Posted on: Friday, November 15, 2002

Cayetano to tap hurricane fund

By Kevin Dayton
Advertiser Capitol Bureau Chief

Gov. Ben Cayetano will propose that the state spend $200 million from the Hawai'i Hurricane Relief Fund over the next two years to balance the state budget, a politically volatile proposal that is opposed by Gov.-elect Linda Lingle.

Cayetano has repeatedly urged lawmakers to spend all or a portion of the hurricane fund to balance the budget instead of cutting services or trimming the budget for public education or the University of Hawai'i.

Lawmakers last year agreed to take about $30 million from the fund to help balance the budget, but balked at removing an additional $200 million. This year Cayetano said the rest of the money is needed.

"If you don't use that, then you're going to have a deficit that you're going to have to make up by cutting the government," Cayetano said yesterday.

State law requires the governor to submit a proposed budget to the state Legislature no later than Dec. 16, or at least 30 days before the Legislature convenes. Lingle is sworn into office Dec. 2, which means the bulk of the work in drafting the new two-year state budget falls to the outgoing governor.

Lingle will be free to make or propose amendments to Cayetano's spending plan both before and after it is submitted to the state Legislature, and undoubtedly will do so.

Lingle made it clear this week she doesn't believe the hurricane fund money is necessary to balance the budget.

"I've taken a very strong stand that that fund should be left intact for future emergencies brought about by a hurricane as well as our ability to enter the reinsurance market quickly should we suffer the kind of hurricane and impact that we suffered last time," she said.

The state collected about $85 million less than was projected in the year that ended June 30, partly because of the weak economy after the Sept. 11 attacks, and partly because of state tax breaks Cayetano and lawmakers offered to help businesses weather the downturn.

That drop in tax collections along with increasing costs such as public worker raises caused the state's year-end cash reserves to drop suddenly from $349 million on June 30, 2001, to $134 million.

Cayetano said Lingle and lawmakers could dip into a separate budget reserve fund — also known as the "rainy day" fund — to ease the coming budget crunch, but said simply cutting the budget will require reductions in services.

The hurricane fund was established by lawmakers in 1993 after private insurers stopped offering wind-damage coverage in Hawai'i following Hurricane Iniki.

The state provided $100,000 in seed money to create the Hawai'i Hurricane Relief Fund on July 1, 1993, to offer that coverage, and the program began issuing its first policies about a year later.

The fund used money from mortgage recording fees, assessments on insurance companies and policyholders' premiums to cover claims and buy reinsurance.

In the late 1990s, private insurers began to return to Hawai'i to offer coverage, allowing the hurricane fund to close out its business and stop writing new policies.

The fund's last policies expired in December, leaving the fund with a pool of cash of more than $200 million, but no existing policies for which the fund would need to maintain reserves.

Many in the public believed the money should be repaid to the people who paid into it, but the law that created the fund calls for any surplus to be transferred into the state general treasury.

Advertiser staff writer Johnny Brannon contributed to this report.