Hawaii lawmakers took special liberty this year to appropriate local taxpayer revenue far in excess of what the state Constitution and a related statute hold as typically advisable.
The Legislature earlier this month approved spending state tax revenue in the next fiscal year beyond an “expenditure ceiling” by about $1.6 billion, or 16%.
Breaching this ceiling has been done 11 times before, including last year, but this year it’s drawn public criticism and complaints from some lawmakers who are unhappy about how spending decisions were made by more powerful colleagues.
“I can understand overspending by that amount ($1.6 billion) if every penny was essential for the health and well-being of our people and our environment, but I cannot support that level of overspending when it includes $64 million for rental car facility improvements,” Rep. Natalia Hussey-Burdick (D, Kailua-Kaneohe Bay) said in a House of Representatives floor speech on the last day of the legislative session May 4.
Hussey-Burdick, who also questioned a $33 million appropriation to fix the reflecting pool at the state Capitol and $120 million for the Agribusiness Development Corp., was one of eight House members who voted against the budget bill, an unusual move in the 51-member House.
Six other House members voted to approve the budget bill with reservations, including Rep. Diamond Garcia, who noted the constitutional ceiling breakthrough.
“There’s a lot of good in this budget, but there’s also a lot of — and I mean a lot — of wasteful spending,” said Garcia (R, Ewa-Kapolei) in a May 4 floor speech before the budget bill vote.
Constitutional brake
The spending ceiling is a product of Hawaii’s 1978 Constitutional Convention.
Through an amendment approved by voters that year, the Constitution required that the Legislature establish a ceiling for appropriating General Fund revenue, excluding federal contributions, to limit the growth rate of spending in relation to state economic growth.
In 1980, the Legislature defined the ceiling, or spending growth rate limit, as equal to Hawaii’s average personal income growth rate over the prior three years.
A provision in the constitutional amendment allows total spending appropriations above the ceiling if the Legislature approves it by a two-thirds vote and discloses the dollar amount and the rate by which the ceiling will be exceeded, along with reasons for doing so.
This year, lawmakers provided only a general reason for exceeding the expenditure by stating in the budget bill and other bills with General Fund appropriations that all the appropriations “are necessary to serve the public interest” and “meet the needs addressed by this Act.”
Spending decisions
Sen. Donovan Dela Cruz, chair of the Senate Ways and Means Committee, said he and House Finance Committee Chair Rep. Kyle Yamashita led the effort to produce a responsible budget bill that aimed to make some extraordinary one-time investments for critical needs, including affordable housing, while keeping recurring expenses in line with the ceiling beyond the next fiscal year.
Dela Cruz (D, Mililani-Wahiawa-Whitmore Village) said he and Yamashita were reluctant to exceed the ceiling.
“There’s always pause,” Dela Cruz said.
Yamashita (D, Pukalani-Makawao-Ulupalakua) did not comment on the ceiling subject despite a request to do so.
A roughly $2 billion estimated revenue surplus at the beginning of this year essentially allowed the ceiling to be exceeded by such a large amount.
Dela Cruz noted that one big item that gets counted against the ceiling is a $500 million appropriation for the state’s emergency budget reserve fund in the next fiscal year. He also said some repair and maintenance investments will result in lower future expenses, making them wise appropriations.
Most details on where a lot of the spending in this year’s budget bill has been allocated was not available publicly or even to many lawmakers when they voted on the bill May 4, which contributed to some of the frustration over the measure, House Bill 300.
Rep. Della Au Belatti (D, Makiki-Punchbowl) told her colleagues in a May 4 floor speech that opposing the budget bill made her feel sick to her stomach, but in her view not enough spending was for education given the $1.6 billion ceiling overage while so many expenditures were still shrouded.
“This expenditure ceiling is a constitutionally mandated spending cap that is calculated and based upon the personal income taxes that we are collecting from the hardworking residents of this state, and we are exceeding this cap by over $1 billion while underfunding public education and higher education in the time of a budget surplus,” she said. “This is absurd.”
Porous ceiling
The size of the ceiling breakthrough approved for spending in the 2024 fiscal year that begins July 1 is one of the biggest — if not the biggest — in history not only in dollars but in percentage terms.
In 2022, the Legislature exceeded the ceiling by roughly half as much, or around $800 million, according to the state Department of Budget and Finance.
The agency said total appropriations enacted into law have exceeded the ceiling only twice in nearly three decades, not including appropriations for the next fiscal year that are still subject to changes by Gov. Josh Green.
Those two instances were the fiscal years 2023 and 2007. Prior to that, the ceiling was busted in nine other fiscal years: from 1980 to 1983 and from 1989 to 1993, according to the Department of Budget and Finance. Sizes of ceiling breakthroughs in years before the 2023 fiscal year were not available from the agency last week.
Under the ceiling calculation formula based on personal income growth, spending next fiscal year should be held to no more than 3.1% over the ceiling for the current fiscal year, which itself was exceeded.
Colin Moore, a political scientist with the University of Hawaii Economic Research Organization, said it’s important for the public to know that the Legislature is exceeding the spending ceiling even though the requirement for doing so, a two-thirds vote, is a low bar in Hawaii where Democrats overwhelmingly dominate the House and Senate.
“It’s an easy limitation to circumvent,” Moore said. “I don’t think it’s given much consideration at all. I don’t think that it’s treated as anything more than a formality.”
In 1978, the general public was concerned with high inflation, much like today, and Constitutional Convention delegates wanted limits on local government spending.
“Basically, the movement to control government spending, here and elsewhere in the United States, has its origins in the genuine concern of taxpayers that the costs of government should not consume an increasing proportion of their income,” a 1978 ConCon committee report said. “Your Committee concurs that discipline needs to be exercised in the development and execution of spending policies.”
Keli‘i Akina, president and CEO of the Grassroot Institute of Hawaii, recently criticized what the public policy think tank called a “wild spending binge.”
“The state’s expenditure ceiling was designed as a brake on runaway spending,” Akina said in a statement. “But lawmakers appear to be ignoring it, which bodes poorly for the public’s trust.”
Tom Yamachika, president of the nonprofit Tax Foundation of Hawaii, said most lawmakers seem to have a mindset to spend as much of the state revenue surplus as they can.
Yamachika questioned the wisdom of so much spending, but also acknowledged the existence of the ceiling as designed doesn’t make it effective.
“It really doesn’t do much,” he said.
