Ka Wai Ola - Office of Hawaiian Affairs, Volume 5, Number 8, 1 August 1988 — Taxes and You [ARTICLE+ILLUSTRATION]

Taxes and You

By Lowell L. Kalapa, Director Tax Foundation of Hawaii

Bottom Line on State Spending

Last month's eolumn generated so many inquiries that we thought readers would like an overall picture of state expenditures and a look at the bottom line. As we noted last month, the major focus of lawmakers and taxpayers is the general fund exDenditure oro-

gram as the general fund is comprised largely of taxes we pay eaeh day. While the entire state budget is funded through a variety of sources, such as federal funds, special funds, and borrowed moneys, there are numerous restrictions on how these funds ean be used. For example, federal funds received by the state are usually designated for a specific program such as AFDC whieh is a program to provide supplementa! assistance to families with dependent children. Thus, the general fund is the target for the bulk of state spending because there is more flexibility in how the dollars ean be spent. Of the more than $7 billion in total state spending over the two-year biennium from July 1, 1987, to June 30, 1989, nearly $4 billion in general funds will be spent for operations. Thus, general funds pay for more than 57 percent of the day to day operations of state govemment and the grants it makes to other agencies. Although government facilities, such as schools or office buildings, are usually paid for with money borrowed with the saie of bonds, occasionally, projects of high priority are paid with cash. Over the two-year period, lawmakers have allocated more than $260 million in general fund cash for building projects around the state. This unusual action is due largely to the cash surplus in the state treasury. v What about the rest of the capital improvements or building projects of state govemment. For the two-year period, the state is authorized to spend more than $1.5 billion on public buildings and iaeilities. As noted above, the building program of the state is dependent largely on borrowed funds obtained through the sale of bonds to investors.

More than 60 percent of the funds designated for the building program will eome from borrowed funds. While it may be surprising that the state is spending so mueh on new public buildings and facilities, it should be noted that based on its track record, the state rarely spends everything authorized for the capital improvements program. Besides the borrowed money, federal funds, some matching private moneys, and special funds whieh are ^armarked for specific projects make up the other sources of funding for the state's building program. Some readers may ask why the state should borrow money for their building program when there is all that surplus cash in the state treasury? Theoretically, by borrowing the money for facilities whieh are designed to serve several generations of taxpayers, the cost of paying back the money will fall on those generations of taxpayers who will use the facility. If a building were paid for in cash, then the cost would be taken out of the taxes paid by only this generation of taxpayers. Thus, future generations would not have a hand in paying for the facility. Certainly, the cost of the principal plus interest will add to the overall cost of the project, but in the long run, there is greater equity in who ends up paying for the facility. These are all heady numbers to speak about, millions of dollars for this program and for that program, but what does it mean in so far as the bottom line? The question often asked these days is what will the surplus look like and how mueh will there be for legislators to give away in the 1989 session? The following chart reports all expenditures authorized by the 14th state legislature in both the 1987 and 1988 sessions for the fiscal biennium 1988-1989. The revenue forecasts are those of the official revenue estimating body of the state called the Council of Revenues. Based on the ineome predicted by the Council for this past fiscal year and the one to end on June 30, 1989, and assuming that all the funds appropriated by the legislature and approved by the govemor are spent, the legislature should have nearly $300 million to play with in the 1989 session. However, this surplus or cash balance must be

viewed with some caution as next session will have to grapple with public employee collective bargaining contracts. Wage increases could add as mueh as $150 million as they did this last time. Further, the forecast of revenues could change in the next few months should the economy take a downturn as some are predicting. Should revenue not materialize as forecast, it will have an effect on the "bottom line." For the time being though, it appears that the state is in pretty good condition. But v^ith uncertain times ahead, it would be well for officials to keep a finger on the fiscal pulse of the state. Readers' questions may be sent to Lowell Kalapa e/o TaxFoundation ofHawaii, 220S. King St., #680, Honolulu, Hl 96813. lVe regret that due to the uolume of mail, personal replies are not alwa ys possible. Inquiries of general interest may be addressed in future columns.

STATE OF HAWAII Revenues & Expenditures ($ in Millions) — Actual Estimated FY 1987 FY 1988 FY 1989 REVENUES Taxes $1,607.3 $1,800.2 $1,939.1 Liquor Tax Settlement — 95.6 — Other 186.9 206.9 173.9 TOTAL REVENUES $1,794.2 $2,102.7 $2,113.0 EXPENDITURES 1987 General Approp. Act $1,740.8 $1,747.4 1988 Supplemental Approp. Act 156.8 126.4 Legislative Expenses 10.4 13.4 Judiciary Expenses 52.6 58.8 1987 Specific Appropriations 30.9 6.2 1988 Specific Appropriations — 108.7 Collective Bargaining Costs 42.6 103.8 TOTAL AUTHORIZED EXPENDITURES $1,692.2 $2,034.0 $2,164.7 Admin. Restrict./Lapses 4.5 8.8 8.7 TOTAL EXPENDITURES $1,687.7 $2,025.2 $2,156.0 SURPLUS OR (DEFICIT) Beginning $ 137.0 $ 243.5 321.0 Year End Result 106.5 77.5 (43.0) Cumulative $ 243.5 $ 321.0 $ 277.9