Someone Was Listening to the Howl in the Woods
By Tom Yamachika, President Here at the Tax Foundation, we watch our state government, and we howl a lot. Often, we don’t know if our message is being heard, or if it’s being taken seriously. A few weeks ago, we complained that multi-million dollar projects undertaken by state and local government could sink into “standardless spending” because the law controlling the State’s procurement process, Hawaii Revised Statutes chapter 103D, had been ripped out and thrown to the side according to the Governor’s Thirteenth Supplementary Proclamation that was signed on September 23 (the wholesale suspension of the procurement code can be traced back to the Sixth Supplementary Proclamation that came out on April 25). Hawaii Revised Statutes chapter 103F, which governs procurements for health and human services, was similarly suspended. In mid-October, I received an e-mail from an executive at a major Honolulu public relations firm. The firm was assisting with one of the major multi-million-dollar government projects. “The state’s lifting of procurement is solely for emergencies related to COVID-19 and the [government project] is operating fully under the procurement code,” it said. The executive added that the Department of Accounting and General Services, which issues the State’s checks, was also following the rules and was not using the COVID-19 emergency to sidestep them. “The problem,” I replied, “is that it’s not generally known whether and to what extent agencies … are using the procurement process notwithstanding that the Governor’s proclamation states that 103D is suspended in full. We hope that the agencies are not applying the suspension arbitrarily or based on vague criteria like ‘we think it’s related to COVID-19.’” Then I find out that two days before I received the email, the Governor had issued a Fourteenth Supplementary Proclamation, in which the language suspending the Procurement Code was radically changed: Chapter 103D, HRS, Hawaii public procurement code, [is suspended] only to the limited extent necessary to procure goods and services in direct response to COVID-19; to procure goods and services using funding that must be expended on or before December 31, 2020; and to procure goods and services not in direct response to COVID-19 but for which certain procurement requirements cannot reasonably be met through the regular procurement process due to the emergency. Similar language was used to walk back the suspension of chapter 103F from a suspension in full to a suspension to the limited extent necessary to deal with the emergency. Apparently, someone had been listening to our howl in the woods and had done something about it. It may be that the Governor’s intent all along was to suspend the procurement code only where the pandemic emergency required quick action, which seems to be shown by the wording in the initial emergency proclamation that came out on March 5. Things may have gotten lost in translation by the time we got to the Sixth Supplementary Proclamation. But legal effect comes from the words on the current document, not from the 15 or 16 documents that came before. I am still chalking this one up as a win for the howl in the woods.
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Making Up for Budget Shortalls
By Tom Yamachika, President Let’s first start by stating the obvious. We’re in trouble. According to the latest forecasts put out by our Council on Revenues, we have a state budget hole of more than 2 billion dollars. This has to be made up somehow. The Legislative Auditor’s staff was busy at work trying to find idle cash parked in obscure special funds. They found some, but raiding it will be a one-time fix. The Governor is talking about furloughing employees for 2 days a month for four years, beginning in December, to shave roughly 10% off state payroll costs. He has also asked the executive departments to come up with another 20% in cost reductions. Not much has been said about “revenue enhancement,” things like increasing taxes, suspending exemptions, lopping off tax credits. At least not yet. We fully expect the Legislature, when it opens next year, to be flooded with revenue enhancement proposals. The question then becomes which, if any, will have enough traction to go all the way through the legislative process. One very important step that takes place before the Legislature convenes is, of course, the general election. That’s when we find out who will be in the Legislature. Once we figure that out, we then need to remember a few things if we’re going to think about how to balance the state budget. About half of the operational spending from state government is considered fixed costs. This includes interest payments on money that the State has borrowed in the past, and payments to support the retirement and health benefits that are due State workers who have vested in the benefits, whether or not they have left the State. Governor Ige skipped this year’s payment to the retirement system and health fund, but it’s not something we recommend doing, and there is no way it can be done year after year. We already owe our creditors and our workers, and the debts need to be paid. A long time ago, soon after the new hotel room tax became law in 1986, state government committed to sharing some of its wealth with the counties. The amount of this sharing has been the subject of fierce and ongoing debates over the last decade or so, but there always has been sharing. Until May, that is, when the Governor by proclamation shut down the law that required our hotel room tax to be shared with the counties. That move perhaps eased the problem at the State level but is now causing pain at the county level. If and when lawmakers look to taxes as the means of patching the leak, they are going to find that only two tax types bring in enough money to make an appreciable dent in the budget: the general excise tax and the individual income tax. Most of you probably already knew that the general excise tax, which is imposed on all business in the State, brings in lots of money, primarily because it is imposed on almost everything that moves and may be imposed many times in the economic chain that leads up to the retail sale of a product or service. What you might not have known is how much the individual income tax rakes in. In fiscal 2019-20, for example, it brought in $2.3 billion compared with $3.4 billion in GET collections. Of that, $2.1 billion came from withholding tax on wages. We’re in trouble, and the way out of this mess is a complicated one. How will the pain be shared? If you have an opinion on the matter, you can go to the ballot box, you can speak with your elected officials, and you can encourage others to do the same. Will you be one of the people who make things happen? Will you simply watch what happens? Or will you be part of the mass of people who have no idea what is happening? Pulling Teeth at OHA
By Tom Yamachika, President Imagine that you wake up one day to an awful toothache, and you march into your dentist’s office. But then your dentist says, “Well, you tell me your tooth hurts, but can you prove that you have a cavity?” “Um … no,” you reply. “Well, then, get out! You’ve just wasted my time. I’ll be sure to send today’s bill to you personally, not your dental insurer, for this outrage.” Similar logic (if you could even call it logic) is being used at our Office of Hawaiian Affairs (OHA), and that argument has become an issue in the upcoming election for OHA Trustees. In September 2018, the OHA Board of Trustees, at the urging of At-Large Trustee Keli’i Akina, engaged a national accounting firm to conduct a contract and disbursement review, looking for indicators of fraud, waste, and abuse. The accounting firm’s report was issued on December 4, 2019, at a cost of $500,000. The report and a summary of the report put together by Trustee Akina’s staff highlighted a number of “red flags,” or potential problems. Here are some examples. Various places in the report, including at pages 70-72, discuss a $2.6 million grant made to Akamai Foundation to conduct a Native Hawaiian self-governance election, including independently monitoring the election and funding self-governance activities after the election was concluded. The money was supposed to be paid out in five tranches. But Akamai Foundation asked that all funds be paid out at once, before the nonprofit incurred a large portion of the costs, and OHA did so (in violation of its internal policies). The election was cancelled, leaving the auditors wondering whether some of the funds disbursed were really needed or actually spent for the requested purposes. Page 121 of the report discusses a contract with Mid-Continent Research for Education and Learning. OHA paid $349,527 for consulting services. Neither the procurement documents nor any deliverables could be found. But of course the money went out the door. On the day the report was issued, a statement of OHA’s Chair of the Board Colette Machado and Chair of the Committee on Resource Management Dan Ahuna said, “While this report observed indicators of potential fraud, waste or abuse, it did not identify actual instances of fraud, waste or abuse.” Thus, on a recent PBS Insights candidates’ forum, Keoni Souza, who is running for OHA Trustee-At-Large against Akina, said, “Do I think there was a waste of $500,000? Absolutely.” OHA Chair Machado then doubled down by saying, “Keli’i, you tried to find the smoking gun. And there was none. It’s on you now.” Has your tooth stopped hurting yet? Just to be clear: CliftonLarsenAllen, the accounting firm issuing the report, is not the police, is not the FBI, is not law enforcement. An accounting firm can’t arrest people, throw them in jail, or otherwise find that they have committed illegal activity. We have previously urged OHA to turn the report over to law enforcement. Apparently, that hasn’t happened because, well, there is no smoking gun so why trouble law enforcement? Ouch! Give us the Novocain! |
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