Management plans for state finances are experiencing whiplash at the state
Legislature.
House and Senate negotiators during a Friday evening meeting agreed to appropriate a $300 million deposit into the state’s emergency and budget reserve fund, also known as the “rainy day” fund.
The negotiators also agreed to appropriate $135 million into a trust fund to pay for
future retirement benefits of Hawaii government workers.
Both moves follow a decision in March by Gov. Josh Green to cancel a $300 million deposit into the retirement fund that had been previously postponed to this year from 2023 after lawmaker approval in 2022.
Green also vetoed a
$500 million appropriation into the rainy day fund in 2023 after a projection for state revenue growth was reduced in May after lawmakers passed their 2023 budget bill.
The two new appropriations totaling $435 million were proposed in a new draft of House Bill 40 about 15 minutes before a 6 p.m. Friday deadline for all contested bills to be in their final form for full House and Senate
consideration.
HB 40 is still subject to approval by a majority of House and Senate members at a scheduled vote Wednesday.
Up until the agreed-upon draft was announced Friday, HB 40 had been a blank placeholder bill to make such
appropriations in order to satisfy a requirement in Hawaii’s Constitution triggered when there is at least a 5% general fund surplus in two successive fiscal years.
The requirement is to invest state revenue in one or more places. The options are the rainy day fund, the retirement fund, debt repayment and a refund or credit to Hawaii taxpayers.
Lawmakers can satisfy this need by appropriating a token sum, which in past years has included $1 tax refunds.
Some observers weren’t expecting any move this year to add money to the rainy day fund, which already is at a record $1.5 billion, given grave concern over state finances earlier this year because of potentially $1 billion or more in costs for the state responding to Lahaina wildfire emergency needs and
recovery work.
“I’m a little surprised that they are depositing into the rainy day fund this much money,” said Tom Yamachika, president of the nonprofit Tax Foundation of Hawaii. “You got to wonder how bad does it have to get before they take money out of it.”
Yamachika said he wasn’t surprised at the timing of the decision by the conference committee so close to Friday’s deadline because other bills that affect the state budget were still being finalized Friday.
Still, there didn’t appear to be public indications earlier that lawmakers wanted to sock away a big sum of cash even after fears in February of dire financial conditions faded.
Members of the negotiating conference committee did not say publicly during five brief meetings on HB 40 Thursday and Friday what the circumstances or rationale were for the recommended appropriations.
Sen. Donovan Dela Cruz, chair of the Senate Ways and Means Committee dealing with budget matters, said Monday that Green’s announced intention to cancel the scheduled $300 million deposit into the retirement fund happened too late to be considered in the first two drafts of the state budget bill.
So, members of Ways and Means along with the House Finance Committee decided to shift the $300 million left over from Green’s canceled deposit into the rainy day fund through HB 40 as a way to give the state an extra financial cushion in case of higher-than-expected wildfire costs or another
disaster.
“The governor just said he wasn’t going to spend it, so we force-lapsed it and then re-appropriated it,” Dela Cruz said of the $300 million.
The $300 million deposit canceled by Green was going to be an extra deposit on top of regular annual injections to the retirement fund, which is heavily undercapitalized for covering expected obligations decades from now. Green announced his decision March 27.
Dela Cruz (D, Mililani-
Wahiawa-Whitmore Village) said putting $300 million into the rainy day fund is
a more precautionary use than a retirement fund deposit, though the $135 million deposit into the latter was arranged as well.
“We have to prepare as much as we can for some other type of incident down the road … either a hurricane or another fire or something that we just
want to make sure we are prepared for,” he said.
Sen. Henry Aquino (D, Pearl City-Waipahu-West Loch) chaired the conference committee on HB 40 for the Senate, and said Monday that committee members agreed that it was prudent to bolster the rainy day fund and pre-fund pension liabilities.
“With uncertainty still in the forefront regarding Maui moving into the next fiscal year, setting aside these funds and paying down obligations made sense,” he said.
