Budget viable, Lingle says, but war may alter it
By Gordon Y.K. Pang
Advertiser Capitol Bureau
There will be no need to raise taxes, lay off workers or tap either the hurricane relief or rainy day funds to balance the budget, despite the Council on Revenues' revised forecast projecting less cash for state coffers, Gov. Linda Lingle said yesterday.
But Lingle gave strong indications for the first time that further shortfalls caused by economic ramifications of a war may need to be addressed by tapping into the Hawai'i Hurricane Relief Fund, the rainy day fund or both.
Yesterday was the 35th day of the 60-day session.
"If the war goes on any length of time, it's likely we will have to take another look," Lingle said.
The Council on Revenues,which makes the projections on which the state general fund budget is based, announced last week that it would be revising its forecast downward — to a growth rate of 4.3 percent from its earlier projection of 6.1 percent.
Lingle told reporters yesterday that the change resulted in a loss of $51.6 million in anticipated revenues for this fiscal year, which ends June 30, and $33.7 million in fiscal 2004 and $33.4 million in fiscal 2005.
"There will be no need for any cuts in existing programs beyond what we have with our 5 percent restriction," Lingle said, referring to across-the-board reductions to discretionary funds for all administrative agencies, for savings of about $24 million annually. "We will make it through this budget year."
However, she said, "the next two years are going to be a challenge for us."
Lingle proposed:
- Restructuring the state's debt to reflect lower interest rates and a reduced capital improvements program that will require less borrowing.
- Transferring additional special funds to the general fund above the $29.4 million proposed earlier.
- Restricting the amount of tax credits being given, particularly to those who have used loopholes to unfairly take advantage of the credits.
Lingle said each proposal is expected bring in tens of millions of dollars of added savings, although she declined to provide specific numbers.
Lingle appeared most forceful describing the need to take a second look at tax credits — particularly for technology investment and research and development.
The Council on Revenues last week placed blame for its lower forecast not on the economy but on the tax credits, which it said were an unreliable basis for projections.
The Department of Taxation issued guidelines in response to curb what it called abuses. "There are people making investments who are getting back 2 1/2 times what they invested in the form of a tax credit," Lingle said.
Senate and House leaders said they want to see details of Lingle's plan and suggested they're not sure it would generate enough savings or additional revenue to meet the projected shortfall.
Senate Ways and Means Committee Chairman Brian Taniguchi, D-10th (Manoa, McCully), said former Gov. Ben Cayetano often restructured debt so it's not clear how much more savings the state would receive now. He also said that Lingle's plan to transfer money from special funds appeared aggressive and that while she has not provided lawmakers a list of specific funds she wants to tap, "I'm sure whatever they do will have some impact" on programs.
House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo, Wilhelmina Rise), also said he wants to look at hard numbers, noting that the House version of the budget already reduces debt service while it factors in transfers from special funds. He questioned what impacts additional transfers from special funds would have on programs and whether stretching out the state's debt would cost more in the long run.
Say said he has suggested to Budget Director Georgina Kawamura that the administration should instead reduce its planned tax credits that amount to about $25 million annually. As for abusing tax credits, he said, "we should be going after them already."
Both Taniguchi and Say said they were encouraged by Lingle's willingness to look at other ways to balance the budget should the state's finances worsen.
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Lingle pointed out that the budget plan does not consider the ramifications of a war, which would require another round of budget-cutting or an increase in revenues, likely through tax hikes. While not stating it explicitly, Lingle gave strong indications she would rather dip into the Hawai'i Hurricane Relief Fund and the state's rainy day fund than raise taxes or lay off workers.
Gov. Linda Lingle said yesterday, "We'll make it through this budget year." But if a prolonged war shrinks revenues, "it's likely we will have to take another look."
The Senate has advanced a plan that would raise the general excise tax to 4.5 percent from 4 percent, but it has met with a cold reception by both Lingle and the House leadership.
Lingle stressed that it was important to keep the Hawai'i Hurricane Relief Fund and rainy day fund intact up until now. "The budget we've adopted does not have a big reserve at the end of the year but if we add the hurricane relief fund and the rainy day fund, we're in very good shape for the next two years," she said.
"But because of the impacts a war could have on our visitor count, and our revenues, we may need to have an emergency look at those funds at some time in the future. And once you spend them, they're gone."
Lingle declined to specify whether taking money from those funds would be preferential to raising taxes or laying off state workers, calling it "premature" to be making such a decision.
However, "I will reiterate my opposition to raising the excise tax; it would hurt the economy dramatically," she said. "And again, my commitment to our existing workforce is that none of our civil service employees would be laid off."
Advertiser staff writer Lynda Arakawa contributed to this report.
Reach Gordon Y.K. Pang at gpang@honoluluadvertiser.com or 525-8070.
