Wall Street woes are affecting the state of Hawai'i's finances, or at least its ability to finance public works projects it wants to help boost the local economy.

The state yesterday postponed selling about $625 million of bonds, saying the issue had fallen victim to investor uncertainty as Wall Street goes through one of its most turbulent periods in decades. The state said it still plans on issuing the bonds when the market settles.

Also yesterday, Gov. Linda Lingle said unionized state employees should not expect serious contract talks for at least a year as the state deals with a projected revenue shortfall.

"Today we were scheduled to sell $600 million worth of bonds in New York. That has been delayed," she said at a press conference. "We're fortunate we're in a position we don't need that money today."

The bond sale and delay in contract talks are the latest fallout locally from gut-wrenching turbulence in U.S. financial markets. Besides the broadsides taken by retirement accounts and stock holdings of local residents, the financial crisis is said to have cut into vacation bookings here.

Hawai'i is among several states and cities delaying an estimated $7 billion of planned bond and note sales because the market is in disarray and borrowing costs are soaring.

"We could go in the market today but we'd pay an extra 1 percent over and above what we believe we should be paying," Lingle said. "At a time like this you're going to have fewer bidders."

The bond sale is a key part of Lingle's economic plans as Hawai'i struggles through a visitor industry downturn. Lingle wants to increase public works projects and has scheduled a series of bond issues this year to help pay for work on public libraries, public buildings, school repair work along with improvements to the state's harbors and airports.

During the past five years the state has averaged issuing between $300 million and $400 million of bonds for such work. The state has already issued $427.2 million this year. The $600 million that was to be issued yesterday would have put Hawai'i past the $1 billion mark.

Lingle also had hoped to issue more bonds this year for airport work, with more coming next year to fund upgrades to harbors.

The bond issue that was planned yesterday included $300 million of tax-exempt general obligation bonds to finance work at public schools and the University of Hawai'i, along with another $300 million to refinance outstanding bonds issued at higher rates. It also included another $26 million of taxable bonds to help with the purchase of the Kukui Gardens housing project in Honolulu.

MONITORING THE MARKET

It remains to be seen how long it will be before market conditions settle. Municipal bonds have fallen for seven of the last eight days, according to Bloomberg News. A financial bailout of some Wall Street banks and financial institutions is awaiting action in Washington.

"People are uncertain right now, people are scared about what might happen if the (federal) government doesn't take action or that action doesn't work," Lingle said.

Scott Kami, administrator of the financial services division at the state Department of Budget and Finance, said the state is monitoring market developments closely and is talking with the offering manager, Citigroup Inc., as to when it would be appropriate to sell.

"When the market is good and when there is a healthy appetite for municipal bonds we'll be able to move into the market relatively quickly."

Lingle is to travel to the Mainland, where her meetings will include the head of Citigroup's public finance department.

The slowdown in the bond market comes as the governor is facing a possible $900 million budget shortfall during the next three years.

Yesterday Lingle said she has talked with leaders of all four public employee unions — the Hawaii Government Employees Association, United Public Workers, Hawaii State Teachers Association and University of Hawai'i Professional Assembly — about the budget shortfall.

"We talked about delaying any discussion of cost increases for the next year," she said. "And while we didn't agree on anything, we had very fruitful meetings."

Lingle said, "It's too early to talk about whether there will be layoffs or not. Our goal is that we don't have any layoffs."

"We just need to get though this year, let things settle out," she said. "I told them I don't want to waste my time and I don't want to waste your time when I know what the financial situation is.

"Instead of us all wasting our time, why don't we just see how the economy progresses over the next year? If the Council on Revenues comes in in six months or nine months and wildly increases their projections, then let's look at it at that time. But I don't think that's going to happen. I think it's going to be a year before things just settle out."

AVOIDING LAYOFFS

Randy Perreira, executive director of the state's largest union, the Hawaii Government Employees Association, met with Lingle on Friday at the state Capitol, where she briefed him and other HGEA officials on the state's financial projections.

"She clarified what the state was looking to do, put restrictions on travel, hiring, etc. and suggested that for her it was an all-out effort to rein in costs and to do as much as possible to address the budget situation," Perreira said.

Perreira said "she did indicate that she would want to avoid the prospect of layoffs as much as possible. She did make it known that the administration was going to be pushing forward with a number of public works projects to try and stimulate the economy and construction."

The HGEA's current two-year contract is scheduled to expire on June 30, 2009.

MEETING FOR SOLUTION

Lingle also said that next month she will meet with the division chiefs of every state department in the Capitol auditorium "to talk through how they are part of the solution to this situation. ... I think it's up to us to manage our way through this. I would suggest nobody worry at this point, but that everybody try to be a part of the solution."

Employees have been e-mailing Lingle directly about waste in their departments, and then she speaks directly to those department heads.

"I want to get the message down to the entire state workforce that you're a part of the solution here," she said. "As a last resort would we look at terminating anyone's position? That's an absolute last resort. At this point, I'm remaining optimistic."

Regarding the state's experiment with the four-day work week, she said: "It seems to be working real well. ... We may have at least components of a couple more departments who want to come online. Employees are the ones pushing the issue now."

The plan works, she added, "If we can shut down a building one day a week or three floors of a building one day a week to save on electricity."