TAXWatch: Federal COVID Money

The opinions and information expressed in the Community Viewpoint are solely those of the authors and not the MAUIWatch Community Network.

T his week our Legislature will be recessing after working on one of its important tasks:  figuring out how to spend $1 billion of federal money that is being made available to Hawaii under the CARES Act.

This federal money is being made available for expenditures that are (1) necessary and incurred due to the COVID-19 public health emergency, (2) not budgeted for as of March 27, 2020, and (3) incurred before December 31, 2020.

Senate Bill 75, House Draft 1, gave the Neighbor Islands a share of that money because only Honolulu received a direct allocation of federal funds; gave a few state agencies some money for state COVID response; and then squirreled away the balance, about $636 million, into the emergency and budget reserve fund (also known as the “rainy-day fund”).

Why was it put there?  According to Senator Thielen’s article in Civil Beat, it was put there so the governor couldn’t touch it.  Apparently, the plan is for the Legislature to recess until mid-June, come back into session, and then appropriate the balance of the money so it can be spent by the end of the year.  Senate Bill 75 requires that the money to go a new, separate account within the rainy-day fund, which perhaps would make it easier to say that expenditures out of this account came from the COVID-19 money rather than the $395 million that is already in the fund.

Some have pointed out that the rainy-day fund statute, HRS section 328L-3, not only prevents the money from being spent by the Executive Branch without a legislative appropriation, but also prevents the Legislature from appropriating more than 50% of the total balance of the fund in a fiscal year.  True; if that statute is left alone, it would prevent the Legislature from using all the federal money, which would result in forfeiture of some of the federal funds that have been set aside for Hawaii.  Thus, the Legislature’s plan must be to also amend the rainy-day fund statute in some way to allow the appropriation.  Can they do this?  Sure, if the Governor is willing to sign the resulting appropriation bill.

But remember that the Governor doesn’t have to play by the rules either.  We have seen that he isn’t shy about using his emergency powers to suspend laws.  His most recent Eighth Supplementary Proclamation has a list of suspended laws that is 20 pages long, and we have already written about how this Governor has suspended a law that affected distribution of tax revenues to take control of moneys that the Legislature had earmarked for the counties.  If push came to shove, he could easily suspend the rainy day fund statute and take control of that money as well, relying, perhaps, on HRS section 26-8 which gives the Department of Budget and Finance custody of all state funds.  

What all of this means is that the Governor, the Legislature, or both could get into a big, messy argument on how to best use the billion dollars that our federal government has graciously provided.  We need to remember that if we don’t reach agreement on how to use this money, and then actually use it, by the end of this calendar year that the money will return to (or stay in) the United States Treasury.  We can park the money in the rainy-day fund as a short-term solution, but we don’t have time to argue about it!  We need both parties to come to the table, come to some agreements and understandings on how best to use this money toward helping the general welfare of this State, and then do it before time runs out.  

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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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