New priorities, new taxes

Gov. Neil Abercrombie, warning that the state is at risk of an economic collapse, called yesterday for spending cuts on public workers, welfare and health care for the poor and new taxes on pensions, alcohol, soda and time shares to balance the budget.

In his first State of the State address, Abercrombie said a state government weakened by recession and distracted by who is to blame is tearing at the social fabric and undermining economic recovery. He told the state House and Senate that he is open to other ideas to contain the deficit, but cautioned that the time for empty rhetoric is over and that everyone must be prepared to contribute.

"I will take full responsibility for our current situation, but with that responsibility comes an obligation to tell the truth," he said. "The truth is that our canoe, which is our beloved Hawaii, could capsize. We are in that unnerving moment when we could all huli, when we could turn over. All of us are at risk, and all of us have to face this."

The Abercrombie administration, which will rely on emergency money to get through the fiscal year that ends in June, is projecting a two-year budget deficit in excess of $700 million. The alternatives outlined by the governor would eliminate the deficit, generate money for several new initiatives and leave a surplus.

Abercrombie wants to shave about 5 percent from public-worker labor costs — about $88 million a year, or the equivalent of one furlough day a month — through collective bargaining negotiations with unions. He would also end state reimbursements for retired public workers in Medicare Part B, which covers doctors’ services, outpatient care and home health, for a savings of about $42 million annually.

In what he described as one of the most difficult things he has had to confront so far as governor, he said the state would have to reduce services in Temporary Assistance for Needy Families, the welfare program, and cut back on benefits in the state’s version of Medicaid, the health care program for the poor. His budget advisers are still calculating different scenarios, but the cuts could be about $30 million annually in welfare and about $40 million to $50 million annually in Medicaid.

Among the largest sources of new revenue under Abercrombie’s plan — more than $100 million a year — would come from taxing pension income, with exemptions to protect retirees with smaller pensions. The Tax Review Commission has recommended that the state conform to the federal government, which taxes pension income.

The governor would also repeal a tax deduction for state taxes, which would apply to taxpayers who itemize, but would phase in the repeal for middle-income taxpayers to reduce the impact. The repeal would bring in about $70 million a year.

Abercrombie wants to increase the alcohol tax by 50 percent, raising about $20 million a year, $5 million of which would go to programs to discourage alcohol abuse. He would also establish a soda tax, generating about $50 million a year, $10 million of which would go to fight obesity and diabetes.

THE GOVERNOR would increase the tax rate on time-share properties to mirror recent increases in the hotel room tax, bringing in about $30 million a year. He would shift about $10 million a year away from marketing and promotion at the Hawaii Tourism Authority to finance environmental protection, public facility improvements and culture and the arts.

Abercrombie also said he would modernize and replenish the Employees’ Retirement System, which, without action, is in jeopardy of collapsing.

The Democrat indicated that two signature ideas from his campaign, a new Department of Early Childhood and an independent Hawaii Energy Authority, could wait. He said he would try to develop a leadership position in his office for early childhood and was open to proposals by lawmakers to restructure the Public Utilities Commission.

"The challenge before us, then, is not to balance the budget. Our challenge is to ensure that our values and priorities are reflected in the decisions we make and the actions we take," he said. "And boy, do I mean what I’m going to say now: The time for debate — debate which merely goes through the motions, or rhetoric for the sake of a safe-harbor political agenda — has expired. Everyone must be prepared to contribute."

After his address, Abercrombie walked outside to the courtyard at the state Capitol, where he spoke to dozens of advocates for the poor and needy who had come to push for more social-service spending but instead learned that some of their programs might be cut. He told reporters that the potential service cuts in welfare were mainly the result of the federal government’s decision to scale back, leaving the state unable to sustain services at existing levels. The potential reduction in Medicaid benefits is because of higher health care costs.

Alex Santiago, executive director of PHOCUSED, a consortium of social service nonprofits, said he was "kind of taken aback."

"Most of us had come expecting to hear a greater emphasis and a greater priority placed on the social-services programs," he said. "That is, after all, what I believe a lot of the campaign was based upon; a lot of our support was. It was prioritizing.

"And so what we’ve heard today is that apparently we have to really take a much closer look at what his administration’s policies are going to be."

Sen. Suzanne Chun Oakland (D, Kalihi-Nuuanu), chairwoman of the Senate Human Services Committee, said lawmakers would work with the governor to adjust social services so that the cuts do not fall on the most vulnerable.

"We have to do it in a way that it will not hurt them," she said. "If anything, it will improve the service that they receive in a more efficient and appropriate way."

Randy Perreira, executive director of the Hawaii Government Employees Association, said the union and the governor have not yet had collective-bargaining discussions, so he could not react to the governor’s reference to labor savings. The governor had informed labor about the potential loss of reimbursements under Medicare Part B for retirees, and the union has posed a series of questions in response.

Perreira said labor has relied upon some of the public statements Aber-crombie made during the campaign about not pursuing furloughs in new contract talks. If the governor was speaking to labor with his comment yesterday about everyone contributing, Perreira said public workers had contributed toward reducing the deficit.

"It’s not as if public employees have not been part of that budget equation," he said.

Senate Minority Leader Sam Slom (R, Kahala-Hawaii Kai) questioned the concept of the government raising taxes to curb alcohol abuse or obesity, arguing that it is up to individuals to control their behavior. He also does not believe the governor identified enough spending cuts.

"I don’t think that it went far enough in the direction that we need, and that is, reduce severely government spending, government debt," he said.

House Speaker Calvin Say (D, St. Louis Heights-Palolo Valley-Wilhelmina Rise), who has been criticized by labor for suggesting unpopular changes to the retirement system, said he was inspired by the governor’s resolve.

"What the governor was really saying to the general public at large is this: We cannot continue on at the rate we are going," he said. "Revenues have plateaued while expenses have gone up in the skyrocketing mode."

While Abercrombie is a talented stump speaker, with an energy unmatched among Hawaii politicians, he has not always connected as well on the policy front. Yesterday, however, several observers said he was at his most effective. He appeared comfortable, if a little emotional, back in the House chamber where he served four decades ago, telling an extended anecdote about how he and Ben Cayetano, as idealistic young representatives, once got outplayed on a vote by the savvy Rep. Tony Kunimura of Kauai.

He also appeared humble, speaking to lawmakers as a former colleague and a friend.

"I stand before you, not above you," he told them. "And I stand with you."

"He’s becoming more of that chief executive, and I think that’s what you saw in today’s tone," said Rep. Denny Coffman (D, N. Kona-Keauhou-Kailua-Kona). "He’s still Neil, and if you know him you can see and feel his enthusiasm. But there’s also a very serious side. I feel good about what we’re starting here."