It’s turning into an annual legislative tradition. Lawmakers propose dozens of bills seeking to establish special and revolving fund accounts to support scores of programs — only to be told they’re not allowed.

A state official, assigned by lawmakers to analyze the proposed funds, inevitably brings back the bad news. Almost none of the programs meet the legal criteria – established by the lawmakers themselves — for setting up such funds.

This year’s analysis by the Hawaii State Auditor, quietly released in February, was as bad as it gets.

State Auditor Les Kondo speaks about the OHA audit.
State Auditor Les Kondo, pictured here in 2018, found that of 99 bills establishing 63 special and revolving funds during the 2020 session, none met the statutory criteria to establish such funds. Cory Lum/Civil Beat

The House and Senate proposed 99 bills establishing 63 special and revolving funds during the 2020 session. Of those, none met the statutory hurdles.

These included funds set up to address high priorities like housing, climate change, health care and teacher salaries, as well as funds to support regulation of things like hemp and football helmets.

Two of the bills, House Bill 2543 and Senate Bill 3101, are part of a joint legislative package announced to great fanfare at the start of the session, with support from Gov. David Ige and business, legislative and community leaders.

The House bill proposes to set up an expanded pre-school program, and the Senate bill would set up a new schools facility agency to be responsible for all public school development, planning and construction related to capital improvement projects.

It might be the ultimate case of lawmakers being hoisted by their own petard, hamstrung by their own law. Hawaii State Auditor Les Kondo said the report speaks for itself.

“It says exactly what it says,” he said.

This year’s report is slightly different from other years, Kondo said.

In past years, the office would submit short analyses to the offices of lawmakers who had proposed the funds. This year, he said, the office streamlined the process by issuing one larger report. But generally the result is similar to what the auditor has found in past years: it’s very hard to meet the legal requirement for establishing a special fund.

Asked if this means the office is being too strict when interpreting the law, Kondo said the office continually reviews its processes and might reconsider how it applies the analytical framework spelled out by the statute. But he said the office hasn’t had time “to really drill down” on that this session.

Special and revolving funds are pots of money controlled by agencies outside of the normal legislative budget process. Money put into the fund might come from license or user fees, or fines, which are then used to support a program. Such funds are popular among lawmakers seeking to set up new programs because the lawmakers can argue that the program will pay for itself, with no extra money needed from the Legislature. They’re also popular among some because at least conceptually the money must be used for a specific purpose.

The problem is that this argument has been so persuasive over the years that the use of special and revolving funds ballooned. The result: billions of state dollars are now being spent without control by the Legislature, which is supposed to be in charge of spending.

To put it in perspective, when testifying for the reforms, which were adopted during the 2013 session, then-acting state auditor Jan Yamane said that for the 2011 fiscal year, special and revolving funds represented 24.3%, or $2.48 billion, of the state’s $10.2 billion operating budget.

Former Hawaii Sen. Jill Tokuda, who chaired the Senate Ways and Means Committee, said it’s a good idea to rein in special and revolving funds, saying, “We’ve got so many honey pots all over the place.” Stewart Yerton/Civil Beat

To put a lid on this, the Legislature established a high bar to be met when such a fund was established, plus it required the auditor to conduct reviews of proposed funds as well as existing ones. Among other things, there needs to be a clear nexus or link between the program and the sources of revenue, as well as proof that the fund can be self-sustaining. Perhaps most onerous, there needs to be an “explanation of why the program cannot be implemented successfully under the general fund appropriation process.”

Former state Sen. Jill Tokuda said reining in special funds generally was a good thing. Too often the funds allow agencies to act as fiefdoms, sitting on money they don’t immediately need, without budget oversight from the Legislature, said Tokuda, who chaired the Senate Ways and Means Committee.

“We’ve got so many honey pots all over the place,” she said. “And it’s been a coping mechanism for some agencies.”

At the same time, Tokuda said there might be a flaw with criteria when none of the proposed bills can meet the hurdles.

For his part, Kondo said the burden is generally on bill sponsors to explain why a proposed fund meets the criteria. His office sends questionnaires to the sponsors asking for explanations, but he said it often doesn’t get a response back.

Asked whether lawmakers should consider amending the law to make it at least possible to establish a fund, he demurred.

“That’s above my pay grade,” he said.

Register to attend our next Civil Cafe: Legislative Update. Panelists include House Speaker Scott Saiki, Senate Majority Leader J. Kalani English, and Civil Beat public health reporter Eleni Gill. It’s at noon, Wednesday, March 4, in Room 329 at the Hawaii State Capitol.

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