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The Honolulu Advertiser
Posted on: Sunday, December 30, 2001

Legislature faces budget difficulties

State lawmakers have gotten their first look at Gov. Ben Cayetano's new budget, and while they've seen few surprises, they have looked into the jaws of a host of problems.

On the construction side of the budget, there's nothing most lawmakers would rather do than comply with Cayetano's request for sizable spending on education facilities. Cayetano wants $255 million for school repair and maintenance; and $308 million for the University of Hawai'i system, including about $142 million for a West O'ahu campus. (Having gotten this close to building the new campus, it may be time to decide just where it will be.)

What scares lawmakers about this capital spending (Cayetano's total request is a whopping $952 million) is the interest that must be paid in future years. That money comes out of the operating budget, which Cayetano already indicates must be cut by $16.5 million this year and $33.2 million next year.

If you think there's plenty of fat to trim, consider that Cayetano contemplates taking $7 million this year and $14 million next year from the public schools.

We would argue, nevertheless, that borrowing for this construction makes sense because the improvements that it brings to the state's education effort should contribute to economic growth sufficient to cover the debt service — and a lot more. And that's not to mention the embarrassment of having allowed the physical public education plant to have deteriorated so severely over so many years.

Indeed, what worries us is that Cayetano isn't increasing the education budget on the operating side, instead of cutting it. Make no mistakes, the classroom level will feel the effect directly.

Still, there's no getting around the revenue shortfall being forecast in the wake of the downturn caused by the events of Sept. 11.

The true white-knuckle component of Cayetano's budget, in fact, is in his latest attempt at creative financing. We see little chance that lawmakers will find it politically expedient in an election year to double the state's already lofty liquor tax (particularly coming at the same time that Cayetano wants a capital gains tax cut).

And it's anyone's guess whether lawmakers will decide to anger homeowners by raiding $213 million, as Cayetano recommends, from the Hawai'i Hurricane Relief Fund — or to anger an even larger number of taxpayers by cutting government services by that amount, since Cayetano's budget won't balance without every penny of that money.

There's a deadly serious debate over whether the money in that fund should be returned to the homeowners who paid into it (since no claims have had to be paid from it); whether that money should be maintained as a reserve for Hawai'i's next hurricane (in which case, insurers are likely to bolt as they did in 1992); or whether the payments into the fund were like other insurance premiums (which belong to the insurer when no claim is made).

Cayetano argues that state government now is about the right size, but with all the problems involved in financing it, we'd suggest yet again that state government is still substantially larger than the economy that must shoulder the load.