Part 2 of our look at Hawaiʻi’s fund categories will cover special funds, reserve funds, bond funds and state debt, and other funding sources.
Special funds are established by the Legislature with revenues from specified sources that are dedicated to supporting an identified purpose related to the revenue source. An example of a special fund is the Wireless Enhanced 911 Fund, which receives surcharges from wireless phone users to fund the 911 emergency system.
These special funds are restricted funds that may not be allocated by the Legislature or governor for any other purpose. A variety of sources contribute to special funds, which comprise 8 percent of state tax revenues. Special fund revenues include fuel taxes, motor vehicle taxes, unemployment insurance taxes, revenue from public undertakings, fees collected for medical services and other sources.
HBPC analysis of FY2019 budget worksheets and appropriations bills passed during the 2018 session show that special funds will pay for 18 percent of the total FY2019 budget, including funding for transportation, hospitals, housing, education, environmental management, tourism and other areas. While special funds may not be diverted to any other purpose, they must still be appropriated through the budget process in order to be spent.
Figure 3.6 shows projected changes in special fund balances between FY2017 and FY2023, extrapolated from a “Review of Special Funds, Revolving Funds, Trust Funds, and Trust Accounts of the Office of Hawaiian Affairs,” Report No. 16-10, Office of the Auditor, December 2016, page 4.
As established by Hawai‘i Revised Statutes §328L-2, the Emergency and Budget Reserve Fund (EBR), which was created in 1999, is devoted to emergency and “rainy day” purposes. The EBR is funded by legislative appropriations and surpluses from tobacco settlement moneys. Interest earned on the EBR is deposited to the general fund.
According to the Pew Charitable Trusts, Hawai‘i’s rainy day fund had 15.2 days’ worth of general funds at the end of FY2017. The national average for that year was 19.8 days, with Alaska having the highest reserve level at 383 days and four states having no reserves at all. Hawai‘i’s 2017 rainy day balance ($311 million as of FY2017) represented 4.2 percent of general fund expenditures compared to 5.4 percent for the national average. Figure 3.7 shows increasing rainy day balances for Hawaiʻi. The Legislature appropriated an additional $125 million to the EBR in 2018.
The Hawai‘i Hurricane Relief Fund (HHRF) was established in 1993 in response to private insurers withdrawing from the Hawai‘i market after Hurricane ʻIniki. It ceased operations in 2002 when private insurance again became available. At its termination the fund amounted to $187 million, which is kept in HHRF in the event its services are required in the future. However, HHRF has served as a de facto budget reserve, helping tide the state over through the recession. Legislation was passed to restore funds via tax revenues in fiscal years 2013 through 2015.
Bond Funds and State Debt
The state constitution defines the kinds of bonds and debt obligations the state can undertake and requires that the Legislature approve all bonds. The constitution limits the debt that the state may incur, providing that general obligation bonds may be approved only if the principal and interest payable in any fiscal year is no more than 18.5 percent of the average of general fund revenues over the preceding three years. This provision is intended to ensure that the state’s bond obligations do not jeopardize operating funds.
The state issues an annual statement of outstanding indebtedness and projects annual bond issues and debt obligations (Fig 3.8). On July 1, 2017 this statement noted the following: $6.9 billion for general obligation bonds, $2.9 billion for revenue bonds, and $1.4 billion for special purpose revenue bonds.
The Department of Budget and Finance manages most state bonds and debt. These include general obligation bonds, revenue bonds and special facility revenue bonds issued by state agencies, special assessment bonds, mortgage credit certificates, short-term loans and municipal lease financing. The department also issues and manages special purpose revenue bonds, which are instruments that fund airports, harbors, highways and public housing as well as some private projects operated for the public good, such as hospitals and electric utility plants where private parties pay the interest and principal on the bonds. Debt service payments amounting to $795 million were included in the FY2019 Department of Budget and Finance budget worksheets, pages 116–118.
- Private Contributions, usually related to launching or piloting a special project or purpose;
- County Funds such as the surcharge imposed by the City and County of Honolulu to fund the rail project or fuel taxes imposed by the counties;
- Trust Funds, which invoke the state’s fiduciary responsibility for assets held to benefit those with a vested interest in the assets, such as the Employer-Union Health Care Trust Fund;
- Interdepartmental Transfers, which deploy funds to support a program in a different department (Hawai‘i Revised Statutes §37-62); and
- Revolving Funds, which are “funds from which the costs of goods and services is [sic] paid for by charges/fees that are levied on the public” (“Budget Manual: Resource Guide to the State of Hawai‘i Budgeting Process,” Senate Minority Research Office, January 11, 2013, page 12).
Back to “Where your taxes go: a breakdown of Hawaii’s fund categories, part 1” – the General Fund and federal funds