Voting blind: Why lawmakers don’t know the cost of bills before they vote
At one of the pivotal moments of the legislative session last year, a critical bit of information went missing.
After days of bargaining in private meetings, House Finance Committee Chair Kyle Yamashita announced on April 26 that lawmakers had cut a deal for an enormous state tax cut. The plan was to overhaul state income tax brackets in a series of steps and increase the standard deductions.
“It will be the biggest tax cut to the working people of the state of Hawaiʻi in state history,” Yamashita said with a smile.
Left unsaid was exactly how much House Bill 2404 would cost, meaning how much tax revenue the state would lose.
That turned out to be more than $1.4 billion a year in lost revenue by 2032, which will be the measure of the bill’s impact on future state budgets. That detail wasn’t made public until five days later, when the final vote was taken.
Putting legislation to a vote without knowing what it will cost is not how other state legislatures operate.
According to the Center on Budget and Policy Priorities, every other state uses some version of what are called “fiscal notes” to detail the cost of legislation as bills move through the lawmaking process. Hawaiʻi does not.
Instead, the Hawaiʻi Legislature generally relies on cost estimates from the state administration or private entities, an arrangement lawmakers themselves described in 1990 as “an inherent conflict of interest.”
“If lawmakers are going to do something ambitious, they need to know how much it’s going to cost,” said Josh Goodman, senior officer for state fiscal health with The Pew Charitable Trusts.
“Do you have capacity to either increase spending or cut taxes?” he asked. “You need to know how much a proposal is going to cost to figure out what you can afford.”
To that end, lawmakers this year may finally be taking a step toward adopting a system of fiscal notes with House Concurrent Resolution 61. That measure calls for the Legislative Reference Bureau to study how five other states and the District of Columbia use fiscal notes, and how they could best be used in Hawaiʻi.
The Senate Ways and Means Committee is scheduled to consider HCR 61 on Tuesday.
Support From Left And Right
House Majority Whip Amy Perruso said the chain of events leading to the 2024 income tax cut is “a great example of when fiscal notes would have been very handy.”
The tax bill was complex, and it changed dramatically during conference committee negotiations the public and most lawmakers could not attend.
“We could have also seen the implications for our budget in the short term and over the longer term had we had a really robust fiscal notes tool,” said Perruso, a Democrat.
The tax cut was unanimously approved by the Legislature, and Gov. Josh Green happily signed it into law. But the specter of possible federal budget cuts now suggests the state may need to scramble to recover some of that lost tax revenue.
The tax cut bill never sat well with some left-leaning Democrats, who argue Hawaiʻi’s highest-paid residents benefited disproportionately from the tax cut. Now some want to pause the tax breaks for the wealthiest taxpayers.
“We are looking for progressive revenue generation tools to help us find the funds to provide the backfill for the federal cuts,” Perruso said.
Of the tax cut bill, she said: “Not only are we supporting millionaires and billionaires, but we’re also failing to collect the revenue that we’re going to need to support our most vulnerable.”
On the other end of the political spectrum, the more fiscally conservative House Republicans and the Grassroot Institute of Hawaiʻi also support the use of fiscal notes. House Republicans this year introduced bills and resolutions aimed at promoting fiscal notes, all of which died.
Jonathan Helton, policy analyst for Grassroot Institute, describes fiscal notes as “a price tag for legislation” that often helps drive lawmakers’ decisions. They can be used to calculate the cost of a proposal to provide free school lunches or the impact of a proposed tax cut or tax increase.
Helton was surprised when he began monitoring the Hawaiʻi Legislature years ago and learned lawmakers here didn’t have them. In the Tennessee legislature where he worked previously, they were considered indispensable.
“If you’re considering a larger bill and the assumptions on what it will cost are out there in the public, then people can debate it,” Helton said. That becomes much more difficult without some sort of public financial analysis.
Hawaiʻi lawmakers have considered this issue before, acknowledging in 1990 they rely on the state administration and the private sector for tax and economic analysis. At the time, they saw that as a problem.
“The legislature believes that this dependency creates an inherent conflict of interest that precludes the legislature from operating independently,” they wrote.
The Legislature voted that year to create a new Office of the Legislative Analyst to analyze the budget and fiscal policy, but never actually put up the money to fund the new office. A bill that would have revived that office and clarified its duties died earlier this session.
Five Best Practices
The Center on Budget and Policy Priorities evaluated the states’ fiscal notes based on five “best practices,” ranking highest the states that analyze the impacts on revenue or spending for every bill and post their fiscal notes online for the public to see.
The center study also favored states with fiscal notes done by a nonpartisan body, and those that project the long-term fiscal impacts of legislation. The reports should also be updated as needed as bills are amended, the center said in its report.
The states that scored highest were Iowa, Louisiana, Maryland, Oregon and Texas, along with the District of Columbia. The Hawaiʻi Legislative Reference Bureau would study those jurisdictions if HCR 61 passes.
At the beginning of the legislative session this year when Republicans pushed for fiscal notes, Yamashita told reporters that setting up a system of fiscal notes requires resources and effort, adding: “It’s something we, at this time, we don’t have the resources to be able to put something out there.”
Perruso agreed establishing fiscal notes will be difficult, in part because it requires a highly skilled staff. But she said it can be done, and lawmakers can find the necessary funding if the Legislature makes it a priority.
“We find the money for other things,” she said.
Fiscal notes are considered to be a best practice, which makes it “harder to resist,” Perruso said. “It’s just a matter of time before we modernize our practices.”
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This story was originally published by Honolulu Civil Beat and distributed through a partnership with The Associated Press.