State budget up, but so are costs

By Gordon Y.K. Pang
Advertiser Capitol Bureau

Thanks to a bustling economy, the state's general fund budget will grow by 11 percent next year and 14.2 percent the year after that without any need to raise taxes or fees, Gov. Linda Lingle said yesterday.

The bad news about the 2006-2007 budget, she said, is that about 80 percent of that growth is being eaten up by assorted fixed costs, from debt service and collective bargaining pay increases for state workers to social assistance entitlements such as Medicaid and foster care and court-mandated expenses like the Felix consent decree.

As a result, there were few surprise wrinkles when Lingle unveiled her two-year budget plan for the period that runs from July 1, 2005 to June 30, 2007. Lingle, in fact, spent as much time discussing the constraints she faced as she did pointing out the highlights of the budget.

The package was sent yesterday to lawmakers, who will begin four months of deliberations with a presentation by Budget Director Georgina Kawamura this morning.

"The budget clearly reflects a robust economy (and) moderate revenue growth, combined with rapidly rising fixed costs and some targeted new initiatives that we feel will produce real positive results for the future of Hawai'i," the governor said.

While tax revenues went up 8.3 percent in 2004 and 8.4 percent in the current 2005 budget year, they are only projected to increase 5.3 percent next year and 5.7 percent in 2007, Lingle said. "So you can see right away that the growth in revenues is starting to moderate," she said.

Lingle noted that fixed costs will take up 78 percent of the 2006 increase and 84 percent of the 2007 hike. "If you take out the fixed costs, then the increase in the budget is 2.2 percent in the first year and 2 percent in the second — very modest growth," she said.

Debt service is climbing 47 percent in the first year and 66 percent in the second year, she said. In dollar terms, debt service will go from $348 million this year to $513 million next year and $577 million the year after that. Collective bargaining contracts, meanwhile, will rise by $62 million in 2006 and $73 million in 2007. Federally mandated programs such as Medicaid, foster care and supplementary security income will boost expenditures by $30 million next year and $44 million the year thereafter. Court-mandated programs will add $15 million in 2006 and $15.4 million in 2007.

Overall, the state general fund is proposed to go from about $7.81 billion over the 2004-2005 biennium to about $8.94 billion in 2006-2007, an increase of roughly $1.13 billion.

Among the priorities Lingle highlighted were programs geared at affordable housing and improving the plight of the homeless, education initiatives, and transportation needs.

The budget package projects that the balance of the general fund at the end of 2007, what's known as the carryover balance, will be $10.7 million, an extremely small amount for a $4 billion-plus annual budget. By comparison, the 2004 carryover was $184 million while the 2005 balance is estimated to be $241.5 million.

Senate Ways and Means Chairman Brian Taniguchi, D-10th (Manoa, McCully), when told of the low ending balance, described it as "pretty thin."

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