Put emphasis on restructuring government

Everyone acknowledges that it can no longer be business as usual and it is so true for government in Hawai‘i as well as for our nation.

Many observers, legislators, county officials and state administrators will chalk up the current fiscal crisis to the economic recession. However, the economic malaise only highlights what many have known all along, that government has grown much faster than the economy that supports that government. As elected officials have promised their constituents more and more government services, they have overlooked how they will pay for those services. As a result, elected officials have had to resort to all sorts of “smoke and mirrors” in order to finance these added services, from the earmarking of taxes to the establishment of user fees and charges at the state and counties level to issuing more debt at the national level.

However, over the years constituents have come to expect many of the services provided by government to be “entitlements.” That is, that government “owes” the public those services and taxpayers demand that government continue to provide those services. Unfortunately, there is a disconnect between the fact that those services cost something and the fact that someone needs to pay the money that will pay for those services.

At the national level, federal officials have had the luxury of just printing more money and adding it to the national debt. The money is then borrowed from someone and a piece of paper is given to the lender that promises that the lender can one day redeem that piece of paper for the amount borrowed plus interest. Unfortunately, that debt now amounts to trillions of dollars, most of which is held by foreign countries around the world.

The battle in Congress rages over increasing the amount of debt the nation can incur having reached the previously set limit. Those opposing the raising of the nation’s debt limit are digging their heels in because they will consent only if Congress sets some reasonable goals to begin reducing federal spending. While the federal government has made attempts in recent years to curtail spending, apparently not enough has been done to the point of now having to raise the debt limit yet again.

On the other side, supporters of increasing the debt limit claim that all hell will break loose in the world economy as the nation would be seen as defaulting on its debt. But is a default on a current payment as bad as never being able to repay that debt? That’s the point that is being made in the debt limit debate. If the nation cannot get its spending in order, it will continue to have to go to the global market to borrow that money.

Sooner or later someone is going to ask whether or not the United States will ever be able to repay its debts. At that point, the economic world will collapse as more and more lenders realize that they may never get paid. The long-term promise of repaying our country’s debt starts with spending reform, pulling in the freewheeling spending that has plagued America for too long. That is why it is so critical that Congressional leaders send a message that America will get serious about reforming its spending habits to the point where it will have real money to repay those IOU’s called the federal debt.

The same goes for our state and local governments. Lawmakers are finally beginning to realize that there is no place to run to raise more money to keep feeding that voracious animal called state and county government in Hawai‘i. They also realize that one of the biggest cost items in their budgets is personnel costs and the related benefits paid to public employees. While one response is to reduce the size of the public workforce, the more critical strategy is to reduce, if not right size, the benefits offered public employees. While it may seem like heresy, especially to the public employee unions, the reality is that the generous benefits are unique to the public sector as the private sector has long ago shifted away from defined benefit retirement plans and from any kind of supplemental healthcare coverage for retirees.

And as lawmakers learned this year, these changes cannot affect current employees. Thus, these reforms can only apply to future employees. That said, the cost savings will be a long time in coming and in the meantime taxpayers will be tapped to pick up the tab.

The long and short is that in order to bring the cost of state and local governments back to what the economy can support, reduction in services or the more efficient delivery of those services has to be the short-term goal.

• Lowell Kalapa is president of the Tax Foundation of Hawai‘i, a private, nonprofit, non-partisan, educational organization established to research issues confronting governments in the area of public finance, taxation, and public administration. It is supported entirely by private contributions. Online: www.tfhawaii.org