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The Hawaii State Legislature recently considered cutting the budgets of all state agencies, along with various special funds and capital improvement projects, to cover the staggering costs associated with Maui’s wildfire disaster. One very large special fund is excluded.
The state has a record $1.5 billion in its emergency budget reserve fund. But the fight for emergency wildfire recovery funds currently underway in Congress doesn’t seem as dire as tapping into what’s commonly known as Hawaii’s “Rainy Day Fund,” or EBRF.
Using some of the fund to defray the potentially $1 billion cost of the worst disaster in Hawaii’s history makes sense to some observers.
“We have a rainy day fund and that’s supposed to be used for emergencies,” said Tom Yamachika, president of the nonprofit Hawaii Tax Foundation. “An emergency has occurred.”
Contributions to the fund should also be a last resort, ensuring that the costs of the August 8 disaster, which destroyed much of Lahaina and killed at least 101 people, can be made available to others without cutting essential state services. Some people think it can be covered by financial resources.
Rep. Kyle Yamashita, chairman of the House Finance Committee, said Wednesday that “at this point, we have not reached the point where we are considering adding to the reserve fund.”
Yamashita (Democratic Party, Pukalani Makawao-Uluparakua) believes that the use of EBRF is only necessary to avoid deterioration of government services. “But we are not at that point yet,” he said. “We can still work within our means.”
State law allows the use of funds for several purposes.
One broad objective is to “maintain the level of programs determined to be essential to public health, safety, welfare, and education.” This fund can also be used for employment programs during economic downturns.
Another permitted use is to address an emergency declared by the Governor or designated as urgent by the Legislature, specifically “destroyed or damaged facilities in any county; “Recovering services that have been interrupted due to a disaster.”
Restrictions on the use of the EBRF include paying raises and benefits to public servants, reducing general obligation bond debt, and using more than 50% of the fund’s balance in a fiscal year. However, lawmakers can and have done so in the past by changing the laws governing the fund.
Extensive usage in the past
Over the fund’s 25-year history, state legislators and governors have vacillated between more conservative and liberal acts of withdrawing money from the fund and putting money into it, sometimes on an emergency basis. Sometimes the time and purpose of the budget reserve conflicted.
Congress created the fund in 1999 to receive a portion of a 1998 multistate settlement with tobacco companies. The settlement envisaged $1.38 billion for Hawaii over the first 25 years, and more after that as long as the companies sold cigarettes in the United States.
Then-Governor Ben Cayetano wanted 50% of the settlement money to go into the fund, but Congress set that percentage at 40% in 1999 and lowered it to 24.5% three years later.
Almost from the beginning, many lawmakers were eyeing this new fund for things that probably wouldn’t be considered emergencies.
In early 2001, a competition was held to use EBRF funds for public school supplies and drug treatment centers.
Two bills introduced by House Democrats at the time proposed spending $32 million to buy computers and textbooks for schools as the economy picks up with record tourism and increased tax revenue.
The 19-member House Republican caucus unsuccessfully proposed dedicating some of the funds to establishing drug treatment centers, and Democrats blocked the plan. Under the law, spending from the fund requires a two-thirds vote in the 51-member House and 25-member Senate.
After the Sept. 11, 2001, terrorist attacks in New York and Washington, D.C. disrupted Hawaii’s tourism industry, Congress, in a special session in December 2001, appropriated $3,300 from the general fund to a fund for difficult times. Added $1 million.
Still, controversy arose over the withdrawal.
outflow of funds
In 2002 and 2003, Congress appropriated approximately $21 million from the fund to support social service providers.
Spending in 2002 included a $400,000 grant to Wahiawa General Hospital, $500,000 for the Open Door preschool program, $1 million for homeless services, and $2.2 million for substance abuse treatment programs. I was there.
Lingle, the then-new Republican governor, initially sought to divert some unpaid spending from the Rainy Day Fund to balance the state budget, and in early 2003 the Democratic-led Congress There was a collision. After rescinding the plan, Lingle used a line-item veto to cut $3.6 million from a bill passed by Congress in 2003 that provided $10.7 million from the fund to 20 social welfare programs.
“As states face unexpected declines in revenue, wise management of state budgets requires saving as much money as possible in the emergency budget and reserve fund for future needs.” Lingle wrote in his veto message.
Congress responded by narrowly overriding Lingle’s veto by a vote of 19-5 in the Senate and 34-14 in the House.
Hawaii lawmakers continued to utilize the fund, and in 2004, they appropriated $9.6 million to support 39 health and human services programs.
In late 2008, as the negative effects of the U.S. recession on the local economy began to surface, Lingle announced his intention to seek $40 million from the fund to address the state’s $1.3 billion budget deficit.
Total EBRF withdrawals by fiscal year amounted to $27 million in 2009, $5 million in 2010, and $60 million in 2011, according to state Budget and Finance records.
These withdrawals reduced the Fund’s balance, net of tobacco settlement deposits, from a high of $74 million in 2008 to $10 million in 2011.
Lawmakers also froze contributions to the fund for several years and reduced future tobacco settlement contributions from 24.5% to 15%, freeing up more revenue for general purposes as Hawaii’s economy recovers.
deposit boom
Automatic contributions were reinstated in 2014, and Congress put an additional $50 million into the fund. Two years later, the fund’s balance was $101 million, and then-Governor David Ige set a goal to add hundreds of millions more.
Mr. Ige adopted a policy of ensuring that the EBRF balance equals at least 10% of the General Fund’s annual revenues ($680 million in 2016).
The policy sought to position the state to withstand recessions, building on the effects of past recessions, and to reduce interest costs on bonds by increasing the state’s credit rating. Reserves and many other things go into the ratings given by credit agencies.
Some critics of Mr. Ige’s policies argue that wasting large amounts of revenue is not as important as providing economic relief to residents struggling with high costs of living.
“That sounds good. It sounds good to the average taxpayer who thinks saving money is a good thing. But today, when there are many valid uses, If we’re just sitting around with money that’s not being utilized, then I don’t think we’re responsible,” Randy Pereira, executive director of the Hawaii Government Employees Association, said at the time.
The nonprofit Hawaii Appleseed Center for Law and Economic Justice also expressed concern about Ige’s policies.
Victor Geminiani, co-executive director of the organization at the time, said at the time: It takes into account current realities and does not necessarily take into account future contingencies. ”
Mr. Ige’s plan was only temporarily derailed by the coronavirus pandemic, which caused a sharp economic downturn in 2020, triggering a massive use and subsequent replenishment of the fund.
The EBRF balance decreased from $378 million in 2019 to $59 million in 2020, but recovered to $320 million in 2021, thanks in part to federal aid.
With more cash in hand in recent years, lawmakers increased the fund to $974 million in 2023, after which it now stands at about $1.5 billion. In recent years, approximately $4 million to $5 million in tobacco settlements have also been contributed to the fund.
current dilemma
For now, legislative leaders and Gov. Josh Green’s administration don’t want to tap into the fund, despite concerns about a looming financial crisis.
Four weeks ago, all state departments were told by the Senate Ways and Means Chairman to develop plans for 10% and 15% budget cuts to prepare for possible austerity measures, given the uncertainty of Maui’s wildfire recovery costs. received instructions.
Budget and Finance Director Luis Salavería told members of the committee overseeing the budget allocation on February 20 that there is considerable uncertainty regarding wildfire spending, but the budget for 2024, which ends on June 30, He said there could be a shortfall of nearly $400 million in the fiscal year.
Meanwhile, Maui County has asked the state for $402 million over three years to help with wildfire costs.
Salaveria told the Ways and Means Committee on Feb. 29 that the Green administration’s fiscal policy is to ensure reserves equal to at least 20% of annual general fund revenue, which is expected to be close to $10 billion this year and next. He said that it has been done.
This 20% includes approximately $170 million in unspent or unspent revenue, rainy day funds, and hurricane relief funds. EBRF’s $1.5 billion balance alone represents 15%.
Sen. Donovan Dela Cruz, chairman of the Ways and Means Committee, told agencies in a budget cut preparation memo that their general fund cash balance of $1.5 billion last year could drop to $154 million by the end of next fiscal year. It said it would maintain a 20% reserve. This is necessary to avoid damage to the state’s credit rating.
“Using the EBRF must be viewed as a last resort after operational reductions are considered,” Dela Cruz (D-Mililani-Wahiawa-Whitmore Village) said in the memo.
As part of other efforts to cover Maui’s wildfire costs, the Department of Revenue sent an emergency appropriations bill, Senate Bill 582, to the House on March 5, allowing the Green administration to draw from about 30 special state funds and accounts. Authorized approximately $37 million to be transferred to the General Fund. .
Two days later, the House sent a bill to the Senate that would halt the state’s long-planned $400 million redevelopment of Aloha Stadium to save $50 million in cash and cancel a $350 million bond appropriation. did.
“We have also identified other projects that may fall into the nice-to-have category and help balance the budget,” said Rep. Andrew Garrett (D-Manoa), lead sponsor of House Bill 2664. “We need to explore potential cost savings to reduce costs.” His colleagues approved the bill before voting to cancel the Aloha Stadium project on a 35-14 vote.
On Wednesday, the House sent a state budget to the Senate that includes $1 billion, or 10% of general fund spending, for Maui wildfire recovery.
On Friday, Green said in a statement: “At this time, there is no need to consider using the Rainy Day Fund, given the large balance available to assist with recovery costs.” But at some point, if we’re going to consider leveraging our rainy day funds, we’re going to think about that carefully and make sure it’s part of the overall options that are being considered. ”
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