The Chamber of Commerce of Hawai'i said today that the business community was pleased.

"We appreciate the difficult decisions the Legislature had to make," said Stanley Hong, president and chief executive officer of the chamber. "Bold, proactive steps were necessary to ensure that all services, whether they are performed by the civil service or private sector, are done efficiently and economically."

But others warned that the bill will be difficult to administer and could erode public services.

"Privatization sometimes works, but what they have done with this bill is ... taken all the worst provisions of every bill they could find," said Larry Boyd, economist for the University of Hawai'i Center for Labor Education and Research. "It is a mine field that will blow up."

Boyd said the bill "is going to hang like an albatross on everyone who voted for it." Privatization creates "quasi monopolies" in municipalities, are ripe for corruption and limit efficiency, he said.

Russell Okata, executive director of the Hawaii Government Employees Association, said he is concerned public workers could lose wages and benefits under a private-sector employer taking over a government function. Compounding the problem: the final decision on whether public workers or a private company will win a contract is to be made by the governor or county mayors, Okata said.

"I believe that now that management has this tool available to them, as our leaders they have this tremendous responsibility to guarantee to the public that if used, it will maintain the level of public services," Okata said. Gary Rodrigues, state director of the United Public Workers, said the bill "could end up with people losing their jobs, because the way the bill is written, the mayors and the govenor can privatize, and they can pay substandard wages and substandard benefits just to get the job done."

The bill gives workers an opportunity to compete against a private company if the governor or county mayors approve, but Rodrigues said the Legislature has indicated it prefers privatization to managed competition.

There is no gurantee that a private employer would hire an experienced public worker, he said. "The only guarantee is you will be on the unemployment line."

Lawmakers yesterday also approved appropriations totaling more than $300 million to pay for raises for teachers, university faculty and other public employees; a two-year, $7.1 billion general treasury budget; and a bill that would increase the minimum wage next year to $5.75 an hour and to $6.25 an hour in 2003.

Legislators also approved bills to impose extended prison sentences for people who commit "hate crimes," and to raise the age of consent for sex from 14 to 16.

The votes on privatization and worker benefits are the boldest reforms approved by the Legislature since pressure began building in the mid-1990s to make state and county government more efficient in the face of dwindling resources and growing public resentment of generous public employee contracts.

A key reason behind the abrupt embrace of reform is the broad acknowledgement by legislators that state revenues are not keeping pace with growing public employment costs, a situation highlighted by the recent teachers' strike.

Perhaps most significant is the departure or demotion of key legislative leaders such as former Senate President Norman Mizuguchi, a steadfast ally of labor unions who blocked any attempt at changing their status. Cayetano took note yesterday of Mizuguchi's absence, praising the new Senate leadership for "a more balanced approach."

One of the closest votes in the Senate was on a bill to overhaul the Public Employees Health Fund by converting it to an Employee-Union Health Benefits Trust Fund. After more than an hour of debate before union members and officials in the gallery, senators voted 13-12 to pass the bill.

Members of the Legislature have worried for years about the growing costs of health coverage for public workers and retirees. The state auditor has projected that the state may have to pay $1 billion or more a year in premiums by 2013.

Supporters said the bill would save the state $65 million in its first year of operation.

Currently, lawmakers spell out in law what benefits are provided to public workers and retirees, and the state and counties then pay whatever premiums are required to offer those benefits. Under the new law, state and county contributions to pay public worker health benefits would be negotiated between the unions and the state and counties, and the trust fund would then buy the best coverage it could afford with the money available.

Proponents of the bill, such as Sen. Colleen Hanabusa, D-21st (Kalaeloa, Makaha), said the bill is necessary to keep the fund solvent and called it "an effort to preserve what we have promised retirees in the future."

"I am comfortable that the retirees will be protected," she said.

But other senators said the public employee unions and retirees affected by the bill were left out of the discussion and that they are uncomfortable with the state managing a single health fund.

"Let's face it, the state has had a very rough time proving it can do anything well," said Sen. Bob Hogue, R-24th (Kane'ohe, Kailua).

Currently, the state and counties also cover the entire cost of health coverage for most retirees and their dependents, and critics worried the bill would change that.

The privatization vote yesterday was a surprise resolution of an issue that has confronted lawmakers since 1997. That year, the state Supreme Court ruled the state and counties cannot hire private companies to perform work that has traditionally been performed by public employees.

That ruling virtually halted any efforts to hire private companies to perform public services no matter how much money the state and counties might save. The unions see privatization as a threat to jobs and have used their influence at the Legislature and particularly in the Senate to stall any meaningful action.

But yesterday, senators easily passed the bill on a 23-2 vote. The measure also won easy approval in the House, with only six Democrats and one Republican voting against it.

The privatization bill would give the governor and each county mayor authority to contract out services, or to allow the public worker unions to compete to handle the work through a "managed competition" process.

The bill would allow the state and counties to lay off public workers when their work is contracted out.

Rep. Joe Souki, D-8th (Waiehu-Ma'alaea-Napili), said he worried lawmakers are ending the state's "warm body policy" of protecting workers from layoffs, and instead are adopting "a cold body policy, if I may, where the worker is not that important."

The same bill eliminates binding arbitration as a way of resolving stalled contract negotiations between the Hawaii Government Employees Association and the state and counties. That troubled some lawmakers such as Rep. Roy Takumi, D-36th (Pearl City-Waipahu), who noted the bill will allow all HGEA members to strike.

Lawmakers gave final approval to a two-year, $7.1 billion general treasury budget over the objections of Republicans, who said the state is spending too much. The budget increases general treasury spending by about 12 percent next year, and by another 4.5 percent the following year.