Closing two weeks of intense and often painful deliberation, state House and Senate negotiators agreed yesterday to a budget that would cut about $800 million in state general-fund spending over two years and eliminate about 200 mostly vacant state jobs.

The budget, which now goes to the full House and Senate for approval, would be used in combination with federal stimulus money, tax increases, a restriction on high-technology tax credits, and the diversion of money from special funds to contain the state's deficit.

Gov. Linda Lingle repeated yesterday that she would veto most of the tax increases, while lawmakers announced they would extend the 60-day session by two days so they could try to override her vetoes. Extending the session would mean the tax bills would have passed within 10 days of adjournment, triggering a requirement that the governor sign, veto or allow the bills to become law without her signature before the session ends.

In a flurry of activity yesterday, the deadline to have bills ready for final votes next week, lawmakers locked the budget into place and completed most of the important decisions of the session.

"I doubt that we'll have a single person out there who is going to congratulate us and tell me, 'Good job, Marcus,' " state Rep. Marcus Oshiro, D-39th (Wahiawa), one of the lead budget negotiators, said of the spending and job cuts and tax increases. "No one will be happy with this budget in its entirety and there will be many, many critics."

State Sen. Donna Mercado Kim, D-14th (Halawa, Moanalua, Kamehameha Heights), who is known for her toughness, became emotional when thanking her staff and other lawmakers for their work. Kim took over the Senate Ways and Means Committee this session, so this difficult budget was her first as head of the tax writing committee.

"To our critics, I would like to say, 'Please come and walk in our shoes for 60 legislative days,' " Kim said.

MAYORS RELIEVED

Mayors were relieved after lawmakers decided to defer a bill that would have temporarily scooped hotel-room tax revenues from the counties to help with the deficit. Lawmakers had previously discarded giving counties the option of adding a local surcharge to the tax or retail sales tax authority to offset the loss in revenues after mayors opposed the ideas.

"As mayors, we're very thankful, very appreciative, and we look forward to continue working together as we face even more challenging economic obstacles and hurdles next year," said Big Island Mayor Billy Kenoi, who added that the loss of hotel-room tax revenues could have crippled counties that already have made budget plans.

Lawmakers did agree to divert $12.7 million a year in the two-year budget from the tobacco settlement fund and siphon money from numerous other special funds to help ease the deficit.

Lawmakers also agreed on two approaches to capture sales tax revenue that should be collected on Internet purchases: the state would prepare to join a compact with other states to collect sales taxes in the event federal legislation is passed; and the state would pursue state general-excise taxes on Mainland retailers that have an economic nexus in the Islands, such as a local Web site that links consumers to products sold on Amazon.com, for example.

Decisions on the revenue-generating options fell into line after lawmakers closed on the budget.

The operating budget is $10.8 billion in fiscal year 2010 and $10.4 billion in fiscal year 2011. The general-fund portion of the budget, over which lawmakers and the governor have the most control, is $5.1 billion in 2010 and $5.2 billion in 2011.

Lingle had recommended about $200 million less in general-fund spending each year in her budget proposal in December, but lawmakers cut an additional $217 million in 2010 and $196 million in 2011 for roughly $800 million in total reductions.

Of the 200 state job cuts, all but 10 are vacant positions. The 10 filled positions that would be eliminated are all exempt, non-union jobs. The budget does not contain any wage or benefit cuts to state workers because of the ongoing labor talks between Lingle and public-worker unions. Lingle hopes to achieve $278 million in labor savings.

STIMULUS HELPED

The general-fund spending cuts would likely have had to be significantly deeper without $942 million in federal stimulus money approved by President Obama and Congress. The stimulus money, meant to help states get through the recession, is scheduled to end in 2011.

"There's some very big problems with the stimulus money and relying on it to balance the budget because it will not be here two years from now," said state Senate Minority Leader Fred Hemmings, R-25th (Kailua, Waimanalo, Hawai'i Kai), who warned that the restrictions on how the federal money is spent could weaken states' rights.

Lawmakers agreed on a capital improvement projects budget of $2.5 billion in 2010 and $972 million in 2011. The public construction money includes $140 million for repair and maintenance at public schools and $137 million over two years for repairs at the University of Hawai'i.

State Sen. Shan Tsutsui, D-4th (Kahului), said he hopes Lingle releases repair money for "shovel-ready" projects that could help the construction sector of the economy.

Lawmakers tried to restore some money for state programs recommended for elimination by Lingle, most notably Healthy Start and adult dental services, but social-service providers worry that the spending cuts will fall disproportionately on the poor and the most vulnerable.

Lawmakers also backed $8 million in additional spending on adult mental health services out of concern over some recent high-profile crimes involving suspects with mental-health issues.

Lawmakers also tried to target the more than $200 million in tax increases — particularly higher income taxes on the wealthy and an increase in the hotel-room tax that mostly hits tourists — to spare poor and middle-income residents. The new restrictions on high-technology tax credits, known as Act 221, would impact mainly higher-income investors.

Trying to help financially struggling public hospitals, lawmakers agreed to $14 million in emergency spending this fiscal year and millions more in state and federal money over the next two years for the Hawai'i Health Systems Corp. But lawmakers, concerned about the system's management, agreed to eliminate the jobs of Thomas Driskill Jr., the system's chief executive officer, and Driskill's chief financial officer in 2011.

PRIVATIZATION BILL

Just before midnight, lawmakers agreed on a bill that would allow public hospitals to reduce services without legislative approval and to privatize to become more competitive. Privatization would have to be done in consultation with regional boards and the state.

The bill would also restructure the corporate board to include regional chief executive officers and others to promote greater regional autonomy.

"For us, we think this will allow the regions to take care of healthcare in a way they feel matches their communities," said state Rep. Ryan Yamane, D-37th (Waipahu, Mililani), one of the lead negotiators on the bill.

Lawmakers could not find consensus, however, on Lingle's highway modernization program or her recreational renaissance initiative. Many of the highway projects in the modernization bill were folded into the state budget, but lawmakers did not approve the tax and fee increases the governor had planned to finance the program.

"I think we gave it a very good shot," said state Sen. J. Kalani English, D-6th (E. Maui, Moloka'i, Lana'i), one of the negotiators. "The upshot is that we got some of the projects in the budget."

The recreational renaissance initiative died late last night, a disappointment for the state Department of Land and Natural Resources, which had plans for improvements to state parks and trails.