 Okay, we're back for a live on J5L. This is ThinkTech. More specifically, this is Talking Tax with Tom, Tom Yamachika, president of the Hawaii Tax Foundation. Today we're going to talk about the state auditor that is less condo and is he on the chopping block? It was an article a few days ago that suggests that there's people that like him in the ledge and there was this long report written about him and we're going to find out today from Tom what's going on and how this affects our prospects at learning about government. Hi, Tom. Hi, Jay. Thank you for having me on the show. So what is the state auditor? And what is the state auditor supposed to do? The state auditor is basically a one arm of the legislature. His job is to go into state agencies, make sure they're running okay, that they are honest and stating things to the public correctly. That's what an audit is to make sure your financial statements are not materially misstated. But the legislators have been tasking the state auditor with all kinds of interesting assignments like evaluating general excise tax, net income tax and other tax exemptions on a rolling basis. That kind of was legislated into place during the time that Jill took Huda. I don't know if you remember her, but she was ways and means chair at the time. That was a few years ago. And those reports have started coming up. The auditor's office has reviewed like a bunch of general excise tax exemptions. Well, wait a minute. An auditor usually audits the affairs of government to see whether there's any funny business going on, whether our tax money is being spent appropriately, whether people are engaged in actions which are illegal or improper. But this is different. The auditor was asked to make an evaluation of gross excise tax exemptions. That's new, isn't it? That's a completely new task for the state auditor, is it? Oh, yes, it is. But the legislature has given the state auditor plenty of new tasks along the lines of what an investigative reporter would do. So it's kind of a brave new world to be a state auditor. And not only do they have to kind of learn about general excise tax, but also net income, franchise tax, all kinds of other things that we have in our tax arsenal. But when the state auditor examines their state exemption under the general excise tax or income tax, whatever it may be, is the state auditor going out there for anecdotal evidence and picking up the phone or interviewing people and finding situations and cases which the public should know about? Or is the state auditor simply looking at the calculation and the revenue and the way the bill works or the prospective bill works? You say investigative reporter that leads to the possibility that the state auditor is out there in the landscape finding abuses, for example. Is that what the state auditor has been doing on tax bills and exemptions? Well, yes, the state auditor has been tasked with trying to figure out if the legislative intent has been met and if it hasn't, then maybe we ought to be recommending this exemption for repeal. The state auditor has also been looking at non-general funds that the agencies control. That's been a staple of their existence for quite a few years now. They look at special funds, revolving funds, and so forth. Are they appropriately classified? Do they meet the criteria set in statute for a special fund or revolving fund or whatever the heck the fund is classified as? And if not, is it better to reclassify or abolish the fund entirely? So the auditor has been tasked with doing that. I mean, that's not a typical function of an auditor. The typical function of an auditor is to go and look at an entity's financial statements and express an opinion on whether they have been materially misstated. Just like an accountant type of auditor. Yeah, that's exactly what the auditor is. But there are, of course, differences between auditing a public company and auditing the government. So the auditor has been kind of tasked with going into different agencies. And to do that, they normally hire regular auditors. Like when I was at PricewaterhouseCoopers and Anacuity, we did a lot of state auditing work. And Anacuity still does that now. And let me ask, this is really an interesting discussion. So back in the day, before this state auditor was tasked with these examinations of whether a statute was working, whether a tax was working before that day, who did that? Who went out into the governmental landscape? Who decided to go out into the governmental landscape and do that? And did it? I mean, it sounds like if this is a new function, who is performing it before? Nobody? Probably nobody. Because the state auditor was created, I think, at the 78-con-con constitutional convention. And so the office hasn't been around that long, although it's been around a good couple of decades or so. Probably more. Let me do the math. That was 1978. For you and me and people like us, it only seems yesterday. But if you start counting the decades, it's quite a piece of time. Right, it is. So the idea and what brings us to this conversation today is that last week, Thursday, there was a report that was issued by a working group that was convened by the Speaker of the House. And what the work group was tasked with is to see whether the auditor was complying with the constitutional provision that spawned his office in the first place. And there was something in the Speaker's Memo that says, basically, well, look, we know that the auditor's office has limited resources. And can this working group help the auditor prioritize the work that he's got and give suggestions as to scope of work? This was a criticism of him. It was a 79-page report. It was not kind to him. It raised the question of whether he should be removed, removal would take two-thirds of the legislature. I mean, he's under fire. In fact, title of our show is on the chopping block. So what did they claim was wrong with how the state auditor was functioning? Yeah, and see, that's kind of where the second half of our title comes from. Is this a real reporter or is this a whack job? And we're trying to figure out which this is. Now, if the idea was to help the auditor prioritize and rescope his or her workload, the findings and conclusions of this report didn't seem to help in that department. What this report did was it started off by looking at, oh, let's interview some former employees of the auditor's office and, oh, he has been combative. He's been a dilly of a person to work with. He's been argumentative. He has been creating a toxic work environment. Okay. And that is under the rubric of, okay, why is the office of the auditor not producing as much in final work product as maybe some others have been? Well, yeah, that seems good. I'm just looking at the newspaper article now. It was in the Star Outsizer on April 6th. Is that today? My goodness. You're well informed. Yeah, well, what can I say? But it seems to me that he hasn't come through with reports that they expected him to do and finish. And he hasn't responded to their requests for reports and audits and the like. And I say, you know, it seems to me like just lancing at the city. They don't consider him well suited for the job. But you know, there's got to be a sacred cow in there somewhere. There's got to be a backstory that is not in this article and maybe the public doesn't know about. Who knows what it is. I mean, one possibility is that he's working on things that would embarrass people and they don't want to do that. So they want him out. And he says his reaction is they just they want him out for the wrong reasons. Let me quote the article here. It's very interesting. The budget issue and all this. He opposes being removed. And he thinks this is a kind of to use Donald Trump's term of which. And it's a fight. It's an argument. And, you know, we're going to see who who prevails. But I still don't know exactly what he's done wrong or why there should be this contention. Yeah, a new story going forward. We'll find out more. Yeah, now a lot of the report concentrated on Oh, one of the things that happened, if you remember, is that there was a budget proviso inserted in two years ago in the 2019 legislative session saying that $3 million of his budget is contingent upon the state order being able to produce a financial and management audit of that agency. Okay. And so so his office goes in there. And before long, they take a look at the minutes of the of the trustee meetings and they say, okay, can we see the minutes of the meetings unredacted? And because there were a number of consultations with a legal counsel. And they wanted to see what they were. Now, for for most people, conversations between an attorney and a client are privileged. Okay. But the question there becomes, okay, they are privileged to outsiders. And so if I, for example, had a conversation with an attorney, and, you know, you weren't my boss, we didn't work for the same company, you can't see those conversations. But if you were my boss, okay, and the the attorney was hired by the company, then of then, of course, you have the right to see those conversations because it's the companies, you know, the company is the client, I'm not. And you're not an outsider. So the question then becomes, okay, if the attorneys here were retained by OHA, as opposed to any, you know, particular individual like Mr. Krab, who used to be the executive director of OHA at the time, then- Oh, he was the one that wrote to John Kerry, wasn't he? He was to run the road on behalf of OHA to John Kerry, saying that OHA represented a separate nation, and John Kerry should deal with him as, you know, a separate nation. In fact, back in the day. Yeah, I don't know if that was the chair of the board of trustees or whether it was the executive director. I think it was Krab. Okay. But in any event, the question then becomes, okay, in Les Condeau's position as state auditor, is he an insider or is he an outsider? And I think there are good arguments on both sides, but OHA did file suit. The question of privilege was raised and the court held that, you know, these minutes were privileged and, you know, they're not to be disclosed to the state auditor. Okay. But this is the state. OHA is a state agency. There's no question about it. Right. Doesn't what they do, doesn't it belong to us as the taxpayers? Doesn't it belong to the state auditor who works to find improprieties? Yeah, maybe there's a good legal reason there, but I tell you the truth, as a matter of just, you know, fairness and responsible government, I don't see why they would fight with that. They're funded by the state of Hawaii. They are the state of Hawaii. Why can't we know about that? Well, in any event, what the state auditor did was he really didn't wait for the court ruling. He said, look, if you're not going to give these things to me, I'm going to stop my audit. I can't continue with this. That means you don't get to $3 million and that's when, you know, people went off the deep end. What's wrong with that? Anything? I don't know. I don't know if I would have done the same thing if I were in his position because I think there's a lot of stuff that you can, you know, take a look at and conclude even if you didn't know the results or that you didn't know the attorney-client conversations. One of the things that the report says, for example, is that they faulted him for looking at the LLCs that OHA owned. But even in financial accounting, you have to look at the enterprise including all more than 50% owned entities in order to have a good understanding of what the financial enterprise is. You've got to be able to do that. Remember, again, it's a state agency, and if they got a schematic of subsidiaries and affiliates, they have somehow constructed with our tax money, we really need to know what's going on. I compliment the vote of the trustees to call for an audit and I compliment his... No, no, the trustees didn't call for the audit. The legislature said, you know, if you want $3 million of our taxpayer money, you need to come up with this audit or you're not going to get your $3 million. Okay, well, I compliment the legislature for doing that. And that's what we expect, isn't it? We want to know that our state agencies are performing properly. And I don't know, what other recourse would he have if they stopped him on looking at minutes and the like, if they refuse to give him information about affiliates and subsidiaries of a state agency? Now, I think at some point, you would have to suspend the audit and say, you know, I can't access enough information to come up with a conclusion. But now he's being criticized for not finishing the audit. That's right. Among other things. A lot of the report, you know, the speaker's working group report goes into that incident and claims he's at fault for, you know, pursuing a scope of audit beyond what the legislature asked for, which I mean, I don't agree with that either. I think that if they want to have an audit of OHA, you got to look at the subs. And then there's, I think, financial auditing guidance that says that. Yeah. And if you were working for Price Waterhouse Coopers and you found something, you would want to follow it wherever it takes you. I mean, that's the mark of a good investigator. You don't stop. And I really don't think it resonates to say you went beyond the bounds of what we told you to do. An auditor has to have a certain amount of flexibility, of discretion, going after what he feels is the story, the truth. Don't you agree? Yeah. So that then, you know, has us take a look at the report in its entirety and, you know, we start wondering, okay, is this really a tool to help the auditor prioritize and, you know, define the scope? Or is it a whack job? And the more of these kind of questionable conclusions that the report comes up with, the more it starts looking like a whack job. And by a whack job, I mean, you know, something that is a collection of facts and arguments used to advocate for the, you know, dismissal or other adverse personnel action that the report is directed against. In this case, Mr. Condo. There's got to be a lot of politics behind the scenes, don't you think? I mean, the people that OHA didn't want him to get that information. The lawyers for OHA didn't want him to, you know, get that information. And what the net effect of all of this is that he didn't get the information. And now he's at risk of losing his job. And perhaps no one will ever get that information. Isn't that what happened? What's happening? That's what it looks like. Now, I mean, there's still a way for the truth to come out. We have, for example, new trustees in there now that are, you know, working to, you know, bring a lot of this information to light. You know, Kili Iakina comes to mind. And I think we need to know the truth. We need, as taxpayers who are funding this agency, we need to know the truth. And we do need to have insight as to what is actually going on within OHA. As we need to have with all of the state agencies, you know, especially the big ones. Yeah, OHA has tons of money and they get tons of money from the state right off the top, hundreds of millions. So we really need to follow that money. Now, you know, and I agree with you absolutely about Kili Iakina. He is a breath of fresh air over there. But, you know, I have the recollection that there are rules in OHA that make it hard for the auditor to talk to trustee about these things. They have, you know, internal rules that limit the ability of any trustee make public statements about what's been going on. Is that true? Yes, it is. But again, it's really to kind of preserve the, you know, the secrecy and lessen the accountability that the public looks like, you know, looks like to me. So I would have just some concerns about whether that kind of rule is valid. I would too. Now, Les Condo is the lawyer himself, you know, and he's been around. He's served on a number of state organizations, including the Public Utilities Commission. And, you know, he's seen the way things work. So on the one hand, you say, well, you know, there must be, there must be fire where all the smoke is. And if Les suspects is something you should be looking for, you've got to give him credit for that. He knows the territory. On the other hand, you know, you also have to look at the fact that the state has a certain culture of not revealing, protecting certain information. So this is really an important matter. This is a this is a an important case, an important controversy, because it stands for more than just this one, you know, this one audit, this one auditor, this one agency, as you say, we really have to clarify whether the public has a way to find out what's going on. A newspaper reporter would have difficulty in finding these. If the auditor can't find it, you know, what about the newspaper? That'd be hard, too, wouldn't it? It'd be harder. A newspaper reporter is treated as a member of the public, and they can't get to stuff that the state auditor can get to, or at least in theory. And I think that's why it's very valuable to have, you know, a state auditor who is committed to, you know, investigating, finding out the truth and making it known to the public, you know, the public that pays all the bills. Yeah, and the public whose money may be squandered as we speak. You know, that is a real possibility here. So what happens, what happens if less condo is, quote, removed by a two-thirds vote of the legislature? You know, that's what the article talks about. You know, what happens? Another auditor would be appointed, I suppose. Yes. And the other auditor would be managed by whatever committees or officials are involved. And maybe the next order wouldn't be as aggressive as less condo. That's a real possibility, yes. Very, very troublesome. So what's the process here? Let's just look at that for a moment. If he was removed or if he quit, you know, like, who needs this? Who appoints the next one? And does he need to be confirmed or she confirmed by the state senate? It's not just the senate. The house and senate have to meet in joint session to approve any nominee and also to fire one. So a two-thirds vote is needed to house someone from the state auditor position that they now have. And I think a majority of the house and senate is needed to approve a nominee to a state auditor vacancy. But the idea is they need to have a house, senate, joint session, which doesn't happen very often. But that's what's required by the Constitution. So in the meantime, what we have is the kind of stalemate. This report sort of creates or codifies the stalemate. The $3 million isn't coming out because the audit's not being done. And I guess part of the criticism is that he's spending more than the legislature wants him to spend on these audits. And they're mad at him because he's not producing the audits and he's calling for more money, but they're not willing to give him more money. And they're limiting his ability to do what he feels needs to be done. There were other measures in the legislature to A, lop his budget in half, B, combine his office with LRB and I think the Ombudsman, neither of which have passed. All of them are, all of those bills have died. So and really the wild card in this is the senate, assuming the house is going along with what the speaker wants to do, the senate needs to go along in order for anything to happen. And the question is whether or how much in lockstep are they, is the senate going to really do their own investigation? All of these are open questions. Well, as I said earlier, it just sounds to me like an ordinary citizen. It sounds to me that there's more here than meets the eye. Because, you know, to write a 79 page report, take a whack, use your term, take a whack at an auditor who is charged with representing the public. That's pretty serious business. And it's seriously troublesome, yes. Seriously troublesome. What it is. And I can see that anybody interested, for example, in the way the tax laws are being implemented, the way the money is flowing through the state government, you know, who becomes the watchman after that? If you attack the watchman and you remove the watchman, you criticize the watchman, undermine his funding and his credibility and his power. You're really undermining the right of the public to know. I can see we should all be concerned about that. We should all want to know more about how this all got started. We should all want to know more about what happened with OHA and other investigations. Now, I would grant you that some audit reports that we've seen in years past didn't seem to be justified. Others did. Mary and Higa was very good. She was a great state auditor and everybody relied on her to find out what was spoken. And, you know, one point I would say is that in the case of Mary and Higa, you didn't have to audit everything. Just once in a while, you come up with an audit that reveals things that the public should know about. And everybody stands back and says, wow, we didn't know that was happening. And including state officials who then say, we ought to guide our conduct by the possibility that Mary and will investigate our agency. And maybe that makes them more law abiding. I hope it does. Yeah. So you can't investigate everything, but you have to investigate those cases that are going to send a message rippling through state government. But you can't get away with stuff. And to hit the auditor now, that could send another message altogether. Yeah, it's like defunding the police, right? I mean, you rely on the police to maintain law and order to make sure that people are honest. And, you know, if you take away their budget, as some people are advocating, you got to live with the consequences of that. You know, same here. So I'm frustrated by this because I think the ultimate decision process here is not within the hands of the public. It's a back room decision, isn't it? It may well be. And that's another reason why we're concerned. And that's why we thought of taking the time today to bring this matter up in this show. We should follow it, Tom. You should follow it. And I would like to follow it with you to see how it spins out here. I would be I would be troubled with some results. Like if he was removed, I would like to know more. So hopefully the newspaper will help us and will otherwise find out what what is what the dynamics are here. Closing thoughts, what would you like people to think of this discussion? Well, whether or not, you know, I agree with let's go on those reports and, you know, some of them I agree with some of them I don't. But in in any event, it's, you know, it's, you know, those reports have been very valuable in getting, you know, information that the public hasn't seen, you know, into into the public light and discussion. So I think these reports have been providing a valuable service. Certainly, when I write my articles, I've used lots of auditors reports as as fuel and ammunition. So I do want to keep the, you know, the information coming. And I do want somebody, you know, with with metal with, you know, you know, a good bulldog mentality in that seat. I don't want somebody just, you know, whitewashing whatever the government does, that's what would serve no purpose. Yeah, it could be a personality thing here, you know, he's a lawyer, he's done aggressive things in his career for sure. But you want somebody who will go after it. You'll want somebody with a curiosity and inability at this time to find out what's going on to represent us. You don't want a wallflower. Mary and Higa was not a wallflower. And we don't want a wallflower in that job. Thank you for bringing this to our attention, Tom. Really appreciate the discussion. Thanks for having me on the show, Jay, as always.