four percent appears modest when
compared to other state sales tax rates. However,
equating sales taxes and the general excise tax
misrepresents the true impact of the GET. It has been
estimated that the income generated by the GET is
equivalent to a sales tax of 10 - 11 percent. Currently,
Louisiana has the highest sales tax rate at 9.98 percent.66 67
While sales tax is usually imposed only on the end-
user of a good, Hawai‘i’s GET extends to services and
is applied even when the good or service purchased
will be later sold to someone else. This means the
same good can be subject to the GET several times.68
The GET is also unique in that it is based on the gross
revenue received by the person engaging in the
business activity, where most sales taxes are based on           proportionally more in general excise taxes. Hawai‘i’s
the gross retail sales of tangible goods.69 In addition,         excise tax structure is more regressive than the national
the tax inflates costs because sellers of goods and              average where the lowest 20 percent of residents spend
services typically add on to their charges the amount            seven percent of their income on excise or sale taxes.71
of the tax plus an additional amount to cover the tax            Most states do not collect sales taxes on the purchase
on such additional charge. For example, on O‘ahu, the            of food and other essentials. Hawai‘i’s GET has no such
taxes added by vendors for goods or services is 4.712            exemptions, but a refundable food general excise tax
percent (including the rail surcharge).                          credit is available to Hawai‘i residents with incomes
The top one percent of families in Hawai‘i spend one             under $50,000. The credit, adjustable by income,
percent of their income on excise taxes, while the               ranges from $110 at an income level under $5,000 to
lowest 20 percent of residents spend 11 percent of               $35 for incomes between $40,000 and $49,999.72 This
their income on excise taxes.70 This phenomenon                  tax credit was the most commonly claimed in 2015,
occurs because poorer people must spend a higher                 appearing in 323,283 returns, or 45 percent of all
proportion of their money on goods, thus paying                  those filed.73
16                                                                                                 HAWAIʻI STATE BUDGET PRIMER

     Individual Income Tax
     Hawai’i adopted an income tax
     in 1901 before it even became
     a state.74 In FY2017, Hawai’i’s
     individual income tax produced
     $2.2 billion, or 30 percent of all
     tax revenue.75 According to the
     Department of Taxation, “Hawai‘i’s
     individual income tax generally
     follows the federal definitions for
     determining net taxable income
     but has its own exemptions, tax
     credits, and tax rates.” Individual tax
     rates are arranged in 12 brackets.
     The lowest tax rate is 1.40 percent
     and, effective January 1, 2018, the
     percentages paid by the top three
     brackets were increased to nine
     percent, 10 percent, and 11 percent,
     respectively. Hawai‘i’s individual
     income taxes are distinguished
     by having the largest number of
     brackets of any state, and the 11
     percent paid at the top of the scale
     is the second highest in the nation.76
     77 78
           The 2017 law that added the         Transient Accommodations Tax            •   Fuel and environmental
     three top tax brackets did so to          The transient accommodations                response taxes produced
     offset a new non-refundable earned        tax (TAT) is imposed on income              $195 million.
     income tax credit to start benefiting     gathered from renting a hotel           •   Motor vehicle registration
     lower income wage earners in 2018.79      room, rental house, or similar living       and taxes amounted to $187
     While Hawai‘i’s GET tax is                accommodation to visitors.80 In 2017,       million.
     considered regressive, i.e., collects     Hawai’i brought in $508 million from
                                                                                       •   Cigarette and tobacco taxes
     a larger share of the income of           this source, or seven percent of all
                                                                                           totaled $124 million.
     low- to moderate-income residents,        Hawai‘i’s tax revenue.81 In 2017’s
     Hawai‘i’s income tax is progressive,      special legislative session, the TAT    •   Public service/utility
     with higher income households             was raised by one percent to 10.25          company fees, in lieu of
     paying a greater share of income          percent to fund Honolulu’s rail             taxes, contributed $122
     in taxes. Income taxes are imposed        project.82 The distribution of TAT          million.
     on virtually all earners, but some        funds is shown in Figure 4.5.           •   Liquor taxes yielded $51
     low-income residents can erase their                                                  million.
     tax debt with credits for food/excise     Other Taxes and Fees83                  •   Conveyance taxes on
     tax, low-income renters, child and
                                               In FY2017:                                  transferred properties
     dependent care, and earned income.
                                                                                           produced $95 million.
     All, except the earned income, tax           •    Hawai‘i’s corporate tax
     credit are refundable.                            collected $77 million.
JULY 2018                                                                                                       17

                                                                                                             REVENUE: HAWAIʻI’S TAXES AND FEES
Tax Credits
Hawai‘i allows tax credits “to promote social
welfare,” “to encourage certain industries or
economic activities,” and “to avoid double
taxation or pyramiding of taxes.”84 In tax
year 2015, $304 million was distributed in
tax credits,85 as shown in Figure 4.6.

Tax Policy: Progressive, Proportional, or          In Hawaiʻi, the individual income tax is progressive.
Regressive?                                        Under a progressive tax, upper-income families pay
                                                   a larger share of their incomes in tax than those with
In evaluating Hawai‘i’s tax system, it is          lower incomes. (After 2018, Hawai‘i’s tax is expected
important to consider what makes a good            to be more progressive due to increased upper bracket
tax system. “Important Tax Policy Principles,”     taxes coupled with an earned income tax credit for
outlined by the Institute on Taxation and          lower income residents.)
Economic Policy (ITEP),86 include:
    •       Equity: Does the tax system treat
            people at different income levels,
            and people at the same income
            level, fairly?
    •       Adequacy: Does the tax system
            raise enough money, in the short
            and long run, to finance public
    •       Simplicity: Does the tax system
            allow confusing tax loopholes? Is it
            easy to understand how your state’s    In Hawaiʻi, property tax is approximately proportional.
            taxes work?                            Under a proportional tax, everyone pays the same
                                                   percentage of their income in taxes regardless of how
    •       Exportability: Individuals and
                                                   much or little they earn.
            companies based in other states
            benefit from your state’s public
            services. Do they pay their fair
    •       Neutrality: Does the tax system
            interfere with the investment and
            spending decisions of businesses
            and workers?
 Tax equity is related to how “progressive,”
“proportional,” or “regressive” a tax is in
 its effects on payers.87 Hawai‘i’s taxes have
 been categorized by ITEP (Figs 4.7, 4.8, and
 4.9). All figures are for Hawai‘i in 2015.88      In Hawaiʻi, the general excise tax is regressive. Under
                                                   a regressive tax, poor and middle income families pay
                                                   larger shares of their incomes than do the wealthy.
18                                                                                                        HAWAIʻI STATE BUDGET PRIMER

                                      Hawaiʻi’s Tax Review Commission
                                      The constitution requires the establishment of a Tax Review Commission, whose
                                      purpose is to evaluate the state’s tax structure and recommend revenue and tax
                                      policy. Commission appointments were to be “on or before July 1, 1980, and every five
                                      years thereafter.” The most recent commission (2015-17), whose seven members were
                                      appointed by the governor with the consent of the Senate, submitted its report on
                                      February 18, 2018.

                                      The 2015-17 Tax Review Commission’s report summarized its main findings as follows:

                                          •    Additional payments needed to fund pension and other post-retirement
                                               benefits will average over $400 million annually from 2018 to 2022 and
                                               these additional payments will require more revenue than can reasonably be
                                               expected to come from Hawai‘i’s current tax structure.

                                          •    The average share of income that Hawai‘i residents pay in state taxes rises
                                               from about six percent to eight percent as household income rises from
                                               $25,000 to $50,000, but the share is relatively flat above $50,000.

                                          •    The state should not eliminate statutory tax rates, but corporations should
                                               be allowed to expense rather than depreciate new investments to encourage
                                               investments within the state.

                                          •    The personal exemption and standard deduction in the state’s income tax
                                               system have been eroded by inflation and are out of date.

                                          •    Although tax credits eliminate tax liability for most households with income
                                               below the poverty threshold, there remain some instances where such
                                               households are required to pay state income tax.

                                      Based on the above findings and its deliberations, the Tax Review Commission
                                      summarized its recommendations under three categories: net income tax
                                      recommendations, revenue adequacy recommendations and recommendations for
                                      further in-depth studies.

                                      The net income tax recommendations included:

                                          •    Increasing the personal exemption and standard deduction to the 2017 federal
                                               income tax levels and indexing them for inflation thereafter, and then altering
                                               tax rates and tax brackets to make these changes revenue neutral.

                                          •    Taxing retirement income more evenly by making income from employer-
                                               provided pensions subject to state income tax after a five year lag to help
              The full report and              people plan for the change.
     recommendations of the Tax           •    All corporations to expense rather than depreciate new investments.
      Review Commission can be
      found at http://files.Hawaii.   The revenue adequacy recommendations included:
                                          •    Expanding efforts to collect taxes on e-commerce and remote sales.
              The next Tax Review
                                          •    Taxing e-cigarettes at a rate comparable to the tax on regular tobacco
              Commission is to be              cigarette sales.
       appointed by July 1, 2020.
                                          •    Establishing a commission to examine how to handle the unfunded and
          It will complete its work
                                               underfunded liabilities for pensions and health care for retired public workers,
       and report its findings and
       recommendations within a                including measures to raise revenues and to reduce expenditures.
      few years after its members     The Tax Review Commission also recommended that in-depth studies be done on
                    are appointed.
                                      whether Hawai’i should institute a carbon tax and whether the withholding rate on sales
     More information is available    of real property should be restored to its original rate of nine percent from its current
        at http://tax.Hawaii.gov/
                                      rate of five percent.
JULY 2018                                                                                                                19

                                                                                                                       HOW HAWAIʻI SPENDS ITS MONEY
How Hawaiʻi
Spends Its Money

The Executive Budget
 To see the budget in action, look to
 the executive branch. This budget
 supports an array of essential
 health and social services, business
 development, environmental
 protection, and education from
 kindergarten to university. It is
 made up of the base budgets
 for each department, capital
 improvements, and one-time
 appropriations. It authorizes funds
 for salaries, pensions and other
 benefits, facilities, contracts, and
 debt service. A snapshot view of
 each department that describes
 primary functions, budget, and
 staff is included in the appendix.
 Detailed information about the
 on-going base budget for the
 executive branch is in the budget
 bill (HB1900 in 2018). The resources
 and staff rolled up in the budget      by creating special funds that are       •    $481 million approved
 bill can also be found in the HB1900   restricted to supporting related              in separate one-time
 budget worksheets available at the     expenditures. Figure 5.1 compares             appropriations bills.
“Legislative Information” page on       Hawai‘i’s spending to the U.S.           •    $2.4 billion for the capital
 the Legislature’s website.             average.89                                    improvement project (CIP)
The allocation of revenues expresses    The executive budget is the state’s           budget.91
the priorities of state policy-makers   largest budget, accounting for 99     The array of funds that supports
and underscores the ways Hawai‘i’s      percent of state spending.90          the total executive budget varies
program financing differs from
                                        The total FY2019 executive branch     somewhat from those that support
other states. For example, Hawai‘i’s
                                        budget amounts to $17.3 billion.      the operating base budget (Fig 5.3
general fund covers functions
                                        This sum is made up of:               and Fig 5.4). The most significant
that are typically supported
                                           •    $14.4 billion for the         difference is the addition of capital
by local governments in other
                                                operating budget, the base    improvement projects funds to the
states, including education, public
                                                budget reflected in budget    total budget. Because CIP funds
health and welfare, hospitals, and
                                                worksheets and the budget     pay for capital projects, they are not
penitentiary systems. Hawai’i’s
                                                bill.                         part of the base budget.
Legislature also indicates priorities
20                                                                           HAWAIʻI STATE BUDGET PRIMER

                                                            Executive Operating Budget (on-
                                                            going departmental resources)
                                                               •    General funds: $7.5 billion
                                                               •    Special funds: $2.9 billion
                                                               •    Federal funds: $3.0 billion
                                                               •    Other funds, including trust
                                                                    funds, interdepartmental
                                                                    transfers, and revolving
                                                                    funds: $989 million
                                                            The ongoing operating budget
                                                            for the executive departments is
                                                            of special note. This budget is the
                                                            base upon which the Legislature
                                                            adds or subtracts funds to form
                                                            future-year budgets. This base
                                                            accounts for 83 percent of the
                                                            FY2019 executive expenditures, with
                                                            the remaining 17 percent being
                                                            for capital improvements or other
                                                            one-time appropriations.92 Figure
                                                            5.5 shows the distribution of the
                                                            base operating budget among
                                                            programs, but it is notable that
                                                            these departmental operating
                                                            expenses do not include employee
                                                            benefits (such as health insurance,
                                                            social security, retirement, and other
                                                            post-retirement benefits) or debt
                                                            service. These excluded expenses,
                                                            which total more than $2.7 billion,
                                                            are instead included in the budget
                                                            of the Department of Budget and
                                                            Finance. In addition, capital and
                                                            facility costs for all departments,
                                                            except for public education and
                                                            the University of Hawai‘i system,
                                                            are shown in the Department of
     Notes:                                                 Accounting and General Service
     Other departments with operating budgets of under      budget. This method of allocation
     $300 million are Accounting and General Services,      masks state operating expenses
     Agriculture, Attorney General, Commerce and            by department by under-reporting
     Consumer Affairs, Defense, Governor’s and Lieutenant
                                                            costs for all except Budget and
     Governor’s Offices, Hawaiian Homelands, Human
     Resource Development, Land and Natural Resources,
                                                            Finance, whose budget is inflated.
     and Taxation.
JULY 2018                                                                                                                 21

                                                                                                                        HOW HAWAIʻI SPENDS ITS MONEY
Executive Branch Staff
Staff are a major part of each
state department’s budget. The
executive branch is authorized
to employ 46,174 permanent
employees plus 3,955 temporary
full-time equivalents (FTEs) for a
total of 50,129 positions. Hawai‘i’s
statewide Department of Education
has, by far, the largest number of
staff, with 20,697 permanent and
2,168 temporary staff (Fig 5.6). The
Department of Human Resources
Development, which supports the
state’s personnel needs, has the
fewest at 98 FTEs.93

Executive Operating Budget:
Then and Now
In the ten years between fiscal
years 2009 and 2018, the overall
executive operating budget
increased by 31 percent from $10.8
billion to $14.1 billion. Much of the
increase is attributable to inflation
and population growth, as well
as changes in the economy (2009
was a recession year) and changes
                                         dollar amounts: Hawaiian Home          of Budget and Finance, where they
in tax policy. Between 2009 and
                                         Lands by 109 percent ($27 million),    are now. When the fringe and debt
2017, inflation-adjusted per capita
                                         Commerce and Consumer Affairs by       service payments for Education and
expenditures increased by nine
                                         76 percent ($36 million), and Labor    the University are subtracted from
percent. The changes in spending
                                         by 58 percent ($173 million).          the Department of Budget and
by department illustrate shifts
                                         It appears that the operating budget   Finance and added back to those
among competing priorities. In the
                                         for the Department of Budget and       departments in 2018, it shows that
2009 to 2018 span, the department
                                         Finance grew by nearly $974 million    Education grew by $189 million (7.5
experiencing the greatest growth
                                         (58 percent) during this period,       percent) and UH by $263 million (23
was Human Services with a gain of
                                         but this increase is due largely       percent), while Budget and Finance
$1.6 billion (up 84 percent). Health’s
                                         to changes in budget allocation        increased by a more modest $102
budget increased by 24 percent,
                                         processes. In 2009, fringe and debt    million (six percent). The governor’s
with the addition of $356 million
                                         service payments for Education         and lieutenant governor’s budgets
dollars and transportation added
                                         and the University of Hawai‘i          are the only ones smaller in 2018
$328 million, for a 48 percent gain.
                                         system were reflected in those two     than in 2009, with a decline in their
The operating budgets of several
                                         departments’ budgets, rather than      combined budgets of more than $1
smaller departments grew by large
                                         being included in the Department       million.94
percentages, but less dramatic
22                                          HAWAIʻI STATE BUDGET PRIMER

     Payment Obligations
     Before any other spending decisions,
     the Legislature has to address the
     state’s non-negotiable obligations.
     These costs are:
          •   Debt service
          •   Health benefits for
              employees and retirees
          •   Mandated payments for
              accumulated retiree health
          •   Contributions to the
              pension fund and social
          •   State share of Medicaid
     Except for Medicaid expenses,
     which are included in the budget
     for the Department of Human
     Services, the costs named above are
     allocated to and expended by the
     Department of Budget and Finance.

     Although described as “fixed” costs
     by the Department of Budget and
     Finance, the required sums depend
     on factors related to each kind of
     expense. For instance, the amount
     of state Medicaid match varies by
     the number and category of aid of
     enrollees. As shown in Figure 5.8
     and Figure 5.9, these items are part
     of the executive base budget and
     consume more than $3.6 billion, or
     47 percent of all general funds.
     Trends projected for these obligated
     costs are shown in Figure 5.10
     and Figure 5.11. These include an
     increasing percentage of general
     funds, from 43 percent in FY2010 to
     47 percent in FY2019, expended for
     obligated costs. 97
JULY 2018                                                 23

                                                        HOW HAWAIʻI SPENDS ITS MONEY
            Health and Retirement Benefits
            Among Hawai‘i’s obligated costs
            noted above are pension and
            retiree health benefits for state and
            county public worker retirees. The
            Employee Retirement System (ERS)
            manages pension payouts and
            investments while the Employer-
            Union Health Benefits Trust Fund
            (EUTF) manages active and retiree
            health and other benefits. The
            latter are often called “other post-
            employment benefits,” or OPEB.
            Hawai‘i’s pension and OPEB
            obligations are frequently referred
            to as “unfunded liabilities,” which
            means that state obligations for
            pensions and OPEB exceed the
            amount of money in their respective
            trust accounts. According to the
            ERS actuarial valuation for the year
            ending June 30, 2017, “the funding
            period for paying off the UAAL”
            (unfunded actuarial accrued liability)
            is 26 years. The report states that
            the unfunded actuarial accrued
            liability totals $12.9 billion and the
            funded ratio, that is, the value of
            assets compared to accrued liability,
            is 54.9 percent.98 A similar report for
            EUTF for July 1, 2017 revealed an
            unfunded actuarial accrued liability
            for OPEB of $12.15 billion and a
            funded position of 12.8 percent.99
            Hawai‘i’s retiree systems short-
            falls can be attributed to several
            factors, one of which is increasing
            retiree longevity. According to the
            ERS report cited above, general
            retirees at age 65 can expect to live
            another 23.2 years if male and 26.4
            if female.100 Another reason for the
            shortfall is that legislators in the past
            failed to fund retirement and OPEB
            accounts adequately.101
24                                             HAWAIʻI STATE BUDGET PRIMER

     Steps have been taken to ameliorate
     unfunded liabilities: HB546 (Act
     268) was passed in 2013 requiring
     accelerated state appropriations
     to amortize the OPEB debt, and
     in 2017 SB936 (Act 17) increased
     the pension pay-in to catch up on
     liabilities. This prudent, but painful,
     strategy to reduce the unfunded
     liabilities decreases future funding
     requirements, provides an income-
     generating base, and earns the
     state a better bond rating and
     lower interest rates on borrowing.102
     Figure 5.12 and Figure 5.13 use
     data from the Department of
     Budget and Finance’s “Budget in
     Brief” (FY2019) to show past and
     expected appropriations from the
     general fund for pension and OPEB

     Capital Improvement Projects
     The executive branch CIP budget,
     totaling $2.4 billion for FY2019,
     allocates funds to one-time
     departmental infrastructure and
     improvement projects. Departments
     have very different capital project
     needs (Fig 5.14). Two-thirds of all
     capital funds are allocated to the
     Department of Transportation
     for airports, roads, harbors, and
     similar purposes, while a number of
     other departments have no capital
     projects. The CIP budget, which is
     much smaller than the operating
     budget (Fig 5.15), is largely financed
     by bonds.104
JULY 2018                                                                                                                    25

                                                                                                                           HOW HAWAIʻI SPENDS ITS MONEY
Grants-in-Aid                            and legislative branches, the            Other Budgets
The Legislature appropriates grants-     Legislature passes multiple              Budget information is available on
in-aid (GIA) to non-governmental         targeted appropriations bills that       the Legislature’s website that details
entities. Applications and               provide funding for projects and         the budgets for the other branches
instructions are available on the        government responsibilities. The         of government, namely, the judiciary,
Legislature’s website’s “Legislative     sums appropriated this way can be        the Office of Hawaiian Affairs, and
Information” page. Eligibility for       substantial, as these are the bills      the Legislature. The bills passed that
and management of grants are             that, among other things, fund           appropriate funds to the judiciary
governed by Chapter 42F of the           collective bargaining obligations        and OHA are reflected in analogous
Hawai‘i Revised Statutes. There is       and pay claims against the state.        budget worksheets, which can be
no requirement that applicants be        Appropriations cannot be made to         found on the state Legislature’s
nonprofit organizations but nearly       non-governmental entities; instead,      website (www.capitol.hawaii.gov)
all are. According to Chapter 42F,       with rare exceptions, the bills are      under “Legislative Information.” For
the only restriction is that a grantee   allocated to executive departments       FY2019, a supplemental budget year,
must be incorporated in the state of     for expenditure (for FY2019,             the judiciary budget is SB2150, but
Hawai‘i.105                              one appropriation bill funded a          there is no supplemental budget
                                         project in the legislative branch        for OHA. Its budget for FB17-19
The grantee may receive funds for
                                         and another went to the City and         was passed in 2017 as HB335. The
operating or capital needs or both.
                                         County of Honolulu, but to support       Legislature’s appropriation bill is
Operating grants are appropriated
                                         a Department of Education need).         typically the first one approved
from general funds, while capital
                                         Appropriations bills (see appendix)      and signed by the governor every
grants are typically funded by
                                         passed for FY2019 totaled $481           session. For FY2019, this is HB2600
general obligation bonds. The total
                                         million and included $230 million        (Act 1). The Legislature’s budget
appropriated to GIAs varies every
                                         for affordable housing, more than        supports legislative operations,
year, based on funds available after
                                         $30 million for services for homeless    the state auditor, the Legislative
other spending agreements have
                                         people, $125 million for flood relief,   Reference Bureau and Public
been reached. Grants appropriated
                                         and $8 million for claims against        Access Room, the ombudsman,
for FY2019 amounted to nearly $30
                                         the state. Appropriations bills are      and the state Ethics Commission.
million, with 65 percent going to
                                         funded largely by general and            Unlike the budgets for all other
capital and the balance to operating
                                         special funds.108                        branches of government, the
grants.106 Both the legislative
GIA worksheet summary and the                                                     Legislature’s budget bill is not
budget bill note the department          Bond Issues                              accompanied by worksheets that
and program to which each grant                                                   detail appropriations and authorized
                                         The legislative budget process
is assigned. Notwithstanding the                                                  staffing.
                                         also involves the authority to issue
Legislature’s award of grants, the       bonds. For FY2019, $70 million
governor has full discretion to          was authorized for special purpose
withhold, reduce, or delay release of    revenue bonds and $2 billion for
funds.107                                general obligation bonds, both to
                                         be managed by the Department of
Other Appropriations Bills               Budget and Finance. The University
                                         of Hawai‘i will manage the $100
In addition to the budget
                                         million that was appropriated for
appropriations bills approved
                                         university revenue bonds.109
by the Legislature to fund OHA
and the executive, judiciary
26                                                                                HAWAIʻI STATE BUDGET PRIMER

     County Budgets   The state of Hawai‘i is not the only         •     Civil defense, fire,
                      governmental entity collecting and                 ambulance services, and
     at a Glance      spending money for the public                      ocean safety
                      good. Each of the four counties has          •     Police, prosecuting
                      taxing authority and responsibilities              attorneys, and county jails
                      that complement state budgets and
                      services. During FY2018, Hawai‘i’s           •    Sanitation services, such
                      counties – the City and County                    as water, sewer, and waste
                      of Honolulu, Kaua‘i County, Maui                  management
                      County, and Hawai‘i County –                 •     Building and maintaining
                      expected to raise and spend more                   mass transit systems, county
                      than $6 billion, with the bulk (62                 and city roads, and streets
                      percent) going to operations and
                                                                   •     Driver licensing and vehicle
                      the balance to capital improvements
                      (37 percent). There is a fifth county,
                      Kalawao, that is comprised of                •     City and county parks and
                      Moloka‘i’s Kalaupapa Peninsula, but                recreational facilities
                      it is not included in this account. Its      •    Human services, including
                      few remaining permanent residents                 Aging and Disability
                      live in a Hansen’s disease facility,              Resource Centers
                      and it is administered by the state
                                                                   •     Grants to nonprofit
                      Department of Health.
                      State and county revenue sources
                                                                Each county’s mayor proposes a
                      overlap very little. Counties collect
                                                                budget to the county council, which
                      property taxes, which, according
                                                                approves the budget for execution
                      to the state constitution, may not
                                                                by the county administration. Using
                      be assessed by the state. Other
                                                                the parlance of county councils,
                      county revenues include: service
                                                                actions are called “ordinances,”
                      and use fees for water, sewer and
                                                                not “bills.” Each county has the
                      waste disposal, licenses, and
                                                                same fiscal year as the state, that is,
                      permits, including building permits.
                                                                one that starts on July 1 and ends
                      Another sizeable category of
                                                                on June 30. Each budget covers
                      revenue, amounting to more than
                                                                a one-year period and is typically
                      $340 million for all counties, was
                                                                proposed in May and approved in
                      inter-governmental funding, most
                                                                June for the upcoming year.
                      of which is a share of the Transient
                      Accommodations Taxes (TAT) that           Budget information is not presented
                      the state collects and shares with        uniformly across all counties. HBPC
                      counties.                                 analyzed and categorized data to
                                                                make it as comparable as possible.
                      Counties in Hawai‘i do not pay for
                                                                Links to county budget information
                      public education, but they carry
                                                                are included at the end of this
                      out many other essential services,
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