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The Honolulu Advertiser
Posted on: Wednesday, September 26, 2001

The September 11th attack
Legislators urge caution on $1 billion stimulus plan

By Lynda Arakawa and Kevin Dayton
Advertiser Capitol Bureau

Legislators say they will move cautiously on Gov. Ben Cayetano's proposal to borrow an extra $1 billion for construction projects because they worry the borrowing binge might push the state debt too high.

With the state economy stunned by the Mainland terrorist attacks, it is possible that bond rating agencies could downgrade Hawai'i's credit rating if the state rushes to borrow another $1 billion.

"It is going to increase our debt load, and there are issues we have to work through," said state Budget Director Neal Miyahira. "We're going to have to see with the people in the market ... the acceptance and those kinds of things."

Cayetano said he wants the state to borrow an additional $1 billion to pay for new construction projects, including a new medical school and a new prison.

With interest rates low, he contends this is an good time to borrow money for public works projects and boost the state's construction industry.

Senate President Robert Bunda said senators are discussing whether there is a need for as much construction as Cayetano is proposing.

"Actually, the responsible thing is to look at our debt ceiling and to say whether the $1 billion is necessary or not," said Bunda, D-22nd (Wahiawa, Sunset Beach, Waialua). Lawmakers don't want to push the state deep in debt "but at the same time we do want to contribute to the economy," he said.

Senate Ways and Means Committee Chairman Brian Taniguchi, D-11th (McCully, Mo'ili'ili, Manoa), noted that the Legislature just this year passed a two-year budget that includes $450 million for construction.

He said lawmakers may prefer to relax state procurement laws to allow the already-approved construction projects to advance more quickly.

If the last legislative session is any indication, lawmakers will be more cautious about borrowing than the governor is.

Cayetano this year proposed new construction spending totaling $1 billion, but the Legislature trimmed that request back sharply, authorizing the governor to spend only about $450 million over the next two years.

As of Sept. 1, the state owed $3.55 billion in outstanding general obligation bonds, which are paid for out of its general treasury. The state will pay more than $406 million this year in principal and interest on those bonds.

That does not include the $450 million in new construction spending that the Legislature authorized this year or the $1 billion in additional spending that Cayetano is proposing now.

That also doesn't include other state borrowing for airport and highway construction activities, which are counted separately.

Bond rating agencies already consider the state debt to be relatively high, but consider it acceptable because state government here pays for construction such as schools and prisons that are usually handled by counties or municipalities on the Mainland.

The major rating agencies this year upgraded their assessment of Hawai'i's general obligation bonds, which means the state can pay lower interest rates on the bonds because they are considered less risky for investors.

However, the credit upgrade was largely because the state's economy was growing along with its cash reserves.

It isn't clear whether the pattern of growth that pleased the bond rating companies will continue, given the crisis in the tourism industry since the Sept. 11 terrorist attacks in New York and Washington.

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