In the next few months as lawmakers at both the state and county level wrangle over spending plans for the next fiscal year, taxpayers will hear references to the “operations” budget and the CIP or capital improvements budget.
Elected and budget officials will proclaim that these are two entirely different things, with the operations budget funded out of current tax dollars and the CIP budget funded with long-term debt. And while on the face of the argument it may be true, ultimately those capital improvement costs will become a part of the operating budget.
To some, the obvious is not so obvious, that is eventually a building or road built as part of the capital improvement program will need maintenance and repairs. One has to look no farther than our public schools which state lawmakers decry because of the backlog of maintenance ills. The cost of maintaining and repairing those facilities must be paid out of the operating budget and, therefore, must come from tax dollars. One former elected official looked upon spending federal grant dollars on capital improvements as a one shot deal, which is the furthest thing from the truth. And as we have learned, the longer the maintenance and repair of facilities is deferred the more expensive those costs become.
The other way those capital improvements become a part of the operating budget is that the debt that is issued for the construction costs must one day be repaid together with interest. Like the mortgage on your house, the principal and interest comes out of your monthly paycheck. When you applied for that mortgage, the bank took a look at your income and determined just how much of a mortgage payment you could afford each month and still have enough to cover all your other expenses. That review basically determined how much you could borrow and, therefore, what price you could pay for your house.
The state constitution provides that review for debt issued by the state and counties. The constitution sets a limit on how much can be borrowed by Hawaii