Gov. Linda Lingle today warned of a second round of layoffs for state workers that would involve a fundamental restructuring of state government but she declined to provide specific details.

The governor, in a live Web address, instead outlined what she described as guiding principles as she approaches further state spending cuts and layoffs to close what she estimates is an $884 million budget deficit through June 2011. The governor has already ordered 1,100 layoffs of state workers starting in November.

Lingle said she would attempt to avoid further spending cuts to the state Department of Education and the University of Hawaii. She said the state would eliminate state programs that may be better administered by the federal government, counties, or volunteers.

The governor said she would roll back public assistance benefits for the needy that were expanded when the state’s economy was stronger. She also said she would consolidate some administrative functions in state departments to eliminate duplication.

Lingle repeated her opposition to new tax increases and said taking money from the state’s hurricane relief fund would be a one-time move that would not close the deficit but leave the fund depleted.

The governor also said savings from a higher-than-average number of state worker retirements or incentives for early retirement would not be enough, since the state would likely have to hire new workers to replace some of the retirees and pay bonuses for early retirement.

“The only immediate way to reduce our growing budget deficit is to reduce our overall spending now,” she said.

The state and the Hawaii Government Employees Association are scheduled for a binding arbitration hearing tomorrow to try to settle a new contract. The governor has sought labor savings to help close the deficit, but has been unable to negotiate a settlement with public-sector labor unions..

Lingle opted to conduct the budget update through the Web address rather than through a news conference. The governor did not plan to make herself available to reporters today to answer questions.

Below is a transcript of her address:


Good afternoon and Aloha.

I am addressing you today because of the continued economic challenges facing Hawai‘i and the impact this is having on our ability to balance the State budget.

I want to begin by assuring you that my Administration remains resolute in its determination to make the tough decisions that are needed in order to meet both our financial obligations as well as our commitment to each of you to do all we can to assure a bright and prosperous future for Hawai‘i.

I also want to acknowledge at the outset that the course of action we must take is going to be painful for some, criticized by others, and difficult for many because we must make unpleasant but necessary choices that allow us to live within our means.

I will continue to be open to alternative ideas and suggestions, but they must be proposals that are meaningful, realistic, and address the immediate fiscal crisis our state is facing, without pushing off problems for another day or sacrificing our long-term well-being.

As I have said before, we cannot “kick the can down the road” and just expect that everything will turn out okay.

I am not willing to leave to Hawai‘i’s next Governor the tough choices that need to be made today.

All of us, including government, religious, business, and community leaders need to recognize the significant loss of revenues we have experienced and acknowledge that we cannot afford the same level of government services we have enjoyed in the past, nor the same number of employees we now have on the payroll.

Some people have asked, “What happened to all the State’s money?”

The money being referred to is not money we spent, but rather drastically reduced projections of what we had hoped to receive.

The State budget is based on a projection of future revenues.

The recession has hit Hawai‘i’s economy hard and that means people and businesses are spending less, the State is collecting less in taxes, and therefore it has fewer revenues to pay its bills.

The money being referred to didn’t disappear; we never had it.

We simply received far less than our Administration, the State’s top economists and the Legislature predicted we would collect.

This sharp drop in tax revenue has happened throughout the nation and a good part of the world, not just in Hawai‘i.

Last Thursday, for the seventh time since March of 2008, the Council on Revenues, a group of economists that forecasts tax revenue, projected that State revenues will decline yet again.

Between March of 2008 and today — a period of only 18 months — the total actual and projected drop in State revenues through June 30, 2011 is nearly $3 billion.

About one-third of the State’s total projected budget for the next two years will not be there as we had planned.

Even with all of the prudent cuts in spending we have already made, we are still facing a budget shortfall because we are spending at a rate that exceeds our actual and projected income.

This gap has now grown to $1 billion for the remaining 22 months of our biennium budget.

Some people believe that this revenue decline is only temporary, but that is not the case.

Although the Council on Revenues recently projected that the economy will grow in 2011, 2012 and beyond, the huge loss of revenue we experienced in fiscal years 2008, 2009 and 2010 means it will take the State several years to climb out of the hole we are in.

Even if we enjoy growth rates of 5 to 6 percent for the next several years, Hawai‘i’s general fund will not return to fiscal year 2008 pre-recession levels until 2012 at the earliest.

This means that even if all the rosy predictions come to pass, the State’s income will not equal 2008 levels until three years from now.

This is why I am speaking to you today. We truly have a government that we no longer can afford.

In June I announced to you that I intended to furlough all State employees under my direct jurisdiction for three days a month.

I also told you I was restricting by 14 percent the budgets of the University of Hawai‘i, the Department of Education and the State Hospital System.

This 14 percent restriction is equivalent to three furlough days each month for those agencies.

Implementing this plan would have saved $688 million.

I believe that furloughing State employees minimizes the impact on the public.

It also allows State workers to keep their jobs and maintain their benefits, while lowering our labor costs.

Additionally, furloughs avoid the need to spend additional tax dollars to recruit and train new employees when the economy recovers.

I also believe that temporary furloughs reflect the values of Hawai‘i — the values of pulling together during tough times, sharing the benefits when times are good, and sharing the sacrifices when they are not so good.

A furlough also seems to be the preference of many State employees as reflected in their e-mails, letters, phone calls and even an on-line survey conducted by one of the unions.

Unfortunately, this fair and reasonable temporary furlough plan has been stopped as a result of legal action by the public employee labor unions. The State is appealing that court decision, and in the meantime my Administration has continued good-faith negotiations with union leaders.

Last week I thought we were close to reaching an agreement, but unfortunately, this was not the case. The HGEA’s current official offer amounts to a pay increase that would make our budget deficit worse.

Because of the way in which the public employee unions are structured, their rank-and-file members have not had a chance to hear about the State’s latest proposal. This is not right, because it is their livelihood that is at stake.

Most disheartening to me is the implication that union leaders would rather have members lose their jobs instead of having all their members share the sacrifice of furloughs.

Because of the setback in our negotiations, the State is preparing to proceed with binding arbitration with the white collar HGEA beginning tomorrow. The State will also start binding arbitration with the blue collar UPW, one week later.

The State intends to present solid cases to the three-person arbitration panels about why labor costs must be reduced by up to 14 percent.

Given that the temporary furlough plan is stalled, labor negotiations have not been successful, and an arbitrated settlement will not be decided quickly and may not be adequate, my Administration reluctantly made the decision to issue lay-off notices to an initial 1,100 employees.

We are also implementing a three-day-a-month furlough for 900 other employees not covered by collective bargaining. We must take these and other actions now to reduce our large and growing budget deficit.

Today I want to tell you that there will likely be additional layoff notices issued in the months ahead. The second round of layoffs will, by necessity, require a fundamental restructuring of State government. I wish this was not the case, but it is.

I do not intend to discuss specifics today, but I do want to share with you some guiding principles that my Administration will be using in reshaping and right sizing our State government into one that we can afford, given the current economic and budget realities.

First, I will attempt to avoid further cuts to the Department of Education or the University of Hawai‘i beyond the 14 percent funding restriction that has been imposed.

I will, however, suggest that they seek ways to cover the costs of non-essential educational services without using general funds.

Second, the State will eliminate some programs and services that can be effectively administered at the Federal or County level, or that can be handled by volunteers.

Third, we will roll back public assistance benefit increases that occurred during the years when the State was enjoying robust revenues, and return those benefits to previous levels.

Fourth, we will re-align and consolidate common administrative functions performed in each of our departments in order to eliminate duplication and increase efficiencies.

Fifth, we will consolidate programs, close some offices and eliminate some services that can be covered by other State agencies or that are not a core function of a department’s mission.

And sixth, we will selectively begin eliminating some State programs that we could afford when times were good, but we simply cannot afford in today’s economy—even though we value and appreciate these programs and the benefits they provide.

These actions we must take are not unlike a business that loses one-third of its income and therefore must re-prioritize its budget by scaling back on certain expenses and activities, and focusing on its core business.

As we make specific decisions, I will share them with you and the reasons for them.

I know that some of these decisions will be controversial.

Almost every program currently operated by the State has a benefit, a constituency it serves, or an interest it addresses.

But until our State revenue picture recovers, we cannot support all of the existing programs we have.

We just don’t have the money to pay for them. I wish this was not the case, but it is.

Holding multiple and repetitive legislative hearings to criticize these decisions as they are made does nothing to address the deficit, and it detracts from the work cabinet directors must undertake to implement these difficult but necessary changes.

In addition to the actions that will be implemented by our executive branch agencies, I call upon the Legislature and the Judiciary to do their fair share to help close the current billion-dollar budget gap by implementing a 14 percent cut in their operations for the next two years. This would save $42 million.

Some have said we can simply raise taxes to cover the deficit, but this suggestion ignores recent reality.

The Legislature already enacted tax increases this year.

They raised the income tax, the conveyance tax, the hotel room tax, and other taxes with the intent of closing the budget shortfall.

Yet tax revenues are declining, not increasing.

Raising tax rates has been ineffective and even counter-productive.

Further, we need to remember that each dollar in taxes we take out of the private sector means less money businesses have to create jobs, re-build companies and re-grow our economy.

Plus, tax increases hurt families and individuals already hit hard by this recession.

I believe the Legislature recognizes this, and several key members have already said they will not support tax increases in the 2010 legislative session.

Some have suggested we close the general fund budget gap by tapping into various special funds, such as the Hurricane Relief Fund.

Even if we took all of the $185 million left in this fund, it would only partially address the billion-dollar general fund shortfall, and like federal stimulus dollars, it can only be used once, and then the hurricane fund would be gone.

Others have said that lots of State employees will be retiring this year and that this will save us the money needed to cover the deficit.

The truth is that retirements cost us money in the short run due to legally required payouts for things like accrued vacation days and increased health insurance benefits enjoyed by retirees.

And the reality is that to continue providing core public services we would need to fill a good many of the positions left vacant by the retirements.

And even if the number of State retirees doubled from the norm of 700 people per year, any savings would fall far short of the labor savings needed to address the budget deficit.

Some people have advocated for early retirement incentives as a way to cut ongoing expenses.

But early retirements require bonuses paid for with money the state does not have.

The only immediate way to reduce our growing budget deficit is to reduce our overall spending now.

Failing to do so puts us deeper in the hole, and it means we will not have sufficient funds to match federal grants, provide basic aid to those in need, protect our natural resources, meet our public safety obligations, or avoid further cuts to education.

We have clear choices before us.

On the one hand we can all share in the sacrifice that is needed to address our growing deficit by supporting limited reductions in programs and services, and spread out the cost of reduced wages across all employees.

Or we can limit the amount of labor savings to only those who lose their jobs, and then be forced to eliminate a greater number of services and programs, and lose much of what we have worked so hard together to achieve.

I have always believed that reasonable people can find reasonable solutions to shared problems.

I continue to hope that we can achieve the necessary shared sacrifice to take us through this current crisis and put us on a sustainable course for a brighter future.

As I stated at the beginning of these remarks, my Administration remains open to constructive suggestions that are fair, can address our immediate shortfall, and do not create bigger problems for us in the future.

I want you to know that I will not shirk my responsibility to keep our state fiscally solvent, and that I will manage this fiscal crisis in a manner that will expedite our recovery.

It is easy to be a leader when times are good and you can give people what they want.

This is not one of those times.

I call upon all leaders in our state — the Legislature, the Judiciary, the mayors, county councils, Board of Education, University and community leaders — to do all they can to help us to live within our means now so that we can emerge stronger and better prepared for the great days that I know lie ahead for our beloved Hawai‘i.

I also want to express my appreciation to the thousands of State employees who have had to deal with uncertainty for far too long now.

They are understandably concerned about their well-being and the well-being of their families.

Thank you for remaining dedicated to your job of providing the best service you can to the people of Hawai‘i.

I want to conclude by thanking all the people of Hawai‘i for your patience and support throughout the past few months as my Administration has worked to address the State’s shrinking revenues.

I am very grateful for your many supportive letters, emails, phone calls, and words of encouragement.

Mahalo for watching this webcast, and for giving me the great privilege to serve as your Governor.

And thank you again for your ongoing and deeply appreciated support and confidence.