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The Honolulu Advertiser
Posted on: Thursday, July 17, 2003

Fiscal dispute escalates

By Gordon Y.K. Pang
Advertiser Capitol Bureau

Gov. Linda Lingle's administration and Democratic leaders in the Legislature disagree on what the latest numbers released by the Department of Taxation mean to the two-year, $7 billion-plus general fund budget.

"You don't spend tax money based on what you think is going to happen," Gov. Linda Lingle said.

Advertiser library photo • March 25, 2003

Democrats say the numbers show the economy is improving measurably and that the $152 million budget shortfall announced by Lingle three weeks ago no longer exists. As a result, they said, she should ease a 20 percent restriction on non-fixed costs all state agencies she imposed last month.

Democrats also continued to criticize Lingle for vetoing about $3.6 million in social service financing from the so-called "rainy day fund," which is separate from the general fund budget.

But Lingle and Tax Director Kurt Kawafuchi said Democrats are looking at the situation in a vacuum and that it's premature to say how much in taxes will come in for the next 12 months when the fiscal year only began on July 1.

Last Friday, Kawafuchi released his monthly tax revenue numbers showing that a large influx of revenue in June helped boost the overall collection for the 2003 fiscal year 4.3 percent higher than the 2002 fiscal year — $3.18 billion from $3.05 billion.

Kawafuchi cautioned, however, that the amount may have been inflated because of a "weekend effect" where the last day of fiscal year 2002 was a weekend, thus carrying revenues into 2003. June 2003 numbers also were inflated because May ended on a weekend.

There were additional factors that bolstered the 2003 fiscal year totals, he said, including an exceptionally high $16.5 million in contested payments, which must be transferred out of the general fund this month, and a "heightened scrutiny" of those taking the controversial Act 221 high technology tax credits.

All told, actual growth for the year was not 4.3 percent, but 2.5 percent, Kawafuchi said.

But Democrats, at a press conference yesterday, said there's no disputing that the numbers are better and that the projection by the Council on Revenues showing a 4.3 percent growth rate was accurate.

"That growth rate was also what the Legislature used to balance the 2003-2005 biennium budget, meaning we're on target," said Senate President Robert Bunda, D-22nd (North Shore, Wahiawa). "Gov. Lingle is imposing major spending restrictions on state agencies and threatening the Department of Education with a $20 million cut because of what she contends to be a budget crunch.

"But we believe the Tax Department's collections clearly show that our original budget and revenue estimates were accurate, and that the Legislature approved a balanced budget."

House Speaker Calvin Say, D-20th (St. Louis Hts., Palolo, Wilhelmina Rise), said the estimated $152 million shortfall espoused by Lingle no longer exists. "No matter how many times the Lingle administration attempts to manipulate the data, the plain fact is that the fiscal year 2003 revenues increased by 4.3 percent growth over last year," he said. "Those are real dollars."

The new numbers, he said, indicate an $82 million increase in revenues in fiscal year 2004 and an $87 million jump in fiscal year 2005.

Bunda said that "our public schools, the needy, and those who serve them should expect that the state support they urgently require will be forthcoming."

Lingle and Kawafuchi said the June numbers cannot provide a crystal ball for the coming biennium. Kawafuchi said that even with the revenue spike in the final month of the 2003 fiscal year, a raw cash count of O'ahu revenues showed collections down $36 million from the first 15 days of fiscal 2003.

Lingle told the annual membership gathering of the Tax Foundation of Hawai'i, and then reiterated to reporters, that the prudent thing to do isn't to open the state's treasury, but to wait until the Council on Revenues, which makes the tax growth forecasts on which the state bases its budget, makes its next forecast in September.

"I think the most important point is that it's not responsible to take one month's figures and start a pattern of spending again," Lingle said. "I think the reason they held this news conference is because they're under tremendous pressure to explain why they want to spend money that we just don't have."

Of further concern, Lingle said, is that the carryover amount from year-to-year has shrunk to $73 million this past year, only about a quarter of what it was two years ago.

Lingle said she'd like the lawmakers' forecast to come true "but you don't spend tax money based on what you think is going to happen."

Reach Gordon Y.K. Pang at gpang@honoluluadvertiser.com or at 525-8070.