Cautious Gov. Ige budget holds back $100 million in proposed spending

Gov. David Ige is taking a cautious approach to the state’s biannual budget, holding back on about $100 million in proposed spending next year in case general fund growth is lower than expected. Meanwhile he’s focused his budget for the 2020 and 2021 fiscal years on increasing affordable housing, addressing homelessness and boosting funding for public education and sustainability initiatives, such as watershed protection — areas that he also focused on during his first term as governor.

Ige has also inserted $125 million in capital improvement funds for a major flood mitigation project for the Ala Wai Canal, a project that carries an overall price tag of $345 million. He’s budgeted $9.2 million in fiscal year 2021 for 139 positions at a new forensic facility at the Hawaii State Hospital, the state’s only mental health hospital, which for years has been plagued by assaults by patients on staff.

Ige also hopes to spend $38.2 million on girls’ locker rooms in high schools across the state. Earlier this month the Hawaii chapter of the American Civil Liberties Union filed a federal class-action lawsuit against the state Department of Education over the lack of girls’ locker room facilities at Campbell High School.

“This has been an inequity that has been highlighted in recent years, and we are committed to making the investments so that we can provide equal opportunity to athletics for all of our students,” said Ige during a Monday press conference in which he unveiled his proposed budget.

Ige’s $15.47 billion operating budget for fiscal year 2020 represents a 7.2 percent increase over this year’s appropriation. For fiscal year 2021 he is proposing an operating budget of $15.7 billion. He’s also proposing $2.02 billion in capital improvement spending for fiscal year 2020 and $1.48 billion in capital improvement spending in fiscal year 2021.

His budget will be debated by the Legislature when it convenes in January, and the final result is expected to be an amalgam of the governor’s priorities and those of the Legislature. Legislators can delete or alter items in the governor’s budget and insert their own spending priorities before passing the budget. The governor also can choose not to release funds in the final budget that the Legislature passes.

Funding priorities

Ige is continuing his focus on increasing affordable housing and combating the state’s intractable homelessness problem. He wants to infuse the Rental Housing Revolving Fund with $100 million annually for the next two years. The fund helps finance the construction of affordable rental housing. The funding level would be a decrease from this fiscal year’s record $200 million appropriation but is still high compared with the fund’s history of appropriations.

He’s also proposed inserting $50 million for the 2020 fiscal year and $25 million in fiscal year 2021 into the Dwelling Unit Revolving Fund, used to finance infrastructure for development of affordable housing.

To address homelessness, Ige is proposing spending $3.75 million annually on Housing First programs, designed to provide the homeless with stable housing and social services that can assist with mental health problems and substance abuse. He also wants to spend $3.75 million annually on programs that help move families out of shelters and into long-term housing. His total funding package for homeless-related services is about $35 million over two years.

Ige also hopes to expand funding for the Early College and Hawaii Promise programs, which are designed to make higher education more affordable. His budget includes $1.5 million annually for the Early College program, which allows high school students to earn credit for taking college-level courses. He also hopes to spend $19 million annually to expand the Hawaii Promise program to all four-year colleges within the University of Hawaii system and another $700,000 annually to expand it within community colleges. The program provides college scholarships for the neediest students.

Pushback

House Finance Chairwoman Sylvia Luke expressed concern about Ige’s proposed expansion of the Hawaii Promise program, which she said was originally meant to help community college students who were trying to get an associate’s degree and enter the workforce.

“We don’t want financing to be the barrier to the attainment of an associate degree,” she said. “It’s different when you’re talking about a four-year college.” She also said she wants to know more about the success rate of the Hawaii Promise program at the community college level before expanding it.

Luke said the “most troubling” aspect of Ige’s budget presentation is the $125 million for the Ala Wai Canal flood control project, a match for the project’s federal funding.

Luke said that “we did not know that the federal government required a $125 million match” and that it’s a project for which the city should be responsible.

“It’s really a city project. Never once did anyone say the Ala Wai flood relief project was a state project,” she said. “We have all understood it to be a city-and-county project.”

The state owns the Ala Wai Canal and manages it through the Department of Land and Natural Resources, while the city is responsible for the upkeep of streams that feed into it, among other aspects.

“While this Ala Wai flood relief project is worthwhile and something that we need to talk about and think about, they need to do it in a public dialogue, and they need to have the entities who are responsible for taking care of this to be the ones to really vet it out,” she said. “It shouldn’t be the state paying for this thing just so that the city ends up paying for it in the future.”

Earlier this year Congress appropriated $345 million for the project. The state, or another partner, can choose to pay 35 percent of that amount upfront, or it can pay the 35 percent back to the federal government over the period of 30 years as a loan, said Michael Wyatt, chief of the civil and public works branch at the U.S. Army Corps of Engineers in Honolulu.

He said there has been a lot of back and forth between the federal, state and city governments as to who is going to sign the federal funding agreement and who is going to finance and maintain the project. Wyatt said the federal government will need to see some progress to ensure that the federal funding isn’t plugged into another project.

“We are still fairly early on in the process, but we need to show continued progress toward the end goal, which is getting the protection in the ground sooner rather than later if we want to ensure the federal money is there,” he said.

A cautious budget

Ige also took the unusual step of basing his administration budget for the next two years on the assumption that state revenue will grow by less than the official projection by the state Council on Revenues. Former Govs. Ben Cayetano and John Waihee both said Monday they could not recall any other Hawaii governor using that approach.

The council is a panel of economists and other experts tasked with forecasting how much the state general treasury will collect each fiscal year in taxes and other revenues. The council calculated that collections will grow by 5 percent in the year that began July 1, and actual collections so far have been close to that amount at 4.8 percent.

But Ige announced Monday his new budget assumes tax collections will increase this year by only 3.5 percent, meaning the governor is assuming the state will collect about $100 million less this year than the council projected.

“We do know that revenues have been erratic and running under projected amounts over the first five months (of the fiscal year),” Ige said. “So this budget, unlike previous budgets, we are taking a cautious approach” by using a revenue forecast less that the council’s projection.

“We believe that it’s prudent to ensure that we don’t appropriate funds that we don’t have,” he said.

Some observers wondered whether Ige is expecting a recession in the near future and is trying to prepare the state for the shock, but Ige said that isn’t the case.

“It’s the responsible thing to do,” Ige said in a written statement. Economists across the country say the current economic expansion has been the longest in our nation’s history, and they’re anticipating a recession, Ige said, but “I don’t necessarily believe that.”

“If you look at all the signs in our state economy, we still have strong visitor arrivals. Because of our excellent bond rating, we are going to remain active in providing construction funds over the biennium. We do believe our state’s economy is doing well,” Ige said.

Waihee, who was governor from 1986 to 1994, said revenue sometimes grew faster during his administration than projected, but he never deliberately deviated from the Council on Revenues’ projections.

When state tax collections did turn out to be higher than the administration projected, Waihee said that allowed state lawmakers to “have a field day” because that meant there was unbudgeted money available for lawmakers to appropriate for their own purposes or projects.

“It actually gives the Legislature a little bit of room to do what they want to do,” Waihee said.

If the state collects more this year than Ige assumed, Waihee said that also could affect the ongoing negotiations with public worker unions. If the state collects a large sum of unbudgeted money, that makes it easier for the unions to make a case that they should be given raises. Most of the current public worker union contracts expire June 30.

Luke said Ige may be trying to set aside money for collective bargaining. She said the economy now appears to be in a time of “slow growth or stable growth.”

Luke said she intends to try a new approach to analyzing the administration budget this year called performance-based budgeting. “We need to have deliverables, and we need to have some type of base line and we need to track what we’re trying to provide in everything that we do and everything that we spend,” she said.