The state Department of Taxation reported yesterday that state revenues fell 9.4 percent, worse than the 9 percent projected by the state Council on Revenues in May.

The new revenue figures, based on actual fiscal year-end collections through June, increase the state's budget shortfall by $56 million to an estimated $786 million through June 2011. Gov. Linda Lingle's administration had previously put the shortfall at about $730 million.

Lingle had been bracing for an even larger shortfall. She said she is proceeding with potential layoffs of state workers to help close the deficit.

"We will not be the same government when we come out of this process," the governor said yesterday at the state Capitol. "We can't be the same government we were a year ago and survive financially because we have billions of dollars less money than we had counted on, so we can't possibly look the same or act the same. The world has changed. We need to respond to it.

"There are some people who can't yet accept that the world has changed dramatically over the past year. And everyone has to accept that fact, so that we can design our new future."

State House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo Valley, Wilhelmina Rise), said Lingle has options beyond resorting to layoffs. He said Lingle could impose spending restrictions, call lawmakers back into special session if she believes there needs to be an immediate response on the budget, or wait until the next session in January and work with lawmakers on a solution.

"At this point, there is no urgency," Say said. "There is a deficit and she has to go through what her administrative responsibilities are. She can implement more restrictions. She can implement whatever she has to do financially, or she could make a request for a special session to call us back. But she has to have her proposals in hand."

Lingle has said she has no plans to call lawmakers back. She also said it would be more difficult to make up the budget shortfall next session. The council will make two new revenue projections before next session — in September and January — and the governor described the gap lawmakers will face as a moving target.

"The problem with delaying decisions is that the problem gets worse the longer you put it off," she said. "It would be no different than in your home, if you had a credit-card bill and you put off paying it, the bill grows. It gets harder and harder to pay over time, especially because your salary didn't change.

"And, in our case, our salary is going down and down, further and further each projection. So if you don't deal with it now, it becomes much more difficult to deal with it later because you have fewer options and you have fewer days left in the year to deal with it."

DIFFERING ESTIMATES

Before the yesterday's release of the year-end revenue collections, Lingle and state lawmakers differed on the size of the shortfall through June 2011. The governor estimated a $730 million gap, while state House Finance Committee staff put the figure at about $643 million.

The estimates differed because the governor does not think the state will collect as much money as lawmakers expect from new taxes and other revenue-generating measures passed last session.

The state Department of Taxation reported that general-fund revenue collections were down 9.4 percent, or $436 million, from fiscal year 2008. The largest category of collections — general excise and use taxes — was down 7.6 percent. Individual income taxes were off 13.4 percent. Hotel-room taxes were down 8.2 percent. Corporate income taxes were off 35.4 percent.

While preparing for layoffs, Lingle stressed yesterday that her administration continues to believe furloughs are the preferred approach to closing the deficit. She said the administration is still thinking about challenging a Circuit Court ruling last week that found that the governor does not have the authority to unilaterally impose furloughs.

The court found that furloughs should be subject to collective bargaining.

Lingle said she has finished discussions with state department directors about potential layoffs and expects to give public-sector labor unions a letter with a list of names by the end of the week.

The governor is required under the terms of existing labor contracts to give unions 90-day notice of layoffs.

The notice to unions will probably include the names, positions and bargaining units of state workers identified for potential layoffs. Layoff notices to workers would likely occur after the state and the unions consult on the list.

LAYOFF PROJECTIONS

Lingle has said that she could lay off 2,500 state workers under her direct control, while spending restrictions to the state Department of Education, University of Hawai'i and the Hawai'i Health Systems Corp. could trigger additional layoffs.

The governor said layoffs probably would be concentrated in departments that rely heavily on general-fund revenue to operate. That means departments such as the state Department of Hawaiian Home Lands, the state Department of Commerce and Consumer Affairs, and the state Department of Transportation would probably see few layoffs.

Union leaders have said that instead of threatening layoffs, Lingle should bargain for new contracts. The governor has said the state is awaiting a formal offer from unions.

"It has to be something serious that takes into consideration that we have not bottomed out yet in our loss of tax revenue or in the shrinking of the economy," Lingle said.