Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser
Posted on: Monday, November 19, 2001

Cayetano wants to tap cash reserves

By Kevin Dayton
Advertiser Capitol Bureau Chief

The state's budget crisis promises to once again make the size of government a contentious debate that will likely carry into the legislative session and the 2002 election.

None of the major players at the state Capitol are advocating firing state employees, and Gov. Ben Cayetano said last week he believes he can avoid even temporary furloughs of public workers if lawmakers let him tap some of the state's cash reserves.

Randy Perreira, deputy director of the Hawaii Government Employees Association, said Cayetano seems to be handling the budget crisis very differently from the $350 million budget shortfall that prompted layoffs in 1995.

"Years ago, when Cayetano took office and Earl Anzai was budget chief, there was a lot of doom and gloom talk, and consumer confidence went down the toilet," Perreira said. The general public concluded that "if government is laying off, we must really be in the tank. It became a self-fulfilling prophecy to an extent, and I think the governor and his staff this time have a different sensitivity to that."

Last week, the state Council on Revenues, a panel of economists that estimates tax collections for each year, predicted the state will collect about $310 million less this year and next year than lawmakers expected when they drafted the budget for those years.

House Republicans last week called for new tax cuts and urged Cayetano to reduce the size of government by freezing and eliminating positions as people quit or retire.

"Two-thirds of the economy is consumer spending, and the only way to increase consumer spending is to give the people some more money back," said Rep. Mark Moses, R-42nd (Kapolei, 'Ewa Village, Village Park). "That's reducing the taxes."

Government spending sought

But the Cayetano administration has argued the opposite, making a pitch that state government should pump more money into the economy, spending more on construction and keeping as many people working as possible.

"What we're seeing is the beginning of an economic meltdown because the impact of tourism has not been effectively dealt with at this particular point," Cayetano said last week. "Well, you only add fuel to the fire if you begin to reduce spending in government or you reduce jobs that may be available in areas that are still viable, such as construction, and the Legislature needs to understand this."

Since Cayetano took office in December 1994, the number of full-time equivalent state jobs declined by about 1 percent to 45,118, according to statistics supplied by the state Department of Human Resources Development.

Meanwhile, the number of "casual hires," a separate category that includes full-time and part-time temporary or on-call workers, increased slightly to 18,517.

Administration officials contend those overall numbers mask the true strain that most state departments have been under as they cope with reduced staffing.

In raw numbers, the state department that took the biggest hit in the Cayetano years was the University of Hawai'i, which lost the equivalent of 886 full-time positions in the first six years of the Cayetano administration.

A total of 1,030 more full-time jobs were eliminated in the governor's office and the departments of Accounting and General Services; Budget and Finance; Human Services; and Business, Economic Development & Tourism.

Other reductions were in the Department of Health, which lost the equivalent of 257 full-time jobs; and the Department of Labor and Industrial Relations, which lost the equivalent of 189 full-time jobs.

Nearly offsetting all of those cuts was the Department of Education, which gained the equivalent of 2,122 full-time positions. Many of those jobs were created in response to a federal court order that required the state to spend millions of dollars to hire staff to provide additional mental health services for students.

After the lean years of the 1990s, Cayetano contends there aren't many opportunities left to reduce government by attrition.

"It's serious because we spent the first six years of my administration cutting virtually all of the departments except for the Department of Education, and I don't think we can take much more," he said.

The governor's cautious response to the alarming new tax collection projections contrasts sharply with the 1995 economic crisis, when Cayetano announced the state was in its worst financial crisis since statehood.

State's options limited

That budget shortfall was $350 million over two years, which prompted the governor to freeze hiring, restrict spending and raid pockets of money that had been squirreled away in special accounts.

He also ordered layoffs of about 500 state workers to balance the budget, and reduced tax credits so the state would not have to pay out as much in refunds. Critics called that move a concealed tax increase.

This time, Cayetano and government watchers say the state's options are limited. Cayetano is planning a hiring freeze and raids of special funds where money is stashed, with the most obvious candidate the Hawai'i Hurricane Relief Fund. That fund, which was created to provide insurance coverage for Hawai'i residents, holds about $213 million that Cayetano would like to draw on to balance the budget.

Cayetano said last week his administration has prepared contingency plans, but has not yet imposed any across-the-board budget cuts.

Before he could furlough any public workers Cayetano would have to get the Legislature to pass a new law authorizing him to impose furloughs, and it isn't clear whether lawmakers would approve such a measure.

Cayetano said the state probably will not be able to back out of the raises it awarded to teachers and public employees after negotiations and two public worker strikes this year.

The governor and the Legislature could cancel the last phase of the three-step income tax cut that was approved in 1998, which is scheduled to take effect Jan. 1. But Cayetano strongly opposed that proposal in the past, and last week he still opposed it. He argued it would in essence be a tax increase.

'Tax holiday' dismissed

Cayetano dismissed the Republicans' proposal to temporarily eliminate the 4 percent excise tax on food purchases, a plan that would save consumers money, but would cost the state about $50 million more in lost tax collections.

"That is one of the most politically charged proposals, and we don't need politics right now," Cayetano said. "We need some sane, sober realistic proposals."

He also dismissed the GOP's proposal for a "tax holiday" to stimulate consumer spending, which would be a brief period when shoppers would not have to pay the 4 percent state excise tax.

"We have a revenue shortfall. If you give a tax holiday at this particular time in addition to what we've already done, it's highly unlikely," Cayetano said

So far, Cayetano and Democratic leaders in the Legislature are assuming the stomach-churning drop in the economy following the Sept. 11 attacks will be temporary, and can be offset by short-term budget cuts and shifting money around.

That is in keeping with last week's predictions by a panel of state economists, who projected state tax collections will drop by seven-tenths of 1 percent this year, but projected tourism, business and tax collections will begin to rebound by the middle of next year.

Lowell Kalapa, president of the Tax Foundation of Hawai'i, said the council's projections may be too optimistic.

He questioned the economists' predictions that growth in tax collections will resume after July 1, and will grow by 5 percent in the year that follows. House Speaker Calvin Say has expressed similar doubts.

"That means that the next fiscal year is going to be substantially more healthy than what we're facing right now, that in fact people are going to get back on planes, United is going to restore that one flight per day each way because they're going to have people demanding it," Kalapa said. "That's pretty damn optimistic."