Department of Budget and Finance

Emergency and Budget Reserve Fund

HRS Chapter 328L, relating to the Hawaii Tobacco Settlement Special Fund, which established a special fund for moneys received from the settlement between the State of Hawaii and various tobacco companies, also established the Emergency and Budget Reserve (“EBR”) Fund, a special fund for emergency and “rainy day” purposes. Deposits to the EBR Fund include appropriations made by the legislature and a portion of the tobacco settlement moneys. In addition, Act 138, SLH 2010, provided that whenever State general fund revenues for each of two successive fiscal years exceeds revenues for each of the preceding fiscal years by 5%, 5% of the State general fund balance at the end of the fiscal year shall be deposited into the EBR Fund; however, no such transfer shall be made whenever the balance of the emergency and budget reserve fund is equal to or more than 10% of general fund revenues for the preceding fiscal year. Thus far, no transfers have been required. All interest earned from moneys in the EBR Fund is credited to the EBR Fund. Appropriations from the EBR Fund require a two thirds majority vote of each house of the Legislature.

Hurricane Relief Fund

The Hawaii Hurricane Relief Fund (“HHRF”) was established pursuant to Act 339, SLH 1993, (codified as Chapter 431P, HRS) to provide hurricane insurance coverage for Hawaii property owners should the private market prove unreliable. It was created to address the problem of private insurers leaving the hurricane insurance market following Hurricane Iniki in September 1992. As of January 1, 1999, the HHRF provided hurricane coverage for approximately 155,000 policyholders statewide. The HHRF ceased operations in 2002 when private insurers returned fully to the market. No policies have been issued since that time.

The HHRF’s operations are funded by policyholder premiums, assessments on licensed Hawaii property and casualty insurers, a special mortgage recording fee, and a surcharge on premiums on policies issued by licensed property and casualty insurers (as necessary). As a component of the HHRF funding, the Director of Finance was authorized to issue revenue bonds and reimbursable general obligation bonds to assist the HHRF in carrying out its plan of operation. However, no revenue or reimbursable general obligation bonds were issued.

Upon ceasing operations, the HHRF’s reserves, amounting to $186.7 million, have been kept in the HHRF to provide working capital if reactivation of operations becomes necessary. Reactivation may be needed if a major hurricane were to strike the Hawaiian Islands in the future, and private insurers, after settling claims for that event, were to leave the hurricane insurance market again.

Section 431P-16(i), HRS, provides that upon dissolution of the HHRF, net monies in the HHRF after payments to any federal disaster insurance program enacted to provide insurance or reinsurance for hurricane risks are completed revert to the general fund. Act 179, SLH 2002, designated that interest earned from the principal of monies in the HHRF shall be deposited into the general fund each year that the HHRF remains in existence.

Although not formally established as a budget reserve, the HHRF has been used as a de facto budget reserve. Act 143, SLH 2010, appropriated $67.0 million from the HHRF (of which $12.4 million was not required and was subsequently returned to the HHRF) to restore public school instructional days for school year 2010-11 that were reduced as part of a cost cutting, collective bargaining agreement that furloughed public school teachers for 21 days of which 17 were instructional days. Act 62, SLH 2011, authorized the Governor to transfer in two steps the remaining balance of the HHRF to the general fund (at that point $120.3 million) in fiscal year 2010-11 to maintain program levels determined to be essential for education, public health, and public welfare. In total, $111.0 million was transferred pursuant to Act 62. Act 62 also provides a statutory mechanism to repay the HHRF in fiscal years 2013-14 (50 percent) and 2014-15 (50 percent) through designation of general excise tax revenues.