State’s Plan to Borrow Money to Replenish Hurricane, Rainy Day Funds, Criticized

BY MALIA ZIMMERMAN – Hawaii’s Hurricane Relief Fund and Rainy Day Fund are supposed to be tapped only in true emergencies, such as a tsunami or hurricane.

But earlier this year, the Hawaii State Legislature and Gov. Neil Abercrombie raided these funds to balance the state budget.

Now Abercrombie is planning to use money borrowed from the state’s recent General Obligation Bond sale to replenish the funds.

State Budget and Finance Director Kalbert Young, who helped broker a record $800 million GO bond sale last week, said some of that money will be used to bring the emergency funds back to pre 2010 levels.

Some $75 million will go back into the Hurricane Relief fund by next summer and another $68 million will be returned in fiscal year 2013.

An estimated $36 million would go into the Rainy Day fund this fiscal year and with another $34 million added next year.

He said the deal, which refinances state debt, replenishes these funds and uses a total of $1.3 billion for state capital improvement projects, will save taxpayers $59 million.

But not everyone believes this is a good plan.

Three of former Gov. Linda Lingle’s top administrators – Former Budget director Georgina Kawamura, former Comptroller Russ Saito and former Chief of Staff Barry Fukunaga – issued a statement Thursday saying the Abercrombie Administration’s should not repay the state’s emergency funds with borrowed monies.

Instead the money should be used for capital construction projects such as roads and other capital improvements that increase economic activity, enabling the government to collect more taxes to repay the money borrowed.

Kawamura, Saito and Fukunaga said it is “unwise to use borrowed money to pay for salaries and other operating costs, because the state will pay interest on those borrowed funds.”

“In this case, the Abercrombie Administration will put the borrowed money in an account only to pay interest on it – interest that is ultimately paid for by taxpayers. It’s like a household setting up a savings account by charging a credit card. When it comes due, there will be more debt to repay,” they added.

The former administrators spoke out after Gov. Neil Abercrombie made it a point in recent weeks to attack former Gov. Linda Lingle’s administration for poor fiscal management.

Kawamura, Saito and Fukunaga expanded on their criticism of Gov. Abercrombie’s plan to sell $1.28 billion of General Obligation Bonds to restructure state debt, saying taking on more debt is not a good idea.

While Abercrombie called this the singular success of his administration to date, Lingle’s administrators said the success of the bond issuance was due in large part to $600 million tax increases passed during the 2011 session.

They said in contrast, the Lingle Administration issued bonds while achieving higher credit ratings and it did so without raising taxes.

Finally, they note the success of the bond issuance was also based in large part on the 2010 Comprehensive Annual Financial Report (CAFR) for the fiscal year that ran from July 1, 2009 to June 30, 2010.

They said: “Gov. Abercrombie, who has criticized the financial management of the Lingle Administration, cannot claim credit for the CAFR results while also accusing the previous administration of not prudently governing in the last two years of its term. It’s like running a victory lap on the back of another runner.”

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