State Violates Balanced-Budget Requirement
The Hawaii state government will end the 2010 fiscal year in the red, violating the state Constitution for a second year in a row.
The state of Hawaii finished its fiscal year ending June 30, 2010 with a $22.3 million deficit, according to a Department of Budget and Finance report presented at a Senate Ways and Means Committee hearing Tuesday.
“It is a negative balance. I can’t get past that,” said State Department of Budget and Finance Director Georgina Kawamura. “I can’t make excuses for anybody, but it did happen.”
The department blamed the problem on uncertainty about spending at the end of the year and said it had reacted too positively to Council on Revenues projections.
The department said there are no consequences laid out in the Hawaii Constitution for ending the year in the red. It also does not anticipate cash flow problems — unless big capital expenditures are made.
Despite the bad news, the meeting was friendly, with lawmakers smiling as they asked Kawamura questions about what happened.
Statistically, $22 million is only 0.4 percent of fiscal year 2010’s expenditures. But the state Constitution that the government end each year with a balanced budget.
“When you’re getting to the waning days, we don’t know these things until you close the books,” Kawamura said. “Where we started out the year with a projection of negative 2.5 percent, and here on May 27th, (the Council on Revenues) is saying 4 percent positive growth. That was probably incorrectly taken by many departments.”
The June report by the Council on Revenues had indeed inserted a caveat: “This is solely a reflection of what the Council anticipated — given what was known prior to its May 27 meeting — with respect to the refund payout timing plan.” The council had projected the 4-percent positive growth taking into account Gov. Linda Lingle‘s plan to move back the distribution of about $275 million in tax refunds to July, shifting the expense from the end of fiscal year 2010 to the start of fiscal year 2011 — a technique used to make up for a revenue shortfall and end the year with a balanced budget.
“We took into account what they told us they were going to do,” said Paul Brewbaker, chair of the Council on Revenues.
Based on the council’s positive projections, however, Lingle decided to alter the plan and only withhold $150 million in tax refunds until fiscal year 2011. The governor also decided to veto other tax generating measures, such as capping tax deductions for high-income families.
“The moral of the story is that, don’t listen to anything they say ever, because they’ll change it later anyway,” said Brewbaker. “We shouldn’t listen to what the Legislature says they’re going to do or the governor. You can only take into account the stuff you actually know.”
Kawamura said that the state could have “absolutely” made ends meet by restricting state expenditures, outside of payroll, during the closing weeks of fiscal year 2010.
“While it’s easy to sit now and look at what we could have done or would have done, it was not done, obviously, and we have a negative balance,” Kawamura said. “I still think in the whole scheme of things, in the bigger picture, we did manage well.”
