The state Intermediate Court of Appeals achieved an important bit of tax reform with its ruling that the state can't collect more than it needs from insurance companies to fund a special compliance fund, and then transfer the excess millions to the general fund to pay for unrelated state programs.

The court ruled that such abuses of special funds amount to illegal back-door general tax increases that violate both the Hawai'i and U.S. constitutions.

The Legislature has created hundreds of special funds for various specific purposes that currently hold more than $1 billion, and officials are worried it could wreak havoc on the state budget if the concerns raised by the court in the insurance case are extended to other special funds.

Attorney General Mark Bennett is considering an appeal to the state Supreme Court.

The problem is that lawmakers routinely assess more taxes and fees than are needed to pay for the purposes of special funds, then use the excess as slush money in the general fund to finance pet projects that have nothing to do with what the special fund was created for.

This is a sneaky way to pass general tax increases under the radar of public scrutiny, and the court was absolutely right to blow the whistle on a practice that reflects poorly on the integrity of the state's tax policy.

If legislators want to raise taxes, let them state the reason, invite full public discussion and accept accountability for raising no more than they need for the intended purpose.

Tags: Judiciary, Legislature, taxes

This entry was posted on Thursday, April 17th, 2008 at 3:00 am and is filed under Volcanic Ash. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.