Hawaii Raids Telecom Funds to Balance Budget

Published September 30, 2010

Hawaii’s cell phone customers were unknowingly forced to help the state balance its budget last year, making the state one of 10 allegedly improperly using funds specifically designated for telephone-related services to pay off other expenses.

According to Federal Communications Commission reports, $16 million of Hawaii’s Wireless Enhanced 911 Fund—designated for maintenance and improvements for the state’s E911 system and paid for by cell phone customers who are charged a fee by their carriers—was used for other purposes.

“Unfortunately, this is what states are doing to balance what they call their general revenue funds,” said Steven Titch, a telecom policy analyst with the Los Angeles, California-based Reason Foundation. “This is a straight misuse of funds from telephone customers.”

Misuses of Taxes
There are other misuses of taxes from telephone customers as well. According to a recent Washington Times op-ed column by Kelly William Cobb, executive director of the Americans for Tax Reform’s Digital Liberty Project, Sandwich Isles Communications has siphoned off millions of dollars from taxpayers in recurring payments from Universal Service Fund (USF) fees.

Citing a Congressional report, Cobb noted Sandwich Isles is one of the largest abusers of USF funding, accepting as much as $26.4 million in 2008 to connect just 1,967 households to the Internet. That’s $13,408 in subsidies for each home. In 2009, the company raked in another $24 million.

Companies and state governments will do this “as long as they can get away with it,” Titch said. “This tax shouldn’t be used for something for which it was not intended.”

Slush Funds
State governments should pay their expenses out of general revenues or figure out how to cut back spending, Titch said.

“The states have justified the addition of Enhanced 911—fees [or] taxes—on consumers’ communications bills on the basis of health and safety [and] making sure that consumers could reach 911 emergency services from wireless and VoIP phones as well as from traditional wireline phones,” notes Tom Giovanetti, president of the Institute for Policy Innovation in Dallas, Texas.

“But it now appears that at least part of the reason some states wanted these funds was to create slush funds that they could dip into when necessary, because that’s what they’re doing,” he said.

Improper Raiding
Hawaii’s E911 system needs upgrades and maintenance to keep up with the growing number of cell and digital phones.

“It’s completely irresponsible for states to raid these funds in order to pay for unrelated spending,” said Giovanetti. “The result is going to be that states will not have the necessary funds for these important E911 services or to upgrade their existing equipment and networks.”

He added: “So, even though they’ve already charged taxpayers to pay for these networks, they’ll have to go back to their legislatures and ask for additional taxpayer funds to pay for them.  A bailout, in other words,” Giovanetti said.

Phil Britt ([email protected]) writes from South Holland, Illinois.