SB106 SD1.DOC

SECTION 1. Article VII, section 9, of the state constitution requires the establishment of a general fund expenditure ceiling that may be exceeded only upon two-thirds vote of each house of the legislature.

The legislature finds that the current general fund expenditure ceiling is no longer practical. Because of the method of computation established by statute, the present ceiling is now extremely high, much higher than actual general fund appropriations. Continuing the calculation of the ceiling under the current formula may give the impression that the State is able to increase general fund appropriations substantially. However, this, is not the case. A high ceiling does not mean that actual general fund revenues are available to spend up to the ceiling.

The legislature finds that a more realistic general fund expenditure ceiling is necessary. The legislature further finds that a realistic ceiling would:

(1) Necessitate a more rigorous examination of public policy priorities when formulating the state budget;

(2) Promote greater deliberation, foresight, and comprehensiveness in budget-making;

(3) Encourage fiscal prudence and restraint;

(4) Re-establish the relevance of the general fund expenditure ceiling, as the constitutional convention of 1978 intended; and

(5) Reinforce and re-emphasize the connection between economic growth and general fund appropriation growth.

The purpose of this Act is to recalibrate the formula for computing the general fund expenditure ceiling beginning from fiscal year 2019-2020, so that the ceiling is set at a more realistic level. The recalibration is delayed until fiscal year 2019-2020 to eliminate any distortion that may be caused by the gradually increasing schedule of annual required contributions for public employees' pensions that commenced from fiscal year 2014-2015 under Act 268, Session Laws of Hawaii 2013.

This Act also requires the 2015 tax review commission to review this Act and submit findings and recommendations to the legislature, including any proposed amendments to this Act intended to take effect before July 1, 2018.

SECTION 2. Section 37-91, Hawaii Revised Statutes, is amended as follows:

1. By amending the definition of "expenditure ceiling" to read:

""Expenditure ceiling" means the maximum general fund appropriations allowed in any year[~~. The~~]; provided that:

(1) Until fiscal year 2018-2019, the expenditure ceiling shall be determined by considering the fiscal year 1978-1979 general fund appropriations as the initial expenditure ceiling. The expenditure ceiling for succeeding fiscal years through fiscal year 2018-2019 shall be computed by adjusting the immediate prior fiscal year expenditure ceiling by the applicable state growth. When revisions are made to the total state personal income[,] before July 1, 2019, the expenditure ceiling shall be recalculated on the basis of the latest available data, going back to fiscal year 1978-1979[.]; and

(2) From fiscal year 2019-2020, the expenditure ceiling shall be computed by adjusting the total general fund appropriation for the immediate prior fiscal year by the applicable state growth.

For paragraph (2), when a revision is made to total state personal income for any of the three calendar years immediately preceding a fiscal year that has already elapsed or is in progress when the revision is officially published, the revision shall not change the expenditure ceiling for that fiscal year; provided that the revision shall be used to compute the expenditure ceiling for any subsequent fiscal year. A revision shall be deemed officially published when initially published by the United States Department of Commerce, Social and Economic Statistics Administration, Bureau of Economic Analysis, or submitted in writing to the governor by the council on revenues, as the case may be."

2. By amending the definition of "total state personal income" to read:

""Total state personal income" means the total state personal income as defined by the state personal income series published by the United States Department of Commerce, Social and Economic Statistics Administration, Bureau of Economic Analysis, or its successor, for each year for which [~~such~~] the income has been determined and published, including all revisions to the series. For the current and next succeeding calendar year for which [~~such~~] the income has not been determined or published, [it] the term shall mean the total state personal income for [~~such~~] the year as estimated by the council on revenues."

SECTION 3. In addition to its duties under article VII, section 3, of the Constitution of the State of Hawaii and chapter 232E, Hawaii Revised Statutes, the 2015 tax review commission shall review this Act:

(1) As part of the commission's evaluation of the tax structure; and

(2) To determine if this Act is consistent with the revenue and tax policy of the State.

The commission shall submit to the legislature its findings and recommendations on this Act concurrently with submittal of its report on the tax system. The recommendations may include proposed amendments to this Act that are intended to take effect before July 1, 2018.

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. This Act shall take effect upon its approval.

THE SENATE	S.B. NO.	106
TWENTY-EIGHTH LEGISLATURE, 2015		S.D. 1
STATE OF HAWAII