Are We Getting Our Money's Worth From Government?
Price of Paradise · Hawaii Public Radio · aired 1993-07-01
Guests: Jack Suyderhoud (Professor, University of Hawaii); Bob Rees (instructor in business and American Studies, University of Hawaii)
Duration: 0:34:19
Note: music outro 510 s

[00:00:00] Randall Roth: I'm Randy and this is the radio show. Our guests this morning are Jack Suyderhoud, an economist and professor at the UH College of Business Administration, executive director of the State Tax Review Commission in 1984 and 1985, and currently a member of the Council on Revenues and consultant to various governments. Our other guest is Bob Rees, who currently is teaching in business and American studies at UH and is the producer host of K5's Island Issues program. Our question this morning, are we getting our money's worth from government in Hawaii? Professor Suyderhoud, what do you say?

[00:00:35] Jack Suyderhoud: Well, Randy, that's a question that is intriguing all of us, and it's almost impossible to answer since it requires a very subjective judgment, and that subjective judgment basically varies from person to person. For some people, the answer is clearly yes, they are getting their money's worth from government here in Hawaii, and for others, it is clearly no. But for most of us, and I think this is the vast majority of us, it's a very big question mark as to whether or not we are getting our money's worth from our government. I think one way to look at this issue is to compare Hawaii as a state and local government structure to other states, and it is very clear from every statistic that you look at, that Hawaii is a very high tax and very high spend state.

[00:01:26] Jack Suyderhoud: We rank fourth among the 50 states in terms of taxes per capita, and fifth among the states in terms of per capita spending. So, I guess one way of answering the question is to ask another question which goes something like this. Do you think that our government services in Hawaii rank fifth highest among all the states? And if you look at it that way, I doubt very much that people are going to generally say yes. And so, I really doubt very much that we're getting our money's worth.

[00:01:58] Randall Roth: Bob, what do you think about that?

[00:01:59] Bob Rees: Well, I think Jack has made a good point in terms of clearly we're not getting the fourth or fifth best service in effect in the country. Another way to look at it, I think, is that yes, some people are getting their money's worth. And those people, I think, tend to be sort of the oligarchy of Hawaii, who get most of the benefits. Very few people, I think, are receiving most of the benefits, whereas most of us receive very few benefits. The example I would give, taking this figure from Jack, our public education evidently ranks 45th in the country in terms of per capita expenditure. That is what fits from the bottom. This means that people who need public education are being done a disservice, I think, whereas those who don't, who can afford to send their children to the private schools, and I guess 20% of the Hawaii state schools, school kids are in the private schools, probably do feel that they're somehow getting their money's worth.

[00:02:59] Bob Rees: But the bulk of the people, I don't believe are getting their money's worth from the state expenditure.

[00:03:05] Randall Roth: Jack, does our location, out here in the middle of the Pacific Ocean, or our size or anything else about Hawaii, make comparison particularly difficult and therefore hard for us to answer that that question?

[00:03:19] Jack Suyderhoud: Well, I think that comparisons are always difficult to make. We are a special place, as has been pointed out in a number of occasions. And not only does that apply to our culture and our environment, but it also applies to the way in which our state and local governments are organized. We probably have the most centralized state government in the entire nation. In no other state in the United States, our local governments so, do local governments have so little power to influence things. And we only have four local governments in contrast to many other states.

[00:03:54] Randall Roth: Jack, is that good or bad that we're highly centralized?

[00:03:58] Jack Suyderhoud: Well, in some ways, it's good, in the sense that it can provide some what we would call economies of scale, that is to say, it's sometimes cheaper to provide goods and services to more people than it is to very few and kind of and to be duplicative. However, I think one of the benefits of having more local governments is that people are allowed to vote with their feet. They can go find places where they're comfortable with the public services that they have, and in a sense, local governments are forced to compete to attract good businesses, to attract good citizens. Here, we can't do that, in part because of our geography, but mostly because we we only have one local government, we only have one state government, and so we can't seek out better services by moving elsewhere.

[00:04:44] Randall Roth: Bob, you agree with that?

[00:04:45] Bob Rees: Well, I do, and in effect, you can't cross in effect county or state lines or municipal lines in order to to change the the service that you're you're getting. I do think, however, that that has been somewhat of an overestimated, decentralization in effect, I think it's been somewhat overestimated as a way to get better service. I know with great interest that some people are looking quite critically now at some of the school based management systems around the rest of the nation, and concluding gee, it hasn't made a difference at all. Just we have different people now spending our money just as badly as it was being spent before. So, I'm not sure that's the that's the ultimate solution, Randy, is this increased decentralization, if that's if that's where Jack was going.

[00:05:28] Bob Rees: In terms of the question that preceded that, how different are we and should we be judged differently? The answer, Jack is right. The answer is is of course we're different, and of course, therefore, we have to be judged somewhat differently, particularly in terms of comparisons. But I think what's happened is that for some of our public officials, that has become an easy way out, an easy explanation for almost anything that happens. For example, when when Money Magazine said that Hawaii is a tax hell, the the first inclination of of the state was to say, well, these are these cooks from Time Warner in New York. They don't know anything about the way we live. When I think Guthrie and Skully is the name of the consulting firm in in Berkeley, California, concluded that our educational system is rotten.

[00:06:14] Bob Rees: Well, these are out-of-state people. What do they know? They don't understand that we have a centralized system where we have this or we have that. When a Pulitzer prize winner, Susan in September of 1991, concluded that the way we handle our department of of Hawaiian home lands had been in effect a crime. The first reaction from the state within 90 minutes after that edition of the Wall Street Journal appeared, was this is an outsider. What does she know? We're different here. So, I I think there's a a we succumb too easily to the temptation to say, well, we're different, we have to be evaluated differently and these other opinions really aren't aren't valid.

[00:06:53] Randall Roth: I think I hear you saying that we're not getting our money's worth here in Hawaii, is that correct?

[00:06:57] Jack Suyderhoud: Yes. Yes. I I agree.

[00:06:59] Randall Roth: Why is that?

[00:07:00] Jack Suyderhoud: Well, I I think there's a there's a couple of reasons for it. One is I think unfortunately, it it has to do with the longevity and and continuing power of one party. And I think what we've built up in Hawaii is an oligarchy, in effect, a power elite that basically doesn't care about most of us. That is, doesn't care about public education because their kids are going to private schools. David Halberstam's book, the next century, has a wonderful description of unfortunately where I think Hawaii seems to be headed, and that is he describes kind of a a banana republic mentality with an oligarchy who are convinced that they can live well even if other people aren't.

[00:07:47] Jack Suyderhoud: And I think that's what's going on today, that these [unintelligible — audio glitch] people in power simply don't have that much concern and would rather spend money on Aloha Stadiums and convention centers than, for example, on education.

[00:08:01] Randall Roth: Jack, that sounds like a pretty serious indictment. You tend to agree with that or not?

[00:08:06] Jack Suyderhoud: Well, I tend to agree with it. [unintelligible — audio glitch] think that our basic problem is that that we've from an economic perspective, been have been almost too lucky. Our growth has been very robust over the last 15 years with very few exceptions. And that growth has been compounded with a very responsive tax system that has a lot of money to flow into the state coffers at a really incredible rate. has made it possible for the people who control those funds to, in a sense, allow their largesse to run away with them. And as a result, money has been spent, I think, very poorly in a number of occasions, and there are all sorts of examples of that around us.

[00:08:55] Jack Suyderhoud: Bob mentioned Aloha Stadium for example. And we have not really been forced to deal with the very important questions as to where should we spend our money that does the that does the citizens in the state here the the best in terms of our limited resources.

[00:09:18] Randall Roth: Jack, who should make that decision, the the priorities, the spending priorities? Who makes that decision?

[00:09:25] Jack Suyderhoud: Well, clearly the spending priorities should be made by elected officials and that would be the legislature in conjunction with the with the governor.

[00:09:33] Randall Roth: Well, how can we complain then if if we've elected them and they're deciding how to spend the money? What's the problem here?

[00:09:42] Jack Suyderhoud: Well, I think I think the problem is that first of all, we've been living relatively well here, and we've we've had this growing pie that makes it possible for government to fund in some cases, very ridiculous programs, without it being very painful. And so, I don't think that our electorate has felt a need to to complain about things. I think we've had a rather complacent electorate, in part because times have been relatively good here. But as we approached or as we are entering the 90s, where growth is going to slow down considerably, I think that's going to change a lot. And we are going to have to go to a position where we have to decide on what our priorities are and how to spend the money carefully.

[00:10:29] Jack Suyderhoud: And I don't think that the the present political structure has much of a track record in doing that very well.

[00:10:36] Randall Roth: But you think the the elected officials now that the times are tough are going to have to do things differently?

[00:10:43] Jack Suyderhoud: Absolutely.

[00:10:44] Randall Roth: And how is that transformation going to occur?

[00:10:52] Bob Rees: Bob maybe be a better one to answer that question. I think you've just been throwing the the hot potato or something. Well, okay, a couple of points. First of all, in terms of what Jack said, I think he's right on target that Hawaii economically has been the beneficiary of a great deal of luck over the last generation, 20 to 30 years. And a lot of people have spent a lot of time taking credit for that that growth when in fact they had nothing to do with it. Those people who took credit for now are of course are now now not standing up saying, well, I should get credit for the decline as well. That that's not going to happen.

[00:11:28] Bob Rees: To give another example, and this will get to what some of the solutions might be. Another example of misappropriation of funds or not appropriating funds in a reasonably moral way, look at the area of mental health for kids and adolescents in the state of Hawaii. Everybody knows from the governor on down that the area is underspent. Every year it becomes a thing in the legislature where they talk about the crime that if we don't help these kids, they're they're going to be increasingly expensive to the state and and self destructive. But every year there's no money that goes goes behind that. [unintelligible — audio glitch] seem to willingly say, okay, we will consciously not spend money behind that because we want to spend it for other things this year.

[00:12:14] Bob Rees: One of the reasons that people in the state have gotten away with that is number one Jack's point that things have been good. Number two, up to now it's been possible to hide. That is, if you look at the appropriations process in the state legislature and the way the legislature works, nobody's responsible according to the legislature. If no matter to whom you talk in the legislative body, each person will say, I personally think we should spend more money behind mental health for adolescents and behind education. Yet when they get in the process, they become kind of buried and it's possible for them to hide from public view. I think now that times are not as good as they used to be, in some ways it's a good thing because I I think now we're we're starting to look with with I guess what the Supreme Court would call stricter scrutiny at that at the at [unintelligible — audio glitch] way our legislative people behave.

[00:13:09] Bob Rees: And I I think one solution to all these the problems is that believe it or not, the legislators do live in fear, they are sensitive to public opinion. And and if people start to write and to call and to facts them and even go down and talk to them, they begin to take note of that.

[00:13:27] Randall Roth: Sounds like both of you are saying that if if something's going to change, it's going to begin with the public and that one way or another, the public is going to um voice its concern about certain things and and encourage change.

[00:13:41] Bob Rees: Unfortunately, uh in some ways, unfortunately, it begins with organized blocks. I mean, look at [unintelligible — audio glitch] second, the first session rather, of the 17th legislature this year, could not pass a simple law that would uh require the use of helmets when driving a motorcycle. Now everyone knows if we pass such a law, it would save us hundreds of thousands of dollars, disability, etc, etc, etc. The reason that they didn't pass it is because opponents of the proposal were organized and it scared the state the state legislators because they said, well gee, there's a organized block that's opposed to this, let's not pass.

[00:14:20] Randall Roth: Just a reminder, this is the Price of Paradise Radio program. I'm Randy Ross. Our guests today are Jack Suyderhoud, professor at the UH College of Business Administration and Bob Rees, producer host of K5 Island Issues program and UH teacher of Business Administration and American Studies. Jack, what about our tax structure? You were the executive director of the State Tax Review Commission in the 80s. Um, do we have a good tax structure?

[00:14:51] Jack Suyderhoud: I think in most ways, we have a good tax structure. I think in uh its most essential way, uh we have a a very very good tax structure in the sense that it responds extremely well to economic growth. It's been estimated that for every 10% rate uh increase in state economic activity, revenues go grow by about 12%. So uh as a result, since our economy has been so strong over the last 10, 15 years, revenues have grown uh exceedingly fast and to a point where uh in some cases the legislature has had to figure out clever ways to hide the money so that it uh could be spent or it could be tucked away.

[00:15:35] Randall Roth: Why why would they have to hide it? Why couldn't they just put it in the bank until they figured out what to do with it?

[00:15:40] Jack Suyderhoud: Well, they're um there's a constitutional requirement enacted as part of the 1978 Constitutional Convention, that if the budget balances in the general fund reach a certain level, then there is a required rebate to the taxpayers. The statutes don't indicate how much that rebate should be, but that accounted for uh you may recall uh a number of years ago, a few years ago, four or five years ago, that uh we received uh as taxpayers significant rebates in the amount of $100 or so per uh per exemption. And that was in response to the large cash balances that had accumulated in the general fund.

[00:16:18] Randall Roth: Well then they did give it back. They didn't hide it.

[00:16:20] Jack Suyderhoud: Well, they gave some of it back. Uh the a lot of it they hid in special funds. Um a lot of money was uh moved around to uh out of the general fund into special funds, tucked away there and then used to uh finance building expenditures uh what we call cash uh capital improvements.

[00:16:40] Randall Roth: Is special fund, is that what Low Cooper, the Tax Foundation calls smoking mirrors?

[00:16:45] Jack Suyderhoud: It's related to the smoke and mirrors issue.

[00:16:47] Randall Roth: Well, how is that? Why would why would it be called smoke and mirrors?

[00:16:51] Jack Suyderhoud: Well, basically uh what's going on is that uh funds that would normally be in the general fund and therefore subject to the spending limitation according to the constitution, are in a sense diverted from the general fund and put into these special funds, and therefore no longer subject to the um standard expenditure ceilings. And that is uh popularly called smoke and mirrors.

[00:17:14] Randall Roth: Bob, you mentioned earlier that we're spending uh too little on education and too little on mental health. Uh where could we cut our spending? Uh what are some of the things that you believe are are uh fat in the budget?

[00:17:29] Bob Rees: Well, let me start with some small examples and then we'll we'll we'll work up. Uh the state right now is spending about half a million dollars a year for propaganda on behalf of its own programs.

[00:17:44] Randall Roth: Propaganda, that's a pretty strong word.

[00:17:47] Bob Rees: Well, what I mean by that is is for advertising in public relations, using your money to support programs that someone in the state thinks that you ought to like.

[00:17:56] Randall Roth: But hasn't that always been a part of government?

[00:17:59] Bob Rees: Well, I don't think, no, I don't think to the extent that that it is uh it is now. Uh now it's just a matter of course that that if you have something that you want the public to do, you go out and hire a public relations firm and uh get them to uh do it. A good example right now is the Office of uh Hawaiian Affairs, who is uh a little unhappy that uh they're not accepted as the final word on sovereignty. Their solution to that and to some of their other difficulties has been to hire Helen Nolton, uh the public relations firm that uh was paid $5.6 million by Kuwait to take America into that war with the with Iraq, to hire them to do a kind of warm and fuzzy propaganda effort.

[00:18:41] Bob Rees: Uh to convince us the taxpayers of something that we may or may not uh think is right. Rapid transit, again on a different governmental level with the city government, uh is another good example of the the use of that kind of thing. Uh the state spent thousands and thousands of dollars behind propaganda. geothermal energy. convincing us that it was the only good alternative and ought to be developed on the on the Big Island. While at the same time, refusing to debate proponents or opponents further of geothermal energy in a public forum. So that's that's a lot of money right there that that goes down the drain and [unintelligible — audio glitch] wasted.

[00:19:21] Randall Roth: Yeah, you mentioned the word debate. I don't recall the last debate in Hawaii on any spending or taxing issue. Do politicians in Hawaii debate less than they do elsewhere or is this just something that's typical of elected officials?

[00:19:37] Bob Rees: Well, I I think unfortunately in in Hawaii it's probably a little bit less than elsewhere. And I think the reason for it is that a lot of the politicians in Hawaii have grown up literally being able to almost control the media. That is to get the newspapers and the TV stations to run whatever they happen to want them to run and haven't really opened up access or provided a forum to opponents of some of these issues. I can give you an example. Mayor Fasi was invited at one point to debate the the merits of rapid transit. He said he would do it, would quote debate it if his primary opponent Cliff Slater weren't there. Okay? Uh, that was then turned down and he decided it was much better to spend hundreds of thousands of dollars behind commercials.

[00:20:30] Bob Rees: You recall, he went out and hired a newscaster, Chris Parsons, to give it credibility and ran commercials. Well, that's a waste of public that's some of the fat that that can be cut.

[00:20:42] Randall Roth: I see. Just a reminder, this is the Price of Paradise radio program. I'm Randy Roth. Our guest today are Jack Seiderhoud. He is a professor at the UH College of Business Administration and our other guest, Bob Reese, who is the producer host of K5's Island Issues program and a UH teacher of Business and American Studies. Jack, you commented earlier that we're perhaps into or about to enter into a period of fiscal crisis, that times are going to be a lot tougher. How bad do you think that's going to be?

[00:21:15] Jack Suyderhoud: Well, I don't think it's going to be nearly as bad as the legitimate fiscal crises that have faced most state and local governments on the mainland. Take for instance California as an extreme example, a recent extreme example, where they actually have had to cut spending significantly in a number of areas. Up and down state governments, local governments, state governments. Now, here in Hawaii, what we have to get used to is the notion of lower growth, rather than rapid growth. Through most of the 80s and into the early 90s, our general fund revenues were growing in excess of double digit excuse me, in double digit rates, an excess of 10% for most of that period. And now we have to get used to a period of growth rates between 0 and 5%.

[00:22:04] Jack Suyderhoud: I don't think that we're going to have the sort of recessions that have faced other states. But we're just going to have to get used to the fact that money isn't going to come in like it used to. Now, I think that's going to be interesting because that's going to force our decision makers to confront these issues [unintelligible — audio glitch] where do we spend our money, and to actually debate issues that formally were just kind of ignored because it's always easier to spend money when the pie is growing than when the pie isn't growing. And when the pie isn't growing, then, of course, you have to slice it differently in order to boost some programs and cut back others.

[00:22:43] Jack Suyderhoud: And that's what's going to happen in the next five or 10 years, as I see it. Because basically the underlying strength of Hawaii's economy has been eroded substantially by the changes in world tourism as well as in defense spending.

[00:22:59] Randall Roth: Bob, do you agree with that?

[00:23:00] Bob Rees: Yes. Yes, I do [unintelligible — audio glitch] Jack is hitting on what the what the real challenge is going to be to the state of Hawaii. And that is, how do we, if we consider now to be ground zero, how do we go about this process of establishing priorities for what is now, we all realize, a finite budget. That is, what should be our number one priority, number two priority, etc. And and we're just going to have to find ways by pressuring the the legislators uh to stop doing things like like Aloha Stadium or rushing into a convention center uh without really good planning behind it. To take the convention centers as an example, uh, no one has yet to show us a payoff.

[00:23:41] Bob Rees: Uh, that is, they keep talking about tax revenues that are lost and how many more visitors we can get. As far as I know that other than uh HBV, Hawaii Visitors Bureau, estimates that are designed to bolster the case for building the convention center, there's been no legitimate study of of precisely what will that convention center do. Why should we spend $350 million on it?

[00:24:02] Randall Roth: Earlier you were critical of uh the the concerted effort to prevent any sort of of mandatory helmet law and now I hear you saying that we need to make our our opinions clear to our elected officials. Um, what are we supposed to be doing as as voters? We have a very low voter turnout rate. Some people say that our our electorate here in Hawaii is is apathetic. Should we be getting organized and speaking louder, or is that somehow counterproductive?

[00:24:32] Bob Rees: I think one solution that that some people might consider is almost a form of gorilla warfare and that is for for organized citizens uh to begin to consider targeting certain legislators. And say, okay, this year we're going to pick out Milton Holt, and we're going to criticize him for the following uh, and we'll run a taxied campaign to defeat him in his bid for re-election, and to begin to do to target efforts. Otherwise you're right, it's just too organized and the odds are just too much against you, particularly when you're dealing with an incumbent.

[00:25:02] Randall Roth: So the people who are unorganized now have to get more organized. Oh, yes, very much so. Jack, what do you think? Are we getting our money's worth from government in Hawaii? And if not, um, how in 30 seconds do we start to get our money's worth?

[00:25:16] Jack Suyderhoud: Well, I think we start to get our money's worth by uh, basically uh exercising our our uh power to influence our legislators. We are fortunate in that we live in a relatively small state and that almost all of us know our legislator on the first name basis. And we can take advantage of that. I think that what we ought to do is push our legislature to more creative solutions such as um, privatization, such as prioritization of uh of our expenditures, and really deciding where we want to put our limited amounts of resources that we have.

[00:25:49] Randall Roth: I want to thank our guest today, Jack Seiderhoud, professor at the UH College of Business Administration and Bob Reese, producer, host of K5's Island Issues program and the UH teacher in the Business and American Studies area. This is the Price of Paradise radio program. This program is produced by the Consortium of Price of Paradise authors in cooperation with Hawaii Public Radio. The Price of Paradise is of interest to every concerned citizen of Hawaii. It's available in local bookstores and in public library. Tune in next week when Randall Roth, one of the 37 co-authors and a special guest will take on another question of importance to listeners in Hawaii.