The budget is our most important state policy. It’s a plan for investing in the collective good and it specifies the funds—from taxes, fees and grants—that support our spending. While we should all have a better understanding of the budget, it isn’t easy to find the information available to us, or to understand it all and get the full picture. The legislature made this year’s budget process even murkier, but we will try to make the outcomes clear.
Here are a few budget basics to help us understand the budget process.
- Instead of a calendar year, the state operates on a fiscal year (FY) that begins every July 1 and ends every June 30. We are now in FY19 and will be entering FY20 this coming July.
- There are four branches of government and each proposes its own budget:
- Executive (departments overseen by the governor);
- Judiciary (state judges and courts);
- Legislative (our state representatives and senators, their staff, the Ethics Commission, the State Auditor and the Legislative Reference Bureau); and
- Office of Hawaiian Affairs (OHA, a constitutionally mandated fourth branch of government comprised of staff and board trustees dedicated to advancing the well-being of Hawaiians).
- The Legislature decides how much each branch will get to spend and on what programs. All operating and capital expenditures for any branch have to be authorized by the legislature in appropriation bills.
- Each appropriation has a specific source of financing. Funds that support operating costs include general funds, special funds, federal funds and others.
- Capital Improvements Projects (CIPs) are large infrastructure and building projects. Funds appropriated to support them are borrowed and paid back with interest over time.
Most of our state budget pays for operations and capital for the executive branch, the judiciary and OHA. Until this year, budget worksheets supported the appropriations bills for these branches by adding clarity and detail about specific program spending and the funds supporting it. The worksheets also showed us what funds the governor, judiciary or OHA had requested, and what was finally authorized by the legislature, so that we could compare the differing priorities for each branch. The budget for the legislative branch has never been detailed in a budget worksheet. This leaves details, such as the number of authorized staff positions, unknown. Besides the main budget bills for the four branches and the capital improvement projects outlined in separate appropriations bills, additional appropriation bills authorize short-term spending. These have to be ferreted out among the hundreds of bills that pass each session, making for a complicated and time-consuming process.
This year, the size and scope of the budget was even harder to assess. Finding all the appropriations was harder and sorting and adding them up was more cumbersome. Instead of having one worksheet for each of three branches and the capital budget, there were multiple worksheets for each branch in some cases. In others, there were none at all. And even when there were worksheets, they did not provide information on what the branch requested compared to what was actually appropriated. This is what we found:
- Instead of one appropriation bill (and worksheet) for the executive operating budget, there were eight bills and two worksheets. The worksheets covered only five of the eight bills.
- Most, but not all, capital spending for the executive branch was detailed in HB1259, but additional capital funding was authorized in HB1312, HB1586 and SB78. There was no CIP worksheet.
- A worksheet is posted for OHA’s budget but the House and Senate didn’t agree on it, so OHA’s budget can only be found in reading HB172.
- The judiciary budget had an appropriation bill that matched up with a budget worksheet detailing spending. This was the closest process to previous years, but without the advantage of knowing what the judiciary branch proposed.
- In addition to all of the above, there was the annual appropriation for the legislative branch (HB1) as well as 67 other bills that included short-term appropriations amounting to nearly $200 million.
As we assembled the pieces of the budget, we found that the state is planning to spend $16 billion for operations for the four branches next year. The revenue sources tied to these expenditures are shown in Figure 1.
General funds that come from our state income, general excise and other taxes only support about half of the state’s operating costs. That amounts to about $8.4 billion for all branches.
The source of special funds and the programs they support are related. For instance, tuition paid to the University of Hawaiʻi (UH) goes into a special fund that can be used only for the expenses of UH. Other funds come from a variety of sources, including revolving funds and trust funds. In total, $3.5 billion is budgeted from special funds for next year.
We take a special interest in the federal funds that go into our state budget. We reported in the 2018 Budget Primer that the percentage of federal funds in our budget is considerably less than the national average of 31 percent. Next year, federal funds will make up just 19 percent of all operating funds, and only 15 percent of all state expenditures when we include the CIP budget. This represents a small drop both in the percentage of our budget that comes from federal sources and the amount of federal dollars per resident. With increasing expenses supported by state-based funding, maximizing federal contributions is becoming more and more important.
Part 1 of 2 looking at the state budget in the upcoming fiscal year.