Cayetano says budget crunch may hit schools, pension fund
By Kevin Dayton
Advertiser Capitol Bureau
Gov. Ben Cayetano said state spending must be cut including the budget for the public school system, and said he will propose a delay in state payments into the public workers' pension fund to help balance the state budget.
Cayetano also said yesterday that unless the Legislature gives him authority to spend $213 million now in the Hawai'i Hurricane Relief Fund, he will have to impose "quite severe" cuts in spending on state programs and services.
In any event, the school system will feel the cuts, Cayetano said. "This time, the (Department of Education) itself will have to share some of the burden."
Karen Knudsen, chairman of the Board of Education budget committee, said she does not yet know how much of a cut the department will have to absorb.
"I think it's going to be very difficult for us to cut any place at this time," she said. "On the other hand it's not like it was unexpected over the past month or so."
Cayetano and lawmakers have been discussing ways to balance the budget as state tax collections drop because of the decline in tourism. Economists on the state Council on Revenues predict the state will collect about $150 million less than expected this year, and about $160 million less than expected next year.
Cayetano declined to say yesterday how much he expects to cut the budgets of state departments, but lawmakers have said the administration is considering cuts ranging from 1 to 3 percent.
"I think we've come up with a pretty good package, one that allows us to balance the budget and yet not inflict a lot of pain on the departments," Cayetano said.
He said his administration may eliminate some state jobs as people quit or retire, but has said he does not expect layoffs or involuntary furloughs will be necessary if lawmakers allow him to spend the Hurricane Relief Fund money.
He also said he will limit hiring of new state workers, but will have to allow some hires in areas such as the state prison system and the Departments of Education and Health, which are under a federal court order to improve mental health services for youths.
Cayetano said he did not have details yesterday on the plan to defer payments into the public workers' pension fund.
David Shimabukuro, administrator of the Employees' Retirement System, said the pension fund has not received any proposal from the Cayetano administration for deferring payments, and said he cannot comment on the plan.
The past 18 months have been a difficult period for the pension fund, which has about 90,000 state and county members and retirees.
The fund had $9.9 billion in assets on July 1, 2000, but lost money as the stock market dropped. After paying out $549 million in benefits, the fund ended the fiscal year with $8.8 billion, Shimabukuro said.
Following the Sept. 11 terrorist attacks, the fund dropped again to $7.9 billion at the end of the last quarter, Shimabukuro said.
"Although we have a diversified portfolio, and although we have rebounded some since the end of the quarter, it's going to be difficult to recover under these weak global conditions," Shimabukuro said.
This would not be the first time the state has resorted to reducing its payments into the pension fund as a way of balancing the budget. In 1999 lawmakers approved new method of calculating state and county contributions into the fund in a way that reduced those payments by $346 million over three years.
Cayetano said the centerpiece of his plan to balance the budget is winning authority from lawmakers to spend the $213 million in the Hurricane Fund.
Many argue that money should be refunded to people who paid into the fund by purchasing hurricane coverage from the state, but Cayetano said he expects lawmakers will agree to spend that money once they realize how much budget cutting will be necessary without it.
Reach Kevin Dayton at kdayton@honoluluadvertiser.com or 525-8070.
