State lawmakers agreed yesterday to keep alive several bills that would raise taxes to help close the state's budget deficit, but the state Senate dropped a proposal to take a portion of the Honolulu rail-transit tax after the intervention of U.S. Sen. Daniel K. Inouye.

The state Council on Revenues is expected to forecast another decline in state revenues when it updates its estimate tomorrow, so lawmakers wanted to preserve as many options as possible to confront the deficit.

If the council predicts less revenue, Gov. Linda Lingle would have to make additional spending cuts or find new sources of money to get through the fiscal year that ends in June. The Lingle administration and lawmakers would also have to adjust their assumptions for the upcoming two-year budget cycle.

"I'm still very, very concerned. I don't know what it's going to look like at the end of session," said state Senate Vice President Russell Kokubun, D-2nd (S. Hilo, Puna, Ka'u). "These pukas that we have to fill are so huge. I think that's why we just want to keep everything on the table, keep it moving, and at the end — I'm assuming — we're going to be able to piece something together here."

State House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo Valley, Wilhelmina Rise), said the House draft of the budget does not include an increase in the general excise tax but said the landscape could change after the council's forecast.

"As of last week, we have a balanced budget," Say told reporters during a break in a lengthy House session. "We are not raising taxes midway through the session. I feel very comfortable in that the package we have balances the budget without raising the GET (general excise tax)."

Lingle, a Republican, has urged majority Democrats not to raise taxes because she believes it would hurt consumers in the already weakened economy.

But lawmakers, working to make a deadline tomorrow for bills to cross between chambers, moved out several tax-related bills.

In the Senate, lawmakers positioned a bill for a vote tomorrow that would increase the general excise tax to raise revenue for public education and cover tax breaks for the poor. The bill could be used as a vehicle later for a GET hike to help close the budget gap.

The Senate also passed a bill to increase hotel room taxes to raise state revenue. The House moved a bill that would suspend the distribution of hotel-room taxes to counties for six years.

ETHANOL DELAY

The House endorsed a tax increase on oil to help finance food and energy security programs. The bill would suspend an ethanol-blend requirement in gas for three years, which is expected to help offset the cost of the tax increase to consumers.

The House agreed to raise taxes on cigarettes, which will be up for a vote tomorrow, and divert money from the state's tobacco settlement fund to the state's general fund. The tobacco settlement fund is the state's share of an agreement with tobacco companies on the health costs of smoking.

The House also pushed forward with a state income tax increase on higher-income residents while eventually increasing the standard deduction and personal exemption, which could help other taxpayers.

But the Senate backed away from a bill that would have borrowed $150 million from Honolulu's rail-transit tax. The bill would have given the city the option to extend the surcharge for another two years. As an incentive for city cooperation, the state would also have repaid the city with $250 million in bonds.

State Sen. Donna Mercado Kim, D-14th (Halawa, Moanalua, Kamehameha Heights), the chairwoman of the Senate Ways and Means Committee, asked her colleagues to send the bill back to committee after receiving a letter of concern from Inouye.

Inouye, D-Hawai'i, warned that the bill could put in jeopardy $1 billion in potential federal money for the rail project. He said the bill might cause U.S. Department of Transportation Secretary Ray LaHood and Congress to "question Honolulu's seriousness and commitment."

"If the senior senator says there are concerns, who am I to counter that?" said Kim, who had her own misgivings about the bill. "It was never our intention to derail the rail."

Mayor Mufi Hannemann, who had opposed the bill, praised the Senate's decision.

"I am happy the Senate reaffirmed its support for the city's rail-transit project by not tampering with the local funding," the mayor said. "I appreciate the fact that Senator Inouye agreed that it would have been unwise to jeopardize the federal funding."

Several Republicans criticized Democrats for thinking about tax increases.

"The majority is continuing the policy of taxation and spending as a means to sustain a very ineffective bureaucracy," said state Senate Minority Leader Fred Hemmings, R-25th (Kailua, Waimanalo, Hawai'i Kai.)

SCHOOLS, HIGHWAYS

In floor sessions yesterday, the House and Senate plowed through dozens of bills and made some significant decisions.

The Senate advanced a bill that would provide $155 million in bonds for repair and maintenance projects at public schools. Lawmakers also moved out the Lingle administration's highway modernization and recreational renaissance plans for state parks, trails and small-boat harbors.

Lawmakers agreed to consider restructuring the Hawai'i Health Systems Corp. and give ailing public hospitals the option of converting to nonprofit or private status to become more financially competitive.

The Senate agreed to advance a bill that would divert money from the state's rainy day fund to maintain spending on public education, human services and health programs.

In the House, lawmakers backed a salary freeze for the governor, lieutenant governor, judges, department directors and state lawmakers until 2011. The freeze would not change a 36 percent pay increase that lawmakers received in January.

The House passed a bill that could lead to further caps on noneconomic damages in medical malpractice lawsuits against doctors in five specialties. A task force would recommend the caps, while a rate commission would suggest market-based malpractice premium rates.

The House supported a bill that would make it easier to try minors between 15 and 17 years old as adults in murder cases. The bill is known as "Karen's law" for Karen Ertell, an 'Ewa Beach woman allegedly raped and murdered by a neighborhood teenager.

The House advanced a bill that would help homeless people who came here from other states return to the Mainland.

House lawmakers chose to reject a bill that would have extended the deadline for an environmental impact statement for Hawaii Superferry. The law that allows the ferry to operate during the environmental review expires this summer.

The House also sent back a bill that would have adjusted the limit on corporate contributions to corporate political action committees. The limit would have increased to $50,000 per election cycle, up from a $2,000 limit per cycle — or $1,000 per election — that is not being enforced pending the state Campaign Spending Commission's appeal of a legal challenge.

Public-interest groups had decried the bill as an invitation for more corporate money in politics, but House leaders said they sent the bill back to committee because of technical flaws. The bill also would have altered a limit on Mainland donations to state candidates.

Both the Superferry and campaign-finance bills could theoretically be revived before the end of session, but the action yesterday reduces the chances the bills will be brought back.

In the Senate, yesterday was the first day senators could use a procedural tool in the state Constitution to try to recall a civil-unions bill that has been stalled in committee.

State Senate Majority Leader Gary Hooser, D-7th (Kaua'i, Ni'ihau), who has said he would force a vote at some point in the session, said senators are still talking.

State House Majority Leader Blake Oshiro, D-33rd ('Aiea, Halawa Valley, 'Aiea Heights), the bill's sponsor, said advocates of civil unions would likely prefer the bill not advance if it is watered down with amendments.

Senators have discussed possibly amending the bill by expanding rights for same-sex partners but stopping short of equating civil unions and marriage under state law.