With Hawai'i's economic growth projected to cool, Democratic leaders in the state House and Senate will open the 2007 legislative session on Wednesday with hopeful themes about closing the gap between rich and poor and sustaining Hawai'i's land and culture, but with an undercurrent of caution about new spending.

Economists have told lawmakers that growth in the current economic cycle likely peaked at the end of 2004 and is now in slow decline. The state still expects tax revenues to increase and produce a $466 million budget surplus at the close of the budget year in June, but lawmakers are talking about being much more selective about new spending than they were last session. Last year, the debate was over how to spend the largest surplus in 30 years.

A tax refund is required by the state constitution this year because the surplus has exceeded state revenues by more than 5 percent for two straight years. Lawmakers also know they have to cover expected pay raises for public-worker unions who are in labor negotiations with the Lingle administration.

Democratic leaders will wait until traditional opening day speeches to announce many of the details of their legislative packages. But in interviews, they described overarching themes of sustainability and reducing the impact of the state's high cost-of-living on working families.

Many Democrats also said they would be more realistic when describing their agenda to the public, acknowledging that issues such as affordable housing or alternative energy could take years to address. These won't, they caution, be wrapped up with a bow and a news conference when the 60-day session ends in May.

'FISCALLY CONSERVATIVE'

In sessions past, after dust-ups with Gov. Linda Lingle over education reform and drug-abuse prevention, some legislators feel they left the mistaken impression the issues were resolved when in reality the changes that were made could take years to measure.

"We're going to be fiscally conservative. Very frugal," state House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo Valley, Wilhelmina Rise), said when asked about new spending. "I don't want to go through the peaks and valleys that I did when I was finance chairman during the recession in the 1990s."

Say said the House is looking at a range of $25 million to $50 million in spending on tax relief. State Senate President Colleen Hanabusa, D-21st (Nanakuli, Makaha), did not provide a comparable dollar figure but said she doubted there was sentiment in the Senate for a large taxpayer refund. Lawmakers agreed to about $50 million in tax relief last session by expanding income tax brackets so many people would pay lower rates. They also increased the standard income tax deduction.

Lingle, in her State of the State address later this month, will likely ask the Legislature for more substantial tax relief than envisioned by Democrats, but the debate is not expected to be as polarizing as in previous years. The governor has highlighted $128 million in new spending on the homeless and a $30 million economic innovation plan as centerpieces of her agenda this session.

Since the constitution requires a tax refund, Democratic leaders will be under pressure to explain and defend the size of the rebate they offer.

"The economy is slowing, so I think we should move cautiously," said state Senate Majority Leader Gary Hooser, D-7th (Kaua'i, Ni'ihau). "I don't think we should be giving away millions in tax relief."

Lingle also has asked lawmakers to restore a general-excise tax break on gasoline blended with ethanol that expired at the end of the year, pushing gas prices higher. Democratic leaders said the gas tax break is not in the majority packages and could cost the state too much money to restore. But other lawmakers believe the issue may come up for consideration.

QUALITY OF LIFE

Democrats have been returning to quality-of-life themes for the past few sessions, concerned that rising housing, energy and transportation costs are taking a toll on the poor and working class. The concept of sustainability, for the state's environment, economy and culture, is shaping much of their thinking, even though they often struggle to connect it to specific legislation.

The priorities this year are targeted improvements in housing, alternative energy, public education, healthcare and disaster preparedness.

"We talk a lot about sustainability, but we have to think about what that means to people," Hanabusa said. "I think what people are saying is: 'Will I be able to see my grandchildren grow up here?' "

State House Majority Leader Kirk Caldwell, D-24th (Manoa), said lawmakers are listening to people who fear they can no longer afford to live in the Islands. "That's one thing that we've heard loud and clear," he said. "More and more people are falling through the cracks."

Democrats will likely consider more direct assistance for the homeless, such as money for transitional shelters, along with easing regulations to encourage developers to build more affordable rentals.

The majority legislative party will likely bring back a revised proposal to provide free basic health insurance for children who are not eligible for the state's health-insurance program for the poor and are not covered by private insurance. Lingle vetoed a similar bill last year because it might lead some parents to choose the free plan instead of paying a premium for the superior coverage offered through the state.

THE REPUBLICAN PLAN

Democrats also may attempt to reshape the state Public Utilities Commission with the aim of making it more effective at regulating the energy industry. Lawmakers also could take steps to ensure the PUC is pursuing transparency requirements on oil company finances that were passed last session when a gas cap on wholesale prices was suspended. The mandate to the PUC came without any money to make it happen.

House Republicans, whose numbers have shrunk to eight after the 2006 elections, plan to use their limited influence on charter schools, tax relief, homeless and transitional housing needs, and renewable energy.

"We have to redefine success," said state House Minority Leader Lynn Finnegan, R-32nd (Lower Pearlridge, 'Aiea, Halawa). "Success for us is not necessarily getting bills passed. It is, in the end, did we shape public policy?"

Senate Republicans also will focus on tax relief and renewable energy, with ideas for renewable energy enterprise zones and money for hydrogen-powered vehicles. Republicans also will propose a check on tourism growth by setting a maximum number of visitor rooms in each county and by requiring room operators to have state licenses, which could help corral unlicensed vacation rentals.

State Senate Minority Leader Fred Hemmings, R-25th (Kailua, Waimanalo, Hawai'i Kai), said he shares Democrats' concerns about sustainability but said he has heard identical themes in the past without much action.

"Year in and year out, the majority party has done an excellent job of branding the session, and giving it an image, and running with issues and making them popular," he said. "It also makes for what I like to call, 'word de jour.' "

POLITICS AT PLAY

Politics inside the House and Senate caucuses also may give Democratic leaders reason to be more cautious this session.

Hanabusa, the first woman to preside over a chamber of the Legislature, will have to shepherd the Senate's factions and establish herself as a credible leader after years of maneuvering for the job. Hanabusa has been elevated by her run for Congress, where she finished second in the primary to U.S. Rep. Mazie Hirono, and she is already being talked about as a potential candidate for governor in 2010.

In the House, Say will have to manage an unwieldy caucus where a handful of dissidents are in open rebellion after failing to oust him as speaker.

State Rep. Sylvia Luke, D-26th (Pacific Heights, Pauoa, Punchbowl), said the dissidents will likely become watchdogs within the majority and, on some issues, such as ethics or tax reform, may reach out to House Republicans or Senate Democrats for leverage. "We're going to be more of a watchdog to look for and prevent self-dealing or legislation that benefits special interests the leadership wants to take care of," Luke said.

Say, according to some accounts, is upset that the dissidents plan to continue to defy his leadership. But he said he would run the caucus transparently and is willing to hear contrary ideas.

"I'm a person who is open to constructive criticism," Say said.

Reach Derrick DePledge at ddepledge@honoluluadvertiser.com.