Projected state surplus vanishing in face of planned higher spending

The Legislature’s proposed spending plan for fiscal 2024, if OK’d by the governor, could result in a state budget deficit of $45 million by fiscal 2028

The following is a news release issued by the Grassroot Institute of Hawaii on May 10, 2023.

HONOLULU, May 10, 2023 >> Hawaii’s projected state budget surplus of $10 billion by fiscal year 2028 seems to have completely vanished, thanks to state spending that is set to far exceed the state’s constitutionally mandated spending limit.[1]

In March, the state Council on Revenues knocked the state’s long-term fiscal 2028 surplus down from $10 billion to $7 billion, but spending increases recently approved by the Legislature are set to result instead in a $45 million deficit, according to an analysis by the Grassroot Institute of Hawaii.

If approved by Gov. Josh Green, the fiscal 2024 budget passed by the Legislature will increase state general fund spending by nearly 23% over the current year, which was 20% greater than the year before that.[2] Historically, Hawaii’s budget has tended to increase by about 5% annually.[3]

Hawaii’s Constitution and state law mandate that state general fund spending grow no faster than the three-year average of personal income growth. Lawmakers can override the cap by a two-thirds vote of each chamber, which is a pretty low bar considering Hawaii is a virtual one-party state.

The Legislature’s proposed fiscal 2024 budget exceeds the state’s spending cap by more than $1 billion, or 10%.[4] To his credit, Green’s final budget request was $668 million less than the budget passed by the Legislature, but it would have still broken the state spending limit by more than 6%.[5]

Nearly all state departments are set to receive more general fund dollars than last year.

Departments with large increases include the Department of Business, Economic Development and Tourism, 2,659%; the Department of Land and Natural Resources, 208%; the Department of Defense, 38%; the Department of Budget and Finance, 36%; the Department of Health and the University of Hawaii, both 24%; the Department of Agriculture, 20%; and the Department of Education, 10%.[6]

DBEDT in particular had numerous big-ticket items added to its budget, such as $64 million to repair the Hawai‘i Convention Center; $106 million for agribusiness development and research; $60 million for the Hawaii Technology Development Corp.; $150 million for the Hawaii Housing Finance and Development Corp.; and $201 million for the Hawai‘i Community Development Center.

Big-ticket items for the Department of Budget and Finance included a $500 million infusion into the Emergency Budget and Reserve Fund, and $200 million to spend at the governor’s discretion, provided he gives prior notice to the Legislature.[7]

That $200 million is about equal to an amount Green had proposed in his “Green Affordability Plan” to cut taxes through broad-based changes to the state income tax.[8]

Green’s tax-cut plan also called for about $125 million in tax credits aimed mainly at lower-income residents. In the end, the Legislature went with just the tax credits.

Keli‘i Akina, Grassroot Institute of Hawaii president and CEO, said: “Lawmakers had a golden opportunity to enact a $320 million tax-reduction package proposed by the governor. Instead, they passed only a modest $125 million tax reform package and significantly increased state spending. Lawmakers shouldn’t even be spending one dollar over the spending limit, let alone a billion dollars.”

He added: “Lawmakers were overly cautious about passing a $200 million package of tax cuts, but they certainly weren’t shy to pass a $200 million pot of discretionary money for the governor.”

Akina recommended that the governor use his line-item veto authority to slim down this year’s budget before signing it into law.

He also urged the Legislature to be more frugal in how it spends tax dollars next year.

“Hawaii’s bloated budget needs to go on a diet, or taxpayers won’t be able to fund the level of government spending that state lawmakers have set into motion,” he said.

[1]  “State of the State Budget 2020,” Grassroot Institute of Hawaii, March 2019, Appendix. See also, Hawaii State Budget Multi-Year Financial Plans; and Grassroot Institute of Hawaii analysis. Note, this may be the biggest annual rate of increase in the state’s history, but budget data is scant before the year 2004.
[2] “Hawaii State Budget Time Series FYs 2000-2024,” Grassroot Institute of Hawaii, May 10, 2023.
[3] Ibid.
[4] “Legislature on track to violate state’s legal spending limit,” Grassroot Institute of Hawaii, May 2, 2023.
[5] Governor’s Message No. 6, April 13, 2023, p. 1.
[6] “Comparison by department,” Grassroot Institute of Hawaii, May 10, 2023.
[7] HB300 CD1, Section 5.
[8] Seth Colby, “Review of Green Affordability Plan (GAP),” Hawaii Department of Taxation, March 21, 2023, p. 5, total of last five items.

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