Hawaii government spending could trigger COVID aid payback

State lawmakers may have been too loose with Hawaii’s purse strings last year.

The state Department of Budget and Finance is advising the Legislature that $675 million in spending appropriations last year should be delayed in order to avoid triggering a requirement to return $412 million in coronavirus pandemic aid to the federal government.

A House of Representatives committee on Wednesday advanced a measure — House Bill 1018 — that would implement the recommended delay in spending until after the next fiscal year begins July 1.

The shift applies to four “big-ticket” appropriations, including $300 million in affordable-housing financing, but will not have adverse operational consequences because entities receiving the money had no need to spend it before the end of the current fiscal year.

“There will be no programmatic impact from this bill,” Luis Salaveria, state finance director, said in a statement.

Still, the accounting maneuver shows how lawmakers and state government administrators have been challenged to avoid violating a high-profile condition attached to federal pandemic aid.

Budget and Finance officials repeatedly advised lawmakers over the last few years that they needed to be careful to maintain a proportional pre-pandemic ratio of spending on elementary and secondary education in relation to most everything else.

Doing this calculation has not been easy, because the state’s financial accounting system is rather archaic. So a lot of estimating was employed to gauge whether the ratio, based on average spending in fiscal years 2017-2019, would not be exceeded. Also, last year posed a bigger challenge because lawmakers had a huge revenue surplus at their disposal to appropriate.

This is the last year that state spending is subject to the federal requirement.

Department of Budget and Finance officials worked closely with agencies to manage spending, but they conservatively calculated that the state is in danger of exceeding the spending ratio in the current fiscal year, which ends June 30, and that could lead the federal government to demand repayment of $412 million in pandemic relief funding provided to the state Department of Education.

In addition to the $300 million in affordable-housing financing appropriated to the Hawaii Housing Finance and Development Corp., three other appropriations targeted for delay under House Bill 1018 are:

>> $300 million to be deposited into the state’s pension fund.

>> $49.5 million for redevelopment of Aloha Stadium.

>> $25 million to match employee retirement savings contributions.

The Budget and Finance Department, which requested the bill’s introduction, also has been monitoring the spending timetables of some agencies that received very big appropriations last year, including $600 million given to the Department of Hawaiian Home Lands, to help ensure that the federal payback trigger is not hit.

Last month, DHHL Government Relations Manager Lehua Kinilau-Cano advised the Hawaiian Homes Commission that the Department of Budget and Finance had cautioned DHHL that if it spends more than $50 million or contracts to spend more than $172 million in the fiscal year ending June 30, then it could cause the state to have to pay back the federal coronavirus relief funding.

If necessary, Gov. Josh Green can delay the release of funds appropriated last year by lawmakers to help prevent triggering the payback provision.

HB 1018 is expected to pass the full House soon. If that happens, the bill would be sent to the Senate for consideration.