Government employees' labor unions are experiencing the most daunting challenge in a decade as they try to shield state workers from wage cuts and higher healthcare premiums in the midst of a recession.

Union leaders will likely decide this week whether to file a lawsuit or petition the Hawai'i Labor Relations Board over Gov. Linda Lingle's plans to furlough state workers three days a month for the next two years. The furloughs, which start in July, are equivalent to a 13.8 percent annual pay cut for state workers and would save the state $688 million to help with a budget deficit.

Union leaders have also asked trustees of the Employer-Union Health Benefits Trust Fund to consider alternative healthcare plans that would provide fewer benefits at lower cost. The EUTF, unable to reach agreement on how to contain healthcare expenses, has imposed interim rates for July and August that will cost state workers about 23.7 percent more in premiums.

With the highest state unemployment figures in three decades and a stream of layoffs and business closures in the private sector, union leaders also have a public- relations problem. The public's perception of state government is generally negative, which spills over on both administrators and rank-and-file workers, making it harder to argue that state workers are doing such a good job that they should be spared from sacrifice.

The fact that the two-year budget approved by the state Legislature includes both spending cuts and tax increases also makes it more difficult for union leaders to call for additional tax hikes — such as an increase in the general-excise tax — without first agreeing to concessions.

Lingle has said it would be irresponsible for her not to look for labor savings when labor accounts for about 70 percent of state spending, and state workers have enjoyed pay raises of between 16 percent and 29 percent over the past several years. The governor said the alternative is massive layoffs.

But union leaders, and some majority Democrats, believe the Republican governor's furlough plans are hasty and simplistic. Since the governor is delaying payment of $130 million in bills to get through the fiscal year this month, there is no immediate budget crisis that compels the governor to resort to furloughs in July.

The governor could negotiate furloughs with labor in collective bargaining and a revised budget with lawmakers over the next several months to try to close a projected $730 million deficit.

Randy Perreira, the executive director of the Hawai'i Government Employees Association, said Lingle has ruled out revenue-generating options such as tax increases or use of the state's hurricane relief fund and that she has refused to acknowledge that state workers will be paying higher healthcare premiums.

"The woman is out to create economic calamity," he said.

"This is much different, because in past years, where we've had disagreements and hiccups, as you characterize it, in that labor relations arena, at some point, cooler heads prevail and the parties come together and figure a way through.

"Right now, I think for the four of us (union leaders), the consensus is that this governor is not looking to be reasonable. She's exacting a price out of the unionized workforce and there will be economic hell to pay."

CONTRACTS EXPIRING

Perreira said union leaders are willing to make concessions beyond higher healthcare premiums. "But I'll be very blunt," he said. "We're not going to consider a plan that takes where there's a $720 million shortfall where the employees make up $688 million of that, because at that point we're going to see bankrupted families."

Roger Takabayashi, the president of the Hawai'i State Teachers Association, said furloughs and spending restrictions will damage teachers' ability to get through the recession or reach into their own pockets, as many do, to help students in their classrooms.

He also said teachers and other state workers would reduce consumer spending as a result and that, as economists have warned, could delay an economic recovery.

"This is a multi-faceted blade that will hurt all of us," he said. "You know, you've got to take care of the people who are the caregivers. Teachers are caregivers. We take care of kids. We take care of schools.

"To hurt the caregivers, you'll be hurting the whole system."

Marie Laderta, the director of the state Department of Human Resources Development, rejected suggestions from union leaders that the Lingle administration has not been negotiating in good faith. "On the contrary," she said. "On the contrary."

Laderta also disputed union claims that labor talks have been unproductive. "I would really take that statement to task, only because their view of unproductive may be because they are not getting the results that they want from the bargaining. It does not mean we have not been bargaining in good faith."

Not since Gov. Ben Cayetano ordered layoffs to control a budget deficit in the mid-1990s, the 2001 teachers' strike, and a 2003 veto override that restored binding arbitration for the HGEA have public-sector unions been put on the defensive.

Contracts expire at the end of the month, which could trigger binding arbitration for the HGEA and the United Public Workers' public safety branch and strike deliberations for the Hawai'i State Teachers Association and the University of Hawai'i Professional Assembly.

Several scenarios are possible, however. The HGEA and the Lingle administration have agreed to a timetable where the deadline for final offers is not until August and arbitration could run through December.

The Lingle administration and union leaders could agree to continue negotiating, leaving the provisions of the current contracts in place, or the state could move to arbitration or try to enforce its last and best offers.

The Lingle administration and union leaders have been in talks for months, but the state has yet to make any formal offers. Under state labor law, the administration needs at least one of the county mayors to sign off on proposals to the HGEA and UPW, and a state Department of Education official and a University of Hawai'i official to endorse proposals to the HSTA and UHPA.

Lingle's decision to impose furloughs unilaterally, rather than through negotiations, will influence contract talks. If the governor's furlough plans are challenged in court or through the labor relations board, the case could take weeks or months to resolve.

If Lingle is unable to save money from furloughs, she could be moved to make additional spending restrictions or consider layoffs to cut costs. Lingle already has to use spending restrictions, instead of furloughs, at the DOE and UH because the departments are governed by independent boards.

Union leaders believe they may have a strong legal case because of conflicting guidance from the state attorney general's office about whether the governor has the authority to order furloughs without negotiating. The attorney general's office in February said the issue was unclear but then amended its advice in May to say that the governor does not need to negotiate.

Other observers note a 1999 ruling by the 9th U.S. Circuit Court of Appeals that a "pay lag" law backed by Cayetano and the state Legislature should have been subject to collective bargaining. UHPA had sued over the 1997 law, which rolled over salary payments to state workers to the next fiscal year to save the state $51 million.

LEGAL QUESTIONS

Union leaders believe furloughs are pay cuts that should be subject to negotiations.

Deputy attorney general James Halvorson said state labor law gives the administration discretion to relieve workers of duties because of a lack of work or other legitimate reason, determine how work methods are conducted, and take action during emergencies.

Lingle has described the budget deficit as a "fiscal emergency," which is a rhetorical description, not a legal declaration of emergency, such as after a hurricane.

"Some of this is unknown territory," Halvorson said. "I've lived in Hawai'i for 20 years. I don't remember our budget situation ever being this bad. I've been dealing in the employment law field and with the interest arbitration stuff for nearly 14 years, and I've never seen this kind of situation where we're talking about such incredibly big numbers in terms of budget deficit.

"And I think everybody recognizes that. So the way we did things before is not a very good predictor of how we're going to end up doing it now, because it's just so different."

Perreira described the governor's warnings that the alternative to furloughs could be layoffs of up to 10,000 state workers as "scare tactics."

"It is clearly intended to rile up the public and scare them into believing that, 'Hey, catastrophic things are going to happen unless I get my way,' " he said.

State House and Senate leaders have said the state's hurricane relief fund and rainy day fund may be needed for the budget deficit, and a general excise tax increase may also be on the table if the revenue picture continues to worsen.

Perreira and Takabayashi believe lawmakers should move to a GET increase soon, but House and Senate leaders have said they are not inclined to return in special session unless called back by Lingle.

"We elect people to make decisions for the best of our community. They all have a responsibility, whether they live up to it or not, to make decisions to benefit that community," Perreira said, arguing that the two-year budget is now insufficient to cover the deficit. "Or, at times like this, tough decisions that are made in the best interest of all."

Perreira also said comparisons between private-sector workers and state workers are misleading. He said the private sector is market driven, based on the sale of goods and services, while government is more service-oriented, and the demand for government services does not diminish in a recession, it may increase.

He said he doubts, for example, that if state revenues were down but the hotel business was booming that hotel workers would be asked to take a pay cut "to share the pain just because the state's budget is in bad shape."

State Rep. Karl Rhoads, D-28th (Kaka'ako, Iwilei), the chairman of the House Labor Committee, said he anticipated state workers would take a "significant hit" during the recession.

"My impression is that they see the numbers like everybody else. They know it's going to be a bad couple of years," he said, adding that it is very difficult for state workers to take both the furlough and the higher healthcare premiums. "I don't blame them at all for having a hard time choking that down."