honoluluadvertiser.com

Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser
Posted on: Sunday, April 15, 2001



Price tag of raises may soar in future

 •  UHPA, state talks stretch into Easter morning, but deal elusive
 •  Advertiser special: The Teacher Contract Crisis

By Kevin Dayton and Lynda Arakawa
Advertiser Capitol Bureau

As the Legislature embarks on paying for teacher and university faculty raises, as well as those of other public workers, it is counting on sources of money — including taxes and special reserves — that may not be present two years down the road and may collide with a worsening economy.

There is a growing consensus in the Legislature that for the next two years, at least, the state can scrape together enough money to muddle through and pay public worker raises.

If the unions get all they are asking for, the total cost of the raises could approach $600 million over the next two years, including more than $100 million in retroactive pay, according to estimates supplied by the state. If the Cayetano administration has its way, the cost will be a fraction of that.

The governor has proposed about $1.1 billion in new spending over the next two years, but he did not include any money for raises.

As part of the effort to find money for the raises, the House and Senate each cut more than $200 million from Cayetano's new spending initiatives.

To raise more cash, lawmakers proposed strategies such as draining more than $80 million from special funds — where money is stashed for specific purposes — and boosting taxes on tour wholesalers by $30 million to $64 million a year to help cover the cost of raises, new computers for schools and federally mandated special education costs.

Lawmakers also are looking at the state's carryover balance, which is money left unspent in the general treasury at the end of the fiscal year. The state projects that it will end the fiscal year June 30 with $330 million on hand, and the Senate budget envisions spending more than half of those reserves.

Cayetano contends that the state will have to impose budget cuts to pay for the raises, but the House and Senate's proposed budgets set aside money for raises without imposing major cuts in the programs and services the state now provides.

Cayetano has criticized both the House and Senate budget proposals, saying at various times the House budget is "not viable" and the Senate spending plan strips money away from other important programs.

The governor particularly singled out the Senate budget for criticism, complaining that "pay raises will continue to have an impact down the road, and I think it's really a sign of undisciplined budgeting and budgeting which is more geared to try and satisfy a political problem rather than really do what we think should be done here, and be responsible about the fiscal management of our state's resources."

Other skeptics, such as Rep. Ed Case, D-23rd (Manoa), point out that the House and Senate draft budgets assume state tax collections will grow by 5.5 percent next year, and 5.8 percent the following year.

That's in keeping with the projections of the state Council on Revenues, a panel of economists responsible for projecting state tax collections. But Case believes those projections may be too optimistic, and don't square with alarming signs in the Mainland and Japanese economies.

"It does not take an even moderately conservative approach to revenue growth," Case said of the Senate budget. "It just spends everything the council says we're going to have. It creates new taxes, and raids funds that are for the most part not going to be available in the following fiscal cycle."

Case sarcastically added: "Yeah, we can scrape by, sure. Let's leave it, let's leave it to the next Legislature. Let's just fund every pay raise anybody wants and let somebody else worry about it down the road. Chance 'um."

Senate Ways and Means Committee Chairman Brian Taniguchi said the state should be able to stay afloat with a budget that includes public worker pay raises. Under the Senate draft of the budget, the state would have a cash reserve of $150 million at the end of the two-year budget cycle, which Taniguchi said is acceptable.

"There is a concern, but we think that there's enough of a carryover," he said. "I think that if the Council on Revenues picture goes bad — we cannot predict that — if that goes down then we're going to have to tighten up a lot more. But at this point, with all the assumptions that we have ... we think we'll be okay. Normally it's pretty hard to go beyond three or four years anyway as far as financial planning."

Taniguchi, D-11th (McCully, Mo'ili'ili, Manoa), also wasn't interested in challenging the Council on Revenues forecasts.

"I'm sure we can disagree with them, but as far as the law, they basically set what the revenue estimates are so we base our budgets on that," he said. Taniguchi added that Cayetano has the authority to restrict money if revenues fall.

"He has restricted money in the past very aggressively so we assume that if something happens he will do the same."

Analysts for the unions also have scrutinized the state budget and spending plan, and contend the state has overstated its expenses, possibly as a negotiating strategy.

"My experience tells me and shows me that whenever public employee unions and the employers negotiate, that it's not uncommon for the employers to argue lack of funds or inability to pay," said Russell Okata, executive director of the Hawai'i Government Employees Association. "It's nothing new, and somehow the monies magically appear sometime during the session."

Dick Pratt, director of the University of Hawai'i-Manoa public administration program, said his sense is the state's financial situation is not as dire as some suggest, but it's hard to tell.

"The administration and the Legislature are not communicating over the numbers, and that makes it very difficult to come to a shared reality of what we're working with," said Pratt, who is on strike along with most of the rest of the UH faculty.

Chris Haugen, policy analyst at the University of Washington, said the issue of whether government would have enough money to sustain public employee pay raises is a "very valid concern."

"Certainly providing marked salary increases can get you into a good deal of trouble down the road," he said. "The other problem though, is that underfunding civil servants, underfunding teachers, underfunding state employees in the long run will greatly diminish the quality of the workers you have. So, when you have the funding available, you almost have to make those investments or else you risk alienating public employees."

Haugen said Washington repealed salary increases that already were approved for public employees during a severe budget crisis in the early 1980s. At the same time the state also laid off some school teachers and cut health benefits.

"The public officials should be skeptical of any revenue projections because my background is in economics and it's almost more of an art form than a science," he said. "Numbers can frequently be wrong. A situation you can find yourself in is like what Washington experienced in the early '80s — a situation where you think tax revenues are coming in only to find out after the fact that it hasn't ... So it's very good to be skeptical about that."

Eugenia Toma, director of the Martin School of Public Policy at the University of Kentucky said paying for public worker pay raises is a large issue for many states and all levels of government.

"There are some really serious issues facing us in the near future about pay structures in the public sector," she said. "If you look at what's going on in Washington D.C. right now, it's quite clear that the federal government pay structure is not competitive with lots of private firms. And yet the public isn't willing to pay more, so there's going to have to be some decisions made about whether this means increasing the amount of services provided in the public sector or the private sector."