The state Senate Ways and Means Committee yesterday crafted its version of the state budget, using a mix of spending cuts, federal stimulus money and the surgical elimination of state jobs over two years to help reduce the deficit.

Separate bills that would raise income taxes on higher-income residents, increase hotel-room and tobacco taxes, tighten state tax credits, and divert hotel-room taxes from the counties would be used to balance the budget under the Senate's financial plan.

The committee's draft now goes to the full Senate and, after approval, to conference committee negotiations with the state House.

State Sen. Donna Mercado Kim, D-14th (Halawa, Moanalua, Kamehameha Heights), the chairwoman of the committee, said senators wanted to offer a balanced budget and enough revenue-generating options to give lawmakers flexibility when they reach conference.

"It's not just about dollars and cents but about efficiencies and cutting waste," she said.

The Senate's draft does not follow Gov. Linda Lingle's recommendation of $278 million in labor savings through collective bargaining. Senators also would use federal stimulus money meant for public education to help offset state spending cuts to kindergarten-through-12th-grade schools and the University of Hawai'i. Lingle wants to use the federal education money to help close the deficit this fiscal year.

Lingle has also recommended that lawmakers not use tax increases or state worker layoffs to balance the budget, but both Senate and House finance leaders have incorporated tax increases and layoffs as options. Lawmakers have kept alive what they have described as a menu of different tax options.

Kim stressed yesterday that the Senate draft does not assume an increase in the general-excise tax, which she said would be regressive, and indicated she would prefer higher income taxes on the more affluent and the state's retention of hotel-room taxes going to counties.

BUSINESS AS USUAL?

Among the differences between the Senate and House drafts is the number of layoffs. The House penciled in the elimination of 374 state jobs. The Senate's draft would eliminate 163 vacant positions and more than 60 state jobs that are now filled.

But 42.5 of those filled jobs would not be off the books until fiscal year 2011 if the state shifts responsibility for the occupational safety program to the federal government. Most of the other filled jobs proposed for elimination are exempt positions not covered by public-worker labor unions.

The Senate Ways and Means Committee is expected to decide today on potential pay cuts for the governor, lieutenant governor, department directors, judges and lawmakers in addition to a pay freeze through 2011.

Conference negotiations will likely concentrate on what combination of spending cuts, tax increases, state worker layoffs and wage and benefit reductions lawmakers will use to balance the budget.

State Senate Minority Leader Fred Hemmings, R-25th (Kailua, Waimanalo, Hawai'i Kai), voted against the budget draft yesterday because he said it is designed to protect state workers who belong to labor unions.

"The budget is business as usual when you look at the big picture," he said. "There are some cuts, but not enough to cover the shortfall, so they are going to raise taxes."

The House version of the budget did not reflect the March forecast from the state Council on Revenues, which removed an additional $90 million available for this fiscal year and $170 million over the fiscal year 2010 and 2011 budget cycle. The Senate had to absorb the lost revenue in its draft.

DENTAL FUNDS RESTORED

The Senate chose to add $30 million to help the state's struggling public hospitals, and restored corporate administration jobs, including that of Hawai'i Health Systems Corp. CEO Thomas Driskill Jr., that were stripped in the House draft.

The Senate also restored $2.6 million for adult dental services, a portion of the money the Lingle administration wanted to save by ending the program, and salvaged the Disability and Communications Access Board with federal stimulus money after it was eliminated by the House. Senators also put back some of the money the Lingle administration wanted to restrict from the Partnerships in Community Living program and for respite services for developmentally disabled children and adults by diverting tobacco settlement funds.

Overall, the Senate's draft of the budget for fiscal 2010 is $10.7 billion, with $5.1 billion in general-fund spending. The draft for fiscal year 2011 is $10.4 billion, with $5.3 billion in general-fund spending.

The totals closely mirror the House draft, with the differences mainly due to the Senate's addition of federal stimulus money.