There have been a few examples of special purpose entities affiliated with government here in Hawaii that have gotten out of control in terms of spending and which seem to have suffered from various problems in execution.

Not to pick on Hawaii, of course, because these problems are present all over the country at various levels of government. But Hawaii is as good an example as any and can help us develop what I might call “if-then” governing principles.

Do you know what the Hawaii Hurricane Relief Fund, the Hawaii Health Connector (under the federal Affordable Care Act) and the Honolulu Authority for Rapid Transportation don’t have in common? The Hawaii Hurricane Relief Fund had a statutory duty to obtain audited financial statements. This is a good idea for special purpose entities that will spend an unusual amount of money in a non-routine way for two reasons.

Hurricane Lester

The Hawaii Hurricane Relief Fund had a statutory duty to obtain audited financial statements

NASA Goddard MODIS Rapid Response Team/NOAA

First, it gives outsiders a chance to stop foolishness before it gets out of control. Second, it requires the entity’s management to develop good internal procedures for doing business and accounting for those transactions from the start.

Now, the state does have an enterprise-wide financial statement under which these entities are subsumed along with the many other agencies of the state. But therein lies part of the problem: An enterprise-wide financial statement doesn’t tell us what is going on at a level of detail that is particularly helpful in spotting problems.

Principle No. 1

This leads us to our first “if-then” governing principle.

If you have a startup entity that has independent control over a lot of money, then you should have audited financial statements for that entity and if you do not, then you shouldn’t enable significant independence in that entity.

Do you know why the Affordable Care Act was a particular problem for Hawaii in particular out of the 50 states? Because Hawaii was already ahead of the nation with the Hawaii Prepaid Health Care Act and its unique exemption from the Employees Retirement Income Security Act. Because the two regimes don’t really fit together, it made some of the issues more complex both on an operational and legal level.

Regrettably, because of the unique ERISA exemption, the Hawaii Legislature cannot materially alter the Prepaid Health Care Act. And because of the partisanship in Washington, D.C., Congress could not materially alter the Affordable Care Act.

Principle No. 2

This leads us to our second “if-then” governing principle.

If you can’t amend legislation and you are operating in a novel or dynamic area and you know the legislation will need amendment, then you should not create the statutory intervention in the first place. Because people don’t just want a government of good intentions; they want a government that works on a practical level to solve problems.

But there is yet another lesson from this case. Our congressional delegation voted for the Affordable Care Act under the assumption that the Prepaid Health Care Act would not be affected. But the best they could do by way of statutory language was to say that the ERISA exemption discussed earlier was not disturbed, which was a long way off from suspending the operation of the Affordable Care Act in Hawaii.

Principle No. 3

This leads to a third “if-then” governing principle.

If legislation doesn’t do what you want it to do, then don’t vote for it, and if you can’t face up to the reality of the consequences of your vote, then maybe you should find another line of work and stop trying to “help” your fellow citizens. Because rather than have help like that, some of us would prefer to be left alone.

I only mean to remind us that when we agree to certain policy objectives, our approval or consent must be contingent on something.

Do you know why the government can seem dysfunctional? Many reasons really, but the main one is inadequate funding for the myriad purposes that the Hawaii Legislature or national Congress task the government with.

How can we make funding more adequate without raising taxes or debt so high that it disables economic growth? By reducing the scope of the government so that whatever is done, is done right and adequately funded to achieve its stated purpose.

Principle No. 4

Which leads us to another “if-then” governing principle.

If we don’t have enough money for government, then we shouldn’t have a government that tries to be all things to all people. You know the old saying that if you try to please everybody, you end up pleasing nobody?

Now I know, I know. If ifs and buts were soup and nuts. If pigs had wings, then they’d fly. If I were a rich man, I’d fiddle all day long.

I don’t want to make myself out to be an unrealistic dreamer. I only mean to remind us that when we agree to certain policy objectives, our approval or consent must be contingent on something. Because there are always assumptions underlying our approval or consent, even if we don’t recognize them at the time.

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