Asking for breathing room, Gov. Neil Abercrombie said yesterday that the state has a $71.6 million budget shortfall for the fiscal year that ends in June and a substantial $771.9 million deficit over the next two-year budget cycle.

The new governor said he would ask the state Legislature in January for emergency money to cover Medicaid and welfare costs through the next six months. He said he would not delay state income tax refunds, as former Gov. Linda Lingle did this year, to get through the fiscal year in the black.

Abercrombie said that in the next several weeks he would outline how to close a projected $410.1 million budget shortfall in fiscal year 2012 and a $361.8 million deficit in 2013. The deficit estimates are based on the September forecast by the state Council on Revenues and state spending projections. The council is expected to update its forecast next week, which could alter the estimates.

Abercrombie described the two-year budget plan, which is mostly based on Lingle’s budget figures, as a work in progress that will be revised during the legislative session that begins next month.

He said he would reconfigure state government and pursue additional federal money. He repeated his campaign promises not to increase the state’s general excise tax, extend furloughs or order layoffs for state workers, or scoop the counties’ share of hotel room taxes.

But he did not provide any specific ideas for generating new revenue or cutting state programs to reduce the deficit.

"All we’re asking for is a little breathing room here to give us the opportunity to allow some of the initiative and the accumulated experience, the institutional memory that’s there, as to how these services were delivered in the past and what we can do," the governor said at a news conference at the state Capitol. "Let them bring that out."

Overall, Abercrombie is proposing a $10.8 billion budget for fiscal year 2012, a 6.1 percent increase over this year’s $10.2 billion in spending, and an $11 billion budget for fiscal year 2013, an 8.2 percent increase from this year’s. The general fund portion of the budget, over which the governor and lawmakers have the most control, is $5.5 billion in 2012—a 12.6 percent increase, and $5.7 billion in 2013—a 16.4 percent increase.

The governor also requested $483.6 million in capital improvement projects in 2012 and $486.2 million in state construction in 2013. Some of the bond-financed construction includes $12.9 million over two years for health and safety improvements at Aloha Stadium, $15.3 million through two years for safety improvements of irrigation systems, $9 million over two years for improvements at Palolo Valley Homes and $31 million in 2013 for capital renewal and deferred maintenance at University of Hawaii campuses.

THE PROJECTED deficit shows the state’s tenuous economic recovery.

The Council on Revenues has projected 2 percent revenue growth this fiscal year, 10 percent growth in 2012 and 6 percent growth in 2013, largely as a result of a rebound in tourism. But state spending is expected to outpace the increases.

The council’s last two forecasts were influenced by Lingle’s decision to delay income tax refunds, which, on paper, allowed the state to close the fiscal year in June without a larger deficit. Economists on the council explained that the refund delay reduced the revenue growth estimate in 2011 and inflated it in 2012, masking what otherwise would have been consistent 6 percent growth in each of the three fiscal years.

Kalbert Young, the state budget director, said the emergency appropriations in the next six months would cover costs in expanded Medicaid and Temporary Assistance for Needy Families programs. Abercrombie will also request money to operate the governor’s and the lieutenant governor’s offices, which lawmakers purposely left with little funding during the transition between administrations.

The state had been expecting a shortfall in Medicaid, the health care program for the poor, but now has to factor in a recent federal court ruling restoring state health benefits to migrants from Micronesia, Palau and the Marshall Islands.

Young described the deficit estimates as a "sobering picture" but said there are signs of improvement on revenue and opportunities to reduce costs.

Abercrombie appeared exasperated at times when questioned by reporters about exactly how he would reduce the deficit. He said he would be open to further tapping the hurricane relief fund and the state’s rainy day fund.

Earlier this month, he released money from the two special funds to end teacher furloughs on classroom instruction days and to help social service programs. Lingle had withheld the money because of budget concerns.

The news conference was the first time since his election that he had to deliver some bad news.

"Take my word for it," he said of his ability to reconfigure government and promote job growth through state construction. "I got elected for a reason. I got elected because people wanted action. If they want action, they want Abercrombie. They got Abercrombie; they’re going to get the action."

THE GOVERNOR met privately yesterday with state House and Senate leaders to discuss the budget.

House Speaker Calvin Say (D, St. Louis Heights-Palolo Valley-Wilhelmina Rise) called the governor’s promise not to raise the general excise tax "a Christmas gift" to the people of Hawaii. He said, however, that lawmakers will likely consider lifting tax exemptions and tax credits to help balance the budget.

"It’s his responsibility to come up with a balanced budget, and we will support him and help him in getting through and finding a way of getting through the budget shortfall," he said.

Say also said that Abercrombie would have to negotiate new contracts with public-sector labor unions, which will account for a significant portion of state spending. Existing contracts, which include furloughs, expire at the end of June. He said the governor will have to consider the financial effects of rising worker health insurance and retirement costs.

"I don’t believe it’s vague," Say said of Abercrombie’s budget draft. "It’s only been two weeks on the job, and you’ve got to give him a chance to really, you know, find out where things are at. And, personally, I think he’s really working his butt off at this point in time, along with the new directors and deputy directors.

"They’re feeling their way around at this time. But the scary part is how much cuts we’ve done in the past two years, which really has affected the services of state government."

State Rep. Marcus Oshiro (D, Wahiawa), chairman of the House Finance Committee, said many lawmakers want to restore spending to social services that was cut in the past few years during the recession. He said additional cuts would be difficult to make.

"I think we’re going to have to do two things at once: No. 1, keep the economy going, try and create jobs, keep people gainfully employed, and generate revenues for the state services there," he said. "At the same time, we’ve got to go and provide money where it’s going to go and serve the greatest need: health, human services, education.

"I think that’s the challenge for all us, doing both things and doing it well."

Senate President Shan Tsutsui (D, Kahului) said senators want to keep all options available.

"I think at this point, at least in the Senate, we want to keep all the options on the table," he said. "We understand the severity of the budget deficit, and we want to make sure that we don’t close any doors now before we’re able to deal with the budget deficit in its entirety."