The Maui County Council is planning to increase property taxes to balance its proposed fiscal 2020 budget, but a far better option would be to impose a “smart” spending cap that would eventually bring its spending in line with its income — without raising taxes.
A smart spending cap is set at less than the growth of the local gross domestic product. For example, between calendar years 2011 to 2017, Maui County’s private sector GDP grew by an average of 2.1 percent per year. If lawmakers were to cap their fiscal 2020 operating budget growth at 2 percent, they could see an operating surplus of $192 million by fiscal 2024, assuming GDP growth remained the same.
Spending at a rate higher than private sector GDP growth, which the mayor and County Council currently are proposing, is ultimately unsustainable because more of the economy has to be diverted to the political arena. Flipping that trend would put the county on a more healthy trajectory, eliminating the alleged need for tax increases to maintain solvency.
Capping spending also would encourage lawmakers and department heads to identify and zap wasteful spending. According to the International Monetary Fund, spending caps can “lead to stricter prioritization and greater efficiency in spending.”
It also could help restore confidence in the local economy among entrepreneurs once it became known that the upward cycle of “tax and spend and tax and . . . “ had finally been broken, spurring investments, job growth, increased consumer spending and — as a bonus for lawmakers — increased tax revenues.
A “smart” cap also could help the county save and be prepared for a recession or natural disaster.
As for the current spending proposals, Mayor Michael Victorino’s budget would increase county spending by 2.9 percent in fiscal 2020, to $780 million, compared with the $758 million spent in fiscal 2019. That is actually somewhat astonishing, considering that the council would like to increase county spending to a record high $820 million in fiscal 2020, or more than 8 percent compared with the previous year. That is four times the county’s average GDP growth, and would be the biggest increase since 2015 when spending spiked by 7.9 percent.
The County Council is considering increasing property tax rates to raise an extra $17.7 million to help pay for its new budget, yet it is still on track to overspend by millions of dollars during fiscal 2020.
The county already has the highest rate of spending in the state for fiscal 2019, at $5,074 per person, followed by Kauai County, $3,575; Honolulu County, $3,522; and Hawaii County, $3,898. Compared to counties on the Mainland, Maui County spends $655 more per person than the average, adjusted for cost of living and subtracting education spending, since Hawaii does not fund education at the county level, unlike most counties on the Mainland.
It is not clear, however, that Maui County’s extra spending greatly helps its residents, especially as most of the additional tax dollars are going to pay for benefits, debt and growing departmental budgets. The county’s high level of spending also has left it with virtually no financial cushion in the case of an economic recession.
So, which budget should the council approve — its own or the mayor’s?
Mayor Victorino’s would seem to be the far better choice, as it is significantly closer to the goal of setting county spending at a rate below the county’s private sector GDP growth.
With the mayor’s fiscal 2020 budget in place, the next step would be to officially adopt a smart spending cap, to ensure that the county’s spending remains less than the county’s average GDP growth.
Such a cap would link government growth to the health of the local economy, ensure that Maui County residents receive the level of government services they can afford, avert the need for future tax increases, give the county room to save for a rainy day, inspire new entrepreneurial activity, and let Maui families keep more of the fruits of their labors.
Devising exactly how that cap would be determined each year would be the easy part; the challenge would be to enlist support for the cap from the county’s lawmakers.
This commentary was originally published in The Maui News on Tuesday, May 28. Aaron Lief, a policy analyst at Grassroot Institute of Hawaii, contributed to this Viewpoint.
Update: The Maui County Council approved its budget on Tuesday, May 28.