The September 11th attack
Legislators grow skeptical of Cayetano recovery plan

By Kevin Dayton and Lynda Arakawa
Advertiser Capitol Bureau

Gov. Ben Cayetano's aggressive plan to spend $1 billion on public construction projects to shore up the Hawai'i economy appears to be in trouble even before the Legislature convenes.

In the days since Cayetano, surrounded by enthusiastic civic leaders and public officials, announced he would call the Legislature back into session to confront the economic crisis brought on by the Sept. 11 terrorist attacks, the governor's plans appear to have lost some of their initial momentum at the Capitol.

More legislators are openly questioning not only Cayetano's ambitious construction proposal, but also his efforts to relax the state procurement law and to pump $20 million into a new tourism marketing campaign in Japan and on the Mainland.

"A lot of our colleagues are very much concerned" about the plan to borrow $1 billion, mostly because it would increase the state's debt, said House Speaker Calvin Say, a Democrat.

"These are all fixed costs," Say said of the debt payments. "Knowing that the general excise tax (collection) is going to be dropping throughout the state, we have to be very careful as far as how you appropriate these funds."

House and Senate leaders yesterday were briefed by members of a task force appointed by Cayetano to develop a bold new tourism marketing strategy because of the terrorist attacks. Lawmakers also heard new details on what Cayetano is proposing for the upcoming special session to respond to a dramatic drop in visitor arrivals.

Those include proposals to relax the state procurement law to allow quicker awarding of construction projects; and to reduce the state capital gains tax.

Legislators are tentatively planning on a five-day special session that would begin Oct. 22, more than five weeks after the terrorist attacks that triggered the state's economic crisis.

Brian Taniguchi, Senate Ways and Means Committee chairman, said senators will be open to the governor's proposals, but was doubtful that the Legislature would approve even half of Cayetano's $1 billion construction request.

"You can't pump out that many projects even if you wanted to," said Taniguchi, D-11th (McCully, Mo'ili'ili, Manoa). "It's just physically impossible and it creates problems in the marketplace."

He pointed out that the Legislature already approved spending $500 million this year for construction projects largely requested by the governor and that he would like to accelerate the completion of those projects first. But he added he would have no problem approving a "narrow range" of additional projects, particularly school repairs and maintenance.

Assuming an interest rate of 5.5 percent, it would cost the state about $80 million a year to pay off $1 billion in general obligation bonds, according to information supplied by the state Department of Budget and Finance.

Those debt payments would be in addition to the $407 million the state expects to pay this year on $3.5 billion it has already borrowed. Those debt payments already take a significant bite out of discretionary spending in the state's $3.5 billion annual general budget.

Senate Vice President Colleen Hanabusa, D-21st (Kalaeloa, Makaha), said she was skeptical lawmakers would push through $1 billion in additional construction during a five-day special session, especially when $500 million was already approved.

"That's a hard one to call," she said. "There may be somewhere between that the parties can meet, but I'm not sure that people are going to buy into an additional $1 billion and just simply say OK. ... I don't see that happening right away."

Cayetano floated 20 proposals yesterday for the special session, each designed to stimulate the economy.

One idea would exempt unemployment compensation paid to laid-off workers from Sept. 11 to June 30, 2002, from state income taxes. That idea would cost the state about $8 million, lawmakers said. Cayetano has also proposed extending unemployment insurance.

The governor also proposed reducing the capital gains tax rate, which would mean a $48 million loss in state revenue.

Another proposal would impose the general excise tax rather than public service company tax on transportation companies like tour operators, which would cost the state about $3 million.

Cayetano also wants to remove requirements for a tax clearance for awarding public contracts, and wants to relax the bidding requirements for contracts of up to $50,000 for goods and services, and up to $250,000 for construction projects.

Other proposals would allow the use of airport special money for tourism marketing, and would authorize the governor to defer all or a portion of fees, rent and charges imposed by the Board of Land and Natural Resources.

Say also had questions about the procurement code changes Cayetano is seeking, noting the law was drafted only seven years ago.

"I hope it's not going backwards," Say said. "If it's not going backwards, we'll be open, but I'm very cautious because it's taxpayers' money."

Some lawmakers reacted coolly to a briefing from a committee planning a new tourism marketing strategy. Donna Kim, Senate Tourism Committee chairwoman, said the plan calls for a new marketing push that would begin in Japan Oct. 8, and on the Mainland Oct. 9.

The proposal would use $15 million in state money, including $5 million that lawmakers had already set aside for tourism marketing. Another $5 million would be raised from private sources, said Kim, D-15th (Kalihi Valley, 'Aiea).

"I didn't see anybody jumping up for joy," Kim said, referring to the four plans that were shown to legislators.

One problem Cayetano may encounter is that special sessions are traditionally used for quick fixes to relatively modest or simple problems.

Special sessions usually don't allow for nearly the degree of public scrutiny or debate that a regularly scheduled 60-day session would allow, which makes some lawmakers uncomfortable. For example, some believe it would be a mistake to spend an extra $1 billion with only abbreviated discussion and little public input.

Lawmakers carefully prepare for such sessions, and they are tightly scripted. Democratic House and Senate members usually meet privately before a special session to agree on what proposals will pass and what each bill is supposed to accomplish.

The bills then move quickly through the Legislature in a five-day session, which is the fastest a measure can move given the timetable set by the state Constitution.

While that process may be reasonable for making technical corrections in bills, some lawmakers believe it may not be the best way to decide how to spend $1 billion.

Hanabusa also said it would be unlikely to resolve the question of whether and where to build a new University of Hawai'i medical school, the centerpiece of Cayetano's construction plan.

"I don't see how a debate like that can be done in five days," she said. "There's no question legislators are willing to do what is necessary to address and anticipate the problem. But you cannot have a knee-jerk reaction to this as well."

Reach Kevin Dayton and Lynda Arakawa at 525-8070 or at kdayton@honoluluadvertiser.com or larakawa@honoluluadvertiser.com