State cost-cutting outlined

By Gordon Y.K. Pang
Advertiser Capitol Bureau

On the eve of opening day at the Legislature, state lawmakers yesterday heard Gov. Linda Lingle's budget director explain how the new administration intends to keep its promise to leave the $175 million Hawai'i Hurricane Relief Fund intact by chipping away at special funds, freezing non-essential hiring and other efforts.

Kawamura said the Lingle administration will able to balance the budget without using the $175 million in principal in the hurricane fund as proposed by former Gov. Ben Cayetano before he left office.

"We have to be sure that the state of Hawai'i will not be hampered during recovery efforts and that insurance will be readily available to homeowners and businesses," Kawamura told the Ways and Means Committee. "Also, we believe that to restore trust in government, this obligation must be fulfilled and the intent of the fund must remain intact."

In place of the hurricane fund money, and to pay for other initiatives, Lingle proposes to use:

• $105 million from a 5 percent across-the-board cut in discretionary funds for all executive agencies and a freeze on nonessential job hiring through June 2005.
• $52 million in increases in new, non-tax revenues such as earned interest income, fees and health fund reimbursements.
• $45 million in transfers from special funds. Lingle may repeal some special funds entirely because the administration believes they have "outlived their purpose, or have no justifiable purpose."
• $35 million in discretionary money that had been initiated by Cayetano.
• $5 million in current fiscal year spending that is being halted by the administration, including $1 million earmarked for youth-services centers and $1 million for expansion of a prescription drug program for Medicaid recipients.

Kawamura stressed that all her numbers are preliminary and subject to change.

A few legislators said they are worried about the impact that the 5 percent cut on discretionary money would have on certain state agencies. Kawamura, however, said that most departments and offices have appealed their cuts and that some, such as the state library, had their cutbacks reduced. "We recognize that some will not be able to comply so we've made some adjustments," she said.

Kawamura declined to detail what form those tax incentives will take, but the relatively modest impact on the budget indicates the governor likely will not, at least this year, carry through with her campaign vow to eliminate the excise tax on medical services and restore food tax credits.

Kawamura told reporters that some of Lingle's initiatives won't kick in until 2005 so their budgetary ramifications may not be felt until future years.

Ways and Means Chairman Brian Taniguchi said he was relieved to hear that only $30 million in tax incentives or tax cuts are being proposed. The Senate estimated that the food tax credit would cost the state $80 million each year and elimination of taxes on medical services would mean between $80 million and $160 million annually.

Taniguchi said he does not think the state needs to hold on to all $175 million in the hurricane relief fund, noting that reinsuring homeowners has not cost more than $60 million in premiums in any given year. While Kawamura said the administration envisions using part of the fund to rebuild roads, schools and other infrastructure in case of a disaster, Taniguchi said such money could be borrowed in the form of capital improvement project requests or obtained from federal disaster sources.

"We may not need that entire amount," Taniguchi said. "We may be able to use some of the funds and still be safe, provide the kind of protection people expect."

House Speaker Calvin Say said that while he was impressed by Kawamura's "aggressiveness" in approaching the budget, he is eager to see specifics. Kawamura promised to have detailed responses by the end of the month.

Kawamura said Cayetano's proposed $1.6 billion construction budget will be trimmed to about $600 million for the biennium, with priority being given to projects in more advanced stages of planning.