Gov. Linda Lingle said yesterday that tax relief is the most immediate way to help people cope with the state's high cost of living, proposing a $346 million package over two years that includes a one-time refund check for every taxpayer.

The Republican governor said the refund — either $100 or $25 per person, depending on family income — would satisfy a state constitutional requirement that lawmakers provide tax relief this session.

She also recommended six permanent changes to the tax code that would offset the impact of inflation, reduce the costs of basic food and ethanol-blended gasoline, help pay for the care of children and elderly parents, and eliminate state and county vehicle registration fees for Hawai'i National Guard and Reserve soldiers.

"It's focused on those who need it the most," Lingle said at a news conference at the state Capitol. "It says that we recognize the struggles people are having with keeping up with the cost of living, and we want to do something positive about it right away."

State House Democratic leaders have said they would consider tax relief in the $25 million to $50 million range, and Senate Democrats have also discounted any large tax relief this session as they look at spending on priorities such as affordable housing, children's healthcare, repair and maintenance at public schools, renewable energy and disaster preparedness.

"In the lean years, we really forced folks to cut back, and we really neglected our infrastructure and some of our programs," said state Sen. Rosalyn Baker, D-5th (W. Maui, S. Maui), chairwoman of the Senate Ways and Means Committee.

State House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo Valley, Wilhelmina Rise), said lawmakers also are waiting for emergency costs from the Big Island earthquakes in October and the price tag for new contracts for the state's public-employee unions.

"Let's go slow, let's go cautious, and see what we can do to restore resources for these unmet needs that are out there," Say said.

UNION PLANS SURFACE

For the first time, estimates surfaced yesterday about the potential costs of the new union contracts that, along with the March economic forecast from the state Council on Revenues, will influence the size of tax relief and other new spending this session.

Contracts with three major public-employee unions expire in less than six months, and talks over new deals could easily last until the session is nearly over. House Democrats expect the unions to seek two-year contracts with raises of at least 7 percent in the first year and 9 percent in the second, at an estimated cost of $500 million.

The estimate is based on similar raises in a 2005 contract for University of Hawai'i professors. State House Majority Leader Kirk Caldwell, D-24th (Manoa), said the Lingle administration set a floor with the generous contract and said "other unions would be foolish not to try to negotiate in that same area."

But pegging the new raises to the UH professors' contract may be a hard sell because the professors had a six-year deal in which the largest salary increases are at the end. The other unions received two-year contracts through negotiations or binding arbitration.

The Hawai'i State Teachers Association on Saturday proposed raises for public school teachers, but they were not necessarily using the UH professors' contract as a guide, said Joan Husted, the union's executive director. She said specific terms of the proposal remain confidential for the time being.

"We have not basically tried to simply mirror what other units have gotten," Husted said. "We tailor our salary proposal and our other benefits to what we think it will take to attract and retain teachers, and to reduce the teacher shortage in Hawai'i."

$466 MILLION SURPLUS

The Lingle administration has estimated there will be a budget surplus of $466 million when this fiscal year ends in June and another $259 million left over after next fiscal year.

The unions are expected to cite those numbers to help justify hefty pay hikes.

"I don't think there's any doubt today, given the state's financial situation, that the employers have the ability to pay," said Randy Perreira, deputy executive director of the Hawai'i Government Employees Association, which represents mostly white-collar state employees.

The union has not yet made a specific proposal on pay raises but is considering the terms of the UH professors' contract, he said.

"It's one of the factors that we'll be considering as we put together our final proposals," Perreira said. "We've had discussions on and off, with very little progress, with the administration. We're reaching that point where, if there's no agreement, we're going to arbitration. Maybe they'll get a little more serious about wanting to talk wages."

The blue-collar United Public Workers union had no immediate comment.

Lingle said yesterday that she would not speculate about the potential costs of the union contracts. "I don't negotiate in the newspapers, and they shouldn't be doing it either," she said of House and Senate leaders.

HARDER TO REFUSE

Lingle has asked for tax relief in each session since she was elected in 2002, but her strategy has become sharper. The governor knows Democrats have the majority at the Legislature and hold most of the cards politically, so she has tried to tailor her proposals to include ideas supported by many Democrats in the past or that are likely to have public appeal.

Last year, Lingle initially proposed $300 million in tax relief and then countered with a $120 million alternative near the end of the session. Democrats approved a $50 million package that included raising the standard income tax deduction and expanding tax brackets so some people would pay lower tax rates.

"I think we've narrowed it down in a way where it will be very difficult for anyone to vote against this proposal, because you will have to go on record saying, 'I want to keep taxing infant formula. I want to keep making certain that families have to pay for the privilege of eating the basic foods of life,' " Lingle said of the new package.

"And that's going to be a very difficult position for any legislator to take this year."

Lawmakers are required under the state Constitution to give tax relief this session because of two consecutive years where the budget surplus exceeded state revenues by 5 percent. In the past, lawmakers have often met the requirement with little-noticed $1 refunds, but likely will not take that route this session.

"It's not something, philosophically, that we're opposed to," state Senate President Colleen Hanabusa, D-21st (Nanakuli, Makaha), said of many of Lingle's proposals. "It really is going to be a matter of pricing it all out."

INDEXED DEDUCTIONS

Lingle's package has a one-time refund and six permanent changes to the tax code: