Legislature approves privatization bill

By Kevin Dayton and Lynda Arakawa
Advertiser Capitol Bureau

The Legislature defied the state's powerful public worker unions and stunned the political establishment yesterday by voting to allow virtually unlimited privatization of public services in Hawai'i and to cut the cost of public worker and retiree health benefits.

The votes yesterday were startling reversals on issues that have confounded legislators for years. Union members staged a last-minute lobbying push and packed the Senate gallery, but were unable to stop the bills from passing.

"For reform, you'd have to give them an 'A' after today," Gov. Ben Cayetano said of the Legislature.

"I give the Legislature all the credit. This has not been easy for them."

Lawmakers also approved appropriations totaling more than $300 million to pay for raises for teachers, university faculty and other public employees; approved a two-year, $7.1 billion general treasury budget; and passed 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.

Cayetano smiled broadly as he visited the House chamber as debate continued after 7 p.m. and waved the shaka at House members, congratulating both Republicans and Democrats for their votes.

The votes 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.

Union leaders said they saw the changes coming but were still troubled.

"I think it's a major shift that has finally happened that has been in motion for many years," said Russell Okata, executive director of the Hawaii Government Employees Association. "Public employees have been the scapegoat, and I think that some of the senators have been very misinformed in making their decisions."

Revenues fall behind costs

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 public 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).

Health coverage questioned

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.

"We are very, very disappointed," said Hawaii State Teachers Association president Karen Ginoza. "The Legislature has supported us through the strike, has supported us with our contract. This definitely has been one that takes away our members' benefits."

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.

State could contract out

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.

When money from federal sources, special funds and other sources is figured in, the budget works out to about $14 billion over two years. It adds about 1,100 new government jobs in two years.

Rep. Mark Moses, R-42nd (Kapolei-'Ewa Village-Village Park), worried the state will have to pay wages, retirement and health costs of those new workers. "We're going to pay for this for a very, very long time to come, and we keep growing and keep growing," said Moses.

Lawmakers considered imposing a new tax on tour wholesalers, and the Senate voted to cancel tax cuts that were approved in 1998, but neither of those proposals had enough votes to pass in the House.