Lingle battling to balance state's budget

By Gordon Y.K. Pang
Advertiser Capitol Bureau

An underlying drama of the legislative session involves Gov. Linda Lingle's quest to balance the nearly $8 billion, two-year general fund budget without using $175 million from the state Hurricane Relief Fund.

Lingle's administration has come up with a strategy to protect the hurricane fund, but it would mean across-the-board cuts on all departments, including money for social services, the University of Hawai'i and public schools.

Those are issues dear to Democratic legislators, who have the final say on the budget. But it remains to be seen whether House lawmakers will be able to find any resources to restore some of the restrictions before turning the budget over to the Senate March 20.

The state's shaky economy and the looming war in Iraq make the jobs of the administration and legislators more difficult.

The Council on Revenues, which makes the projections on which the state predicates its budget, is expected to say March 13 that tax collections will be less than earlier forecasts.

That would trigger another round of budgetary soul-searching. And the results could be higher taxes, another significant whacking of state services, or both.

"I'm having sleepless nights," Budget Director Georgina Kawamura said about the prospect of lower revenue projections.

The Senate Ways and Means Committee has sent to the Senate floor a measure that would increase the state's general excise tax from 4 percent to 4.5 percent and a tax credit measure to help poorer residents. The net $80 million a year would be spent for public schools.

Ways and Means Chairman Brian Taniguchi, D-10th (Manoa, McCully), has said he wanted to keep the measure alive because both the council's projections and the possibility of war will likely hurt Hawai'i's economy and result in less tax revenues.

The framework for the budget which covers the next two fiscal years beginning July 1 was submitted by former Gov. Ben Cayetano. He told The Advertiser that his administration cut as much as there was during his eight years and that he fears Lingle's proposed cuts would have a significant impact.

"Poor people and people in need will hurt the most," Cayetano predicted.

Lingle officials, however, say they are trying to preserve those services without tapping the hurricane relief fund.

The fund was established in 1993 when private insurers stopped offering wind-damage coverage to Hawai'i homeowners after Hurricane Iniki. The fund relied primarily on mortgage recording fees, assessments on insurance companies and policyholders' premiums. When private insurers began returning to Hawai'i in the late 1990s, the fund was allowed to close its business, leaving a pool of cash which is now roughly $184 million.

The administration's philosophy is that cutting programs now would result in recurring savings, while using the hurricane fund as a one-time fix would leave the state scrambling to find the same amounts in later years, Kawamura said.

House Finance Chairman Dwight Takamine, D-1st (N. Hilo, Hamakua, N. Kohala) won't say if he would propose dipping back into the hurricane fund, but both House Speaker Calvin Say, D-20th (St. Louis Hts., Palolo, Wilhemina Rise), and House Majority Whip Brian Schatz, D-25th (Makiki, Tantalus), doubt that will happen.

"It's off the table," Schatz said. "It's pretty clear that there's not sufficient support presently at the Senate or on the fifth floor."

Both the Lingle administration and legislators have a difficult time coming up with specific figures in the ongoing budget process.

For example, Kawamura told administrative agencies in December to trim their budgets by 5 percent. Making exemptions for salaries, debt service, instruction-related education funds and other essentials, the reductions were expected to save the state $42 million annually, $126 million over three years, including the current fiscal year.

But the Lingle administration has been granting waivers to certain agencies and programs that dropped the savings — first to $35 million annually, then $28 million. Toward the end of last month, a final waiver was granted to the University of Hawai'i that restored $3.2 million each year and dropped the annual savings below $25 million. During the past weeks, Takamine and other House members have grilled the administration on the cuts.

The cuts on social service agencies such as the Department of Human Services highlight one of the key areas of the budget struggle.

The Department of Human Services is being asked to trim $4.1 million from its $534.4 million general fund appropriation in the current fiscal year, which ends June 30, and $3.9 million in fiscal years 2004 and 2005.

House budget analysts say the 2004 and 2005 cuts include $900,000 annually for residential alternatives community care, and nearly $700,000 each year for contracts for substance and sexual abuse treatment, independent living programs and other social services.

Human Services Director Lillian Koller said she has been assured by her division chiefs that "we are not reducing the number of clients served; we are maintaining our existing client base."

Further, she said, her agency has been able to to find savings from other areas that would help restore some of the lost dollars.

The $900,000 cut to residential alternatives community care was to result in half of about 200 people on a waiting list not being served. But "through creativity and determination," she said, enough money was found to serve about 50 of the 100 that would have been left out.

House staff also pointed to $6 million annually in health department reductions which would include taking away general fund monies now going toward the Healthy Start program. "When you're talking about Healthy Start, these are the most vulnerable families," Takamine said.

Health Director Chiyome Fukino said the administration proposal replaces Healthy Start's general fund money with federal tobacco settlement money, which it is entitled to do. The tobacco money came from the Healthy Hawai'i Initiative campaign that promotes good nutrition, exercise and smoking cessation, she said.

Among the cuts would be money for contract workers who act as resource teachers or provide other services.

"We're up against the wall; we're being told there is no money left in the coffers," Fukino said.

House Democrats have complained most loudly about the cuts in the public schools and UH budgets.

For public schools, that means $3 million in cuts for DOE in each of three years, plus $11 million in 2004 and 2005 that the Cayetano administration had placed as "add-ons." DOE Superintendent Pat Hamamoto has warned that new cuts, after two previous years of budget-trimming, would result in dramatic cuts on a basic level.

"We would reduce the textbooks, we would reduce the supplies, we would reduce the science equipment money, we would reduce the band instruments money," she told the Finance Committee recently.

But Kawamura said that 95 percent of the DOE's $1.3 billion annual budget, which comprises 36 percent of the overall general fund budget, was exempted from any cuts. "That's not even one-half of one percent of their total budget," she said.

The UH system was originally slated to lose about $31 million over three years — $7 million each year in base cuts plus $5 million in Cayetano add-ons in each of two upcoming years. Kawamura late last month restored about $3.2 million each year, making the total cut now about $24 million.

"If you want to build a world-class university, imposing disproportionate cuts on UH is not the way to do that," Schatz said. "We're puzzled, frankly. The administration seems to be cutting education first and the most."

Kawamura insisted that the public schools and university budgets were treated more than fairly, noting that more than two-thirds of the UH budget was also exempt from deletions.

Lingle's budget proposals have some support. Rep. Mark Moses, R-40th (Makakilo, Kapolei, Royal Kunia), said the hard decisions have to be made.

"All the departments were told 'this is the target, you look at it and you figure it out and make the cuts,'" Moses said, noting that each agency was given a chance to appeal areas of concern. "We're trying to be fiscally responsible here. It's not our money, it's the taxpayers' money."

"All of those cuts need to be made because there's no other way out of the hole," said Lowell Kalapa, president of the non-profit Tax Foundation of Hawai'i. He speculated that it might be easier for the cuts to be made with Lingle, the Republican governor, and the Democrats, because they would not be afraid to finger-point later.

Kalapa said that with Lingle's mantra to not take from the hurricane fund, the governor "has locked herself into a corner with no out on that." As a result, he said, some of her other initiatives may need to wait until later.

Even if the budget survives its journey through the House with the Hurricane Relief Fund intact, the Council on Revenues could throw the revenue picture off-kilter.

The Lingle administration, like the Cayetano staff, used the council's projection of 6.1 percent annual growth to anticipate revenues when preparing its budget, as required by law. But as of the end of January, total revenues were only 1.9 percent ahead of last year's.

If the revenue picture does not change dramatically in the last five months of the year that ends June 30, the state could be facing a shortfall of as much as $63 million, according to Kawamura. If there is no additional growth in 2004 and 2005, that would result in an additional $137 million in lost revenues.

It will be up to the Senate to deal with the revised forecasts, whatever comes about, when it takes its crack at the budget.

Taniguchi is eyeing the upcoming Council on Revenues meeting nervously. "March 13 is going to be a very key day for us," he said. "We're hoping that the revenue picture will be stable."

In addition to the excise tax, Taniguchi said his staff is starting to look at deeper agency cuts.

"We have a responsibility to balance the budget," he said. "We'll have to plan for the worst, but we're hoping for the best."

Kawamura said her staff has been looking at different options the state can take if the revenue projections decrease. Asked if the hurricane fund or taxes are on the table, Kawamura responded: "There's nothing on the table right now. It's all around us. It just hasn't hit the table."

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

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