Executive Memorandum Sample
September 2, 2014
MEMO NO. 14-06
All Department Heads
SUBJECT: FY 15 Budget Execution Policies and Instructions
The attached Budget Execution Policies and Instructions are provided to guide your
implementation of program appropriations for FY 15.
The State experienced healthy levels of general fund tax revenue growth of 15% and
9.9% in FY 12 and FY 13, respectively. It was expected that these high levels of
growth would taper off to more sustainable levels in FY 14 and the forthcoming years
but a number of factors, including declining visitor spending and the impact of federal
fiscal austerity on the spending of Hawaii's residents, caused the Council on
Revenues (COR) to lower its FY 14 general fund tax revenue growth rate forecast
from 0% to -0.4% in its June 2, 2014 report.
Preliminary actual general fund tax revenues for FY 14 were less than the COR's
projection, coming in at 1.8% below FY 13, resulting in $74.4 million less general
fund tax revenues for FY 14 than previously estimated. Two uncommon events in
FY 14 negatively impacted general fund tax revenue growth: 1) the allocation of
$55.5 million to the Hawaii Hurricane Relief Fund in August of FY 14; and 2) an
unusually large allocation to the County Surcharge on State Tax in July of FY 14
compared to an unusually small allocation in July of FY 13. Even so, the State's
general fund had a healthy balance of nearly $665 million at the end of FY 14 due to
our fiscal restraint.
Despite lower than anticipated revenue collections, Hawaii's major economic drivers
continue to show strength. Unemployment has been at 4.4%, a rate unseen since
August 2008, for four consecutive months. The construction sector is continuing to
strengthen, while Hawaii's visitor and tourism industry is still expected to show growth
of over 2% in visitor days, expenditures and arrivals in 2015 even after nearly two
years of strong growth.
General fund tax revenues, however, have not been as clearly reflective of the
State's economic performance as in past years. Thus far, no clear trend has
emerged to indicate where FY 15 general fund tax revenues are headed. The COR,
which has remained optimistic about the economy for FY 15 through FY 20 and has
maintained its forecast of at least 5% for each of those fiscal years, has also
expressed some uncertainty about the general fund tax revenue outlook for FY 15
and future fiscal years.
As we have done throughout this Administration, we will continue to focus on the
State's long-term fiscal stability. We remain committed to making sound fiscal
decisions. We will manage the budget and fiscal condition, while delivering core
Administration priorities. We will do what is necessary to ensure the State's fiscal
health today and for years to come.
Towards this end, we will implement measured controls of the State's budget to
ensure that programs are sustainable through any economic cycle while continuing
our efforts to deliver State services more efficiently. Consequently, departments
should conservatively manage their expenditures and exercise due constraint,
especially in regard to program expansions or operational additions that may result in
increased costs for FY 15 and future fiscal years.
To ensure the State's fiscal stability, all general fund discretionary appropriations will
be subject to a 5% restriction and a 5% contingency restriction. The 5% restriction is
intended to mitigate the impact of the lower than forecasted FY 14 actual general
fund tax collections and is applicable for the full fiscal year. The 5% contingency
restriction is intended as a contingency reserve to address a possible decline in the
revenue forecast for FY 15 and may be adjusted during the second half of the fiscal
year based on actual tax collection trends and the COR's updated forecasts later in
the fiscal year. I trust that each department will make their utmost effort to operate
efficiently and stay within its departmental allocation.
With regard to specific appropriations and grants funded by general funds,
departments should refrain from requesting release of these types of appropriations
until the start of the second half of the fiscal year. At that time, we will have a clearer
idea of where the general fund revenue trend is heading and what level of general
fund spending is sustainable over the long term.
Similar to FY 14, these budget execution policies delegate many responsibilities to
the department level to facilitate the efficiency of your operations. These
responsibilities deserve your appropriate attention and should be executed with the
utmost care and accountability to maintain the State's fiscal integrity. As always, the
expenditure of State funds should be judicious and appropriate.
As part of our ongoing effort to improve the management of federal grant awards
from receipt to expenditure, these policies also update the approval process for
non-appropriated federal awards and increases in appropriated federal awards.
Our commitment to our State, to Hawaii's people, is steadfast and our efforts are
unwavering. We are transforming government in Hawaii by improving our ability to
service Hawaii's people. We are growing a sustainable economy. We are investing
in our State's most valuable asset, our people. These ongoing efforts are underway
to make "A New Day in Hawaii" a reality.
Exhibit 1 contains your department's FY 15 allocation of operating program
appropriations and position ceilings from Act 134, SLH 2013, as amended by
Act 122, SLH 2014, which include a 5% restriction and a 5% contingency restriction
on discretionary general fund appropriations. Exhibit 1 also reflects included and
excluded collective bargaining allocations for Bargaining Units 1, 2, 3, 4, 5, 6, 8, 9,
10, 11 and 13 for the applicable negotiated agreements and arbitration awards, and
allocations for Salary Commission adjustments for State executives and
Attachments A and B contain detailed, specific expenditure policies, guidelines, and
procedures for FY 15 budget execution to provide for prudent and efficient
implementation of legislative intent.
Questions on the specific policies and instructions should be directed to the
Department of Budget and Finance or the appropriate agency referenced. Electronic
files of appropriate forms will be provided for your use.
Governor, State of Hawaii