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TAXWatch: Balanced Budget

If you are a serious student of Hawaii constitutional law, here is a question for you.  Where in our state constitution does it say we have to have a balanced budget?  The answer appears later in this article.

The part of our constitution directly governing our state’s budget is Article VII, section 8.  It says that “the governor shall submit to the legislature a budget in a form provided by law setting forth a complete plan of proposed expenditures of the executive branch, estimates as provided by law of the aggregate expenditures of the judicial and legislative branches, and anticipated receipts of the State for the ensuing fiscal biennium, together with such other information as the legislature may require.”  The chief justice of the Hawaii supreme court is supposed to submit the same information for the judiciary branch.

There is also language in sections 8 and 9 limiting general fund expenditures by an “expenditure ceiling.”  However, it is easy to breach the ceiling.  If the governor is proposing a budget that would breach the ceiling, the governor needs to specify by how much the ceiling would be breached, and why.  This past session, for example, the governor’s proposed budget contained some language buried in the appendix to the budget: “Total proposed appropriation measures from the general fund … will exceed the appropriation ceiling by $36:7 million (or 0.5%) in FY 19.  The reasons for this excess are the substantial costs of social assistance entitlements, support for public education, fringe benefits and other critical requirements.”  The legislature then can approve appropriations that breach the ceiling by passing a bill with a two-thirds vote in both houses which will “set forth the dollar amount and the rate by which the ceiling will be exceeded and the reasons therefor.”  That isn’t a terribly high hurdle to jump either.

So here is the answer to the question posed at the beginning of the article.  According to Attorney General Opinion 97-1, if you are looking for language in the constitution requiring a balanced budget, you won’t find it.  “There is no express requirement for a balanced budget in either the State Constitution or the applicable statutes,” it says.  After the Attorney General goes through several constitutional provisions, statutes, and proceedings of the 1978 constitutional convention, she concludes:

Thus, although the express words “balanced budget” are not included in the State Constitution or the statutes relating to the state budget, the Constitutional and statutory provisions require it by requiring a description of the proposed expenditures and the sources of revenues to pay for them.  If there is a shortfall in resources to pay for the proposed expenditures, revenue enhancements to cover the deficit must be proposed, or reductions in expenditures must be proposed to balance out the anticipated revenues.

Back in 1997, it was suggested that the governor’s budget could be submitted to the legislature in an unbalanced state, but the governor’s office would then impose spending restrictions so that actual expenditures would not exceed revenues.  The attorney general nixed that idea.

As reported in a past article, this year’s legislature was given a financial plan where spending exceeded revenues by $200 million a year.  That might not be kosher under our constitution for the reasons discussed above.  We hope that more awareness of the issue will prevent the same thing from happening in the future.

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About Tom Yamachika

Tom Yamachika
Tom Yamachika is the President of the Tax Foundation of Hawaii, a private, nonprofit educational organization dedicated to informing the taxpaying public about the finances of our state and local governments in Hawaii. Tom is also a tax attorney in solo practice and has been since early 2013. Prior to 2013, he was with the accounting firm Accuity LLP, which was formed in 2006 from the Honolulu office of Coopers & Lybrand (which later became PricewaterhouseCoopers). Before that, he served as an Administrative Rules Specialist in the State of Hawaii Department of Taxation from 1994 to 1996, where he drafted rules, interpretive releases, and legislation on several different state taxes. Prior to that, he practiced litigation and tax law with Cades Schutte Fleming & Wright in Honolulu.

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