State Budget Practice Report Cards and Budget Resource Guide

Hawaii was among six states receiving an average grade of D-minus, the lowest mark possible, in legacy costs for fiscal 2016 through 2018. Like Illinois, Massachusetts, New Jersey, Texas, Washington, and Wyoming, Hawaii failed to make contributions to public worker pension plans and other postemployment benefits, principally health care, in line with actuarial recommendations. Hawaii’s chronic pension underfunding left it with only 54.8 percent of the assets needed to meet the its obligations as of 2017, almost 14 percentage points less than the total for US states.

The state’s performance in legacy costs contrasts with its steady improvement in the transparency category. While its three-year average was a B, its annual grade rose to an A in 2018 from a C two years before. The catalyst for the jump was Hawaii’s introduction of a revised system for reporting tax expenditures and initiation of reports on the cost of deferred infrastructure replacement. Those moves made Hawaii one of only four states to disclose this statistic in budget or related documents in 2018. 

Hawaii also received A averages in budget forecasting and reserve funds. It uses consensus revenue forecasting based on calculations from its Council on Revenues, whose members are appointed by the governor, senate, and house.

The state’s management of reserve funds includes policies for disbursing and replenishing rainy day fund assets. In 2017, Hawaii established a volatility-based withdrawal limit for its Emergency and Budget Reserve Fund. The state cannot make a withdrawal for the next fiscal year unless it has collected, or is projected to collect, less tax revenue in the current year than in the previous one.

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To emphasize the need for clear and comprehensible budgets to inform citizens, promote responsible policymaking, and improve fiscal stability, the Volcker Alliance in 2016 began a study of budgetary and financial reporting practices of all fifty states. The Volcker Alliance’s mission is to improve the effectiveness of the administration of government at all levels. Making state budgeting more transparent and accountable is an important part of that goal.

The report cards presented here are taken from the 2018 Volcker Alliance report, Truth and Integrity in State Budgeting: Preventing the Next Fiscal Crisis which proposes a set of best practices for policymakers. For those wishing to gain greater insight into state fiscal issues, the accompanying budget resource guide is derived from the Alliance publication State Budget Sources: An Annotated Guide to State Budgets, Financial Reports, and Fiscal Analyses (2016). 

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