State House and Senate budget negotiators, concerned about the slowing economy, agreed Wednesday night to restrict the Lingle administration from spending $22 million in federal welfare money next fiscal year.

Lawmakers want to pare spending to keep enough welfare money in reserve as a precaution if more people turn to welfare in an economic downturn.

Lillian Koller, director of the state Department of Human Services, has warned that the restrictions would force her to make significant cuts in youth development, anti-teen pregnancy, family strengthening and child welfare programs.

Koller wants to spend the reserve down to zero to put as much of the welfare money to use as possible to help the poor. But lawmakers believe that strategy is risky and could leave the state unable to respond to a substantial increase in the welfare caseload.

State Sen. Rosalyn Baker, D-5th (W. Maui, S. Maui), chairwoman of the Senate Ways and Means Committee, acknowledged Wednesday night that some of the nonprofit social-service groups that have benefited from Koller's aggressive welfare spending over the past few years may experience cuts.

Baker, however, said the state needs to evaluate whether welfare money is being used for the core purpose of moving people out of poverty. Koller has made creative use of the money with spending on more traditional workforce training and child welfare programs as well as art, music, robotics and cultural education.

"It's a wake-up call that we need to be more fiscally prudent on how we spend the monies," Baker said.

The Lingle administration had wanted to spend $138 million in federal welfare money next fiscal year. House and Senate budget negotiators have scaled that back to $116 million, a $22 million reduction. Lawmakers plan to keep $44 million in reserve, enough to cover existing cash payments to the poor for one year.

The spending is a combination of the annual $98 million federal block grant and money taken from the reserve.

Koller has argued that more than half of states keep little or no federal welfare money in reserve. She has said that lawmakers could restrict the administration's spending if welfare caseloads start to rise.

Jack Tweedie, director of the children and families program at the National Conference of State Legislatures, told lawmakers in a memo Tuesday that three states have had welfare caseload increases that threatened reserves. The increases came after the Sept. 11, 2001, terrorist attacks and were linked to declines in tourism.

Lawmakers have projected that the Lingle administration's spending could put the welfare reserve into deficit by 2010.

"If your economy weakens somewhat, that points to an ugly situation," Tweedie warned.

Lawmakers basically reached agreement Wednesday night on the state's operating budget for next fiscal year. As for the construction budget, there is a significant difference between the House and Senate on whether to convert cash spending on public school renovations into bond financing. The Lingle administration has recommended the conversion and will not release the money if left in cash — as the House wants to avoid higher bond debt — which could mean that many school projects will not be completed.

House and Senate negotiators agreed Wednesday night to provide an extra $1.6 million in the budget for per-pupil spending at charter schools. State Rep. Marcus Oshiro, D-39th (Wahiawa), chairman of the House Finance Committee, blamed the administration for not formally requesting additional money when charter school executives found that the amount proposed was not enough to cover increased enrollment.

Several charter school advocates have been at the state Capitol for the past few days lobbying for additional money. Steven Hirakami, the director of the Hawai'i Academy of Arts & Science on the Big Island, said the extra $1.6 million is not enough.

"This is just typical crossfire in government," he said, "and the kids are caught in between."