The Hawai‘i State Legislature recently signed off on a state spending plan for the next two fiscal years, starting July 1, 2019. In this second of two posts, as well as in Part 1, we focus on just the first year, FY2020, (summarized below). This is because we expect changes to be made before the second fiscal year’s budget is implemented.

The budget covers operations and capital improvement projects for all four branches of government:

  • Executive Branch Operating Budget: $15.6 billion
    • Grants to Nongovernmental Entities: $10 million
  • Judiciary Branch Operating Budget: $184.6 million
  • Legislative Branch Operating Budget: $43.3 million
  • Office of Hawaiian Affairs Operating Budget: $9.5 million
  • Capital Improvement Projects (CIPs), most of which are for Executive Branch departments: $4.8 billion
    • Capital Projects for Nongovernmental Entities: $20 million
  • Other Short-Term Appropriations: $199.3 million
  • Total Authorized Expenditures: $20.8 billion

Quick Comparison: FY2020 vs FY2019 Budget

  • The new budget totals $20.8 billion compared with $17.5 billion for 2019. This is a 19 percent budget increase. Most of the additional $3.3 billion will be spent on CIPs.
  • In 2020, the budgets for the Judiciary and Legislature grew slightly while the Office of Hawaiian Affairs has been stuck in neutral since 2016. 
  • The Executive Branch, by far the largest part of state government, gets an 8 percent increase in its operating budget amounting to $1.2 billion. More information about this is below.

Capital Projects

CIP spending will go up by a substantial 87 percent in FY2020. Capital spending supports construction and other jobs across the state and—especially for transportation projects—enhances our safety, convenience and comfort.

We finance capital projects by issuing bonds. That is, we borrow the money to pay for them. The down side of capital expenditures, therefore, is that we have to pay the principle and interest over a long time, and those payments reduce the amount of funds we have for service programs.

Most of the capital projects lined up for 2020 are detailed in House Bill (HB) 1259:

  • The Department of Transportation (DOT) always has the largest capital budget, and next year it will have $2.3 billion available for airport, road and harbor projects. This is substantially more than the $1.6 billion in the FY2019 budget.
  • The Department of Education (DOE) will also see major increases in capital spending next year, mostly for improvements in classroom buildings, athletic facilities and other infrastructure projects. Its budget for 2020 is $1.2 billion, up from less than $400 million in 2019.

Besides the projects covered in HB1259, several other bills authorized capital projects:

  • Housing that local working families can afford depends on continuing appropriations for the Low-Income Rental Revolving Fund. The fund got a much-needed $200 million boost for 2019. An additional $50 million will be available in 2020. (HB1312)
  • The legislature approved a measure to expand public pre-Kindergarten, including making $6.5 million available for classrooms space—an important investment to ensure all our keiki can attend quality public pre-schools. (SB78)
  • Replacing Aloha Stadium has been under discussion for years. This year, a Stadium Authority bill was passed that allows capital spending of up to $150 million. (HB1586)

Executive Operating Budget

In the Executive operating budget, the largest increases will go to the Departments of Transportation, Education and Budget and Finance.   

  • The DOT got a $180 million increase in its operating budget, most of which will go to enhancing airport administration. 
  • The DOE budget was increased by 5 percent, amounting to $110 million. The budget for pre-Kindergarten increased by $17 million. Other DOE budget increases went to school-based budgeting ($72 million) and charter schools and their administration ($12 million). 
  • The Department of Budget and Finance’s budget grew by 25 percent, the largest increase among all departments. Most of this growth is in two areas. The first is managing a new responsibility for the department to hold a $364 million mass transit special fund, as established in 2017 when the legislature authorized county surcharges for transportation needs. In addition, the Department of Budget and Finance got $300 million more to pay for costs it manages for all departments; most notably, interest payments for capital expenditures, employee benefits and retiree pension, and health costs.

The increase in spending for the Department of Budget and Finance brings up a concern we identified in our 2018 Budget Primer, namely, that the obligated (or “fixed”) costs supported by our budget continue to grow faster than the economy, state revenues and other state spending. These costs are made up of the state’s share of Medicaid, interest and other payments related to capital projects, public worker health premiums and social security payments, public worker retiree health premiums, and pension contributions.  Retirement costs increased by $183 million this year as part of our commitment to pay off unfunded liabilities accumulated over past decades. (See our report, A Public Investment). 

Debt service payments have also grown by more than $100 million just since 2018. Figure 1 shows the growth trend in obligated expenses. 

 

 

Figure 1. Change in obligated costs in the state’s executive budget. These costs take up an increasing percentage of the state’s general fund, the money available to invest in new programs to make Hawai‘i a more livable place, or to solve emerging problems.

Part 2 of 2 looking at the state budget in the upcoming fiscal year.

Part 1