Settling accounts

In 2002, then-Gov. Ben Cayetano and the Legislature responded to angry motorists by bringing the notorious Photo Traffic Enforcement Program — the van cam law — to a screeching halt. No longer would drivers get traffic citations issued automatically based on traffic cameras parked in white vans along the highway.

However, one vestige of the van cam law remained in place, even though it served no purpose: the van cam’s Photo Enforcement Revolving Fund. Not until two years ago did someone notice that the nearly $3.5 million in the fund was gathering dust. Only then, during the recession, did the Legislature move the money to the state’s general fund, which comprises mainly tax revenue.

About one of every four dollars spent by the state government comes from a variety of sources apart from state taxes. Fees collected for any number of reasons have been used to create and maintain special funds and revolving funds, according to a state auditor’s report issued last year.

Those funds have caught the attention of the Legislature’s budget experts, and it’s no wonder. The auditor’s report found that special funds in fiscal 2010 totaled $2.48 billion, which amounts to 24.3 percent of that year’s state operating budget.

Even so, the auditor’s report isn’t comprehensive. And at at time when every dollar counts, lawmakers are wondering if there are more funds out there like the Photo Enforcing Revolving Fund, waiting to be tapped.

State Rep. Sylvia Luke intends to find out. She wants the House Finance Committee, which she heads, to perform thorough research so it can address the use and relevance of special funds when the Legislature reconvenes in January. The results could be dramatic.

The task now is in "preliminary stages," Luke said Thursday. "What we’re going to do is work with the auditor’s office and look at which ones that they’re looking at."

Luke said she expects her committee’s research to result in the Legislature taking "a systematic approach" that could lead to a major shakeup of the state’s special funds.

"There are some funds that have no activity, and there’s money sitting in it, or there are funds that have no funds at all; they’re still on the books," she said.

"I would think the legislation will say that certain funds will be eliminated and the rest of the funds will be allocated into the general fund." Or maybe it comes down to elimination of the fees overall. The basic thing we need to do is clean up those things and figure out when it was first created, what was the purpose and why is it still on the books."

Sen. David Ige, chairman of the Senate Ways and Means Committee, said he shares those concerns and plans to be working with Luke as they get ready for the legislative session.

"Because of the number of special funds that are out there," Ige said, "it does become a pretty huge task to go through, and each one of them carefully."

Kalbert Young, the state director of budget and finance, does not oppose Luke’s move.

"I’m not sure what direction she’s going," he said, "but I do support a periodic and frequent review of special funds to make sure that they are contemporary."

Young said some funds were created by legislators who thought they were "either saving the general fund from the expense, or trying to shield it and protect that function from the scrutiny that is required from a general fund appropriation."

As a result, he said, "There’s literally hundreds if not thousands of special funds that have been created by the state, by the Legislature."

Each department of the state is supposed to report on their non-general fund accounts to the Legislature every year, but these reports are less than helpful, some say.

"It’s not a whole lot of detail that they provide," Ige said.

Lowell Kalapa of the Tax Foundation of Hawaii says those reports are not comprehensive, with departments using the excuse that "it’s a moving target" to avoid more precise accounting.

The state Constitution requires that the expenditure of general funds, including federal assistance, be limited to "the estimated rate of growth of the state’s economy."

"With the amount of revenues going into special funds," Ige said, "the concern was that we don’t get a true picture of the growth of government and the relation of government spending to the overall growth in economy.

"I do agree that it makes sense for us to look at and evaluate the funds, and we haven’t really made a consistent and sustained effort," Ige said. "This is one of the areas that Rep. Luke is very interested in doing and I agree that it probably is time for us to look at it."

Kalapa said Luke "should look at all the programs and ask, ‘Is there a direct relationship between the fees and charges they raised from their constituents (that is) directly related to the cost of the program?’ If they’re not or they were formerly financed out of the general fund, then they ought to pull that back and put it back in the general fund.

"That will give us a better idea whether or not government has grown too fast," he said.

Deciding which special funds should be kept, and which should be discarded, could get complicated.

Young said special funds must comply with a three-part test: They are self-sustaining; the fund revenues are for an identified purpose; and revenues generated are sufficient to meet that purpose.

Lawmakers simply don’t know if all the special funds now on the books meet that test.

"We don’t normally review expenditures out of special funds as we do expenditures out of the general fund," Ige said, "so the concern generally is that there may be expenditures that don’t get the same kind of review as to whether we may be making them or not."

The auditor’s assessment —which Luke said offers only a partial look at funds that had been repealed or were inactive — found that:

» Six special or revolving funds had more than $4 million in funds that no longer served a purpose, including $3.8 million devoted to University of Hawaii "housing assistance."

» Nine funds with balances of $47.9 million failed to meet "clear nexus criterion" but "may be an appropriate means of financing because there is a logical relationship between the program and the sources of revenue dedicated to its support." That included $19.45 million in the tobacco settlement special fund for the Department of Health and $11.2 million to UH to pay for the principal and interest on revenue bonds.

» Six funds totaling $49.7 million "do not meet criteria for continuance and should be repealed," including $16.6 million for UH research and training and nearly $20 million to Emergency Medical Services (EMS) from $5 vehicle fees and a half cent from cigarette taxes.

Kalapa pointed to the EMS fund as an example of how fees may not have anything to do with how their revenue will be spent. He said he "made a joke of it" to legislators who approved it, remarking, "It seems to me that EMS was called to assist and aid a former legislator who decided to skydive off the Koolau Mountains in Waimanalo and got hurt. What did that have to do with my vehicle? Nothing."

Kalapa says he favors only three special fees — those that go to highway, airport and harbor funds — which are justified to be earmarked in order to receive matching funds from the federal government.

"That’s about it," he said. "I think everything else can go back into the general fund."