Governor sees surplus

Gov. Neil Abercrombie, setting an optimistic tone for the next session of the state Legislature, released a budget draft on Monday that calls for a modest increase in state spending and anticipates a healthy surplus as the state moves out of a recession.

The governor’s supplemental budget request represents a stark turnaround from last December, when he warned of a deficit that would eventually climb to $1.2 billion. But state tax collections have improved as tourism rebounds, tax increases generate new revenue and spending restrictions hold down expenses.

Abercrombie asked state lawmakers for $188 million in new state spending for fiscal year 2013, a 1.7 percent increase which would bring the state budget to $11.1 billion, up from $10.9 billion in the previously approved FY 2013 budget. The budget for fiscal year 2012, which ends June 30, is $11 billion.

The governor proposed new money for student transportation, welfare, a student spending formula, health care for the poor and child protection.

The budget draft is based on 14.5 percent revenue growth for this fiscal year projected by the state Council on Revenues. If the council’s forecast holds, the state would have a $199 million surplus at the end of the fiscal year in June and a $234 million surplus at the close of the next fiscal year.

"This is a balanced budget with no tax increases. How’s that for a great opening line?" Abercrombie said at the start of his news conference at the state Capitol.

Abercrombie would offset his new general fund spending — the portion of the budget over which the governor and lawmakers have the most control — with savings so that the net general fund spending increase would be a modest $34 million.

Most of the spending increases would deal with higher costs for public education and social services. The governor asked for $25 million extra for school bus service — a request that will be closely scrutinized by lawmakers because of skyrocketing costs in student transportation — and $23.3 million for welfare client services contracts. He called for $13.5 million more for a student spending formula because of enrollment growth at public schools, and $8.1 million for Medicaid payments. He recommended $6.8 million more for Child Protective Services contracts.

Abercrombie also asked for smaller investments in his "A New Day in Hawaii" initiatives, such as the state’s information technology makeover, watershed protection, broadband expansion and childhood obesity and diabetes prevention.

The governor would offset some of the new spending through savings in debt service, public worker and retiree health insurance premiums, and the public worker retirement system.

Abercrombie said the state’s improved finances would allow lawmakers to debate public policy issues on their merits next session after several years when the budget deficit dominated. "We don’t have to have the specter of a deficit facing us, or a lack of funds in order to balance the budget, to be the foundation for that discussion of the broader issues," he said.

Abercrombie also requested a $1.2 billion increase in the capital improvement projects’ budget for the next fiscal year, which would bring state construction spending to $2.2 billion.

Kalbert Young, the state’s budget director, said the administration took a conservative approach to the Council on Revenues’ forecast. He said the budget would still balance — and produce surpluses — if revenue growth comes in at 13 percent, 1.5 percentage points lower than projected. The state Department of Taxation reported Monday that revenue collections were up 17.9 percent through the first five months of the fiscal year, but the increase drops to 5.8 percent once the impact of former Gov. Linda Lingle’s decision to delay income tax refunds last year is factored.

Abercrombie will ask lawmakers to use some of the proceeds from a successful state bond sale in November to replenish the state’s rainy day and hurricane relief funds, which the governor drained to get through the last fiscal year. The governor said he felt he had "a moral obligation, a political obligation" to restore the emergency funds.

Credit rating agencies that judge the state’s finances consider the cash reserves an important safety net.

State Sen. David Ige (D, Aiea-Pearl City), chairman of the Senate Ways and Means Committee, said there is interest among House and Senate leaders in replenishing those funds.

Lawmakers have said, however, that there will likely be competition for the money from social-service advocates and others who want to see state spending on core functions restored. It might also depend on whether revenues come in as expected.

"I do think that we have interest in recapitalizing," Ige said. "Whether we do 100 percent, 50 percent, 25 percent, 75 percent, I think that’s the question mark."

Ige said it will be a relief to start a session without the immediate threat of a deficit to complicate the budget.

"It’s a little bit easier when you’re going into a session and you’re not talking about tax increases or all of these things in order to make it balance," he said.

While Abercrombie said he will not propose new taxes to help balance the budget, his advisers are discussing possible increases to finance specific initiatives, either next session or — if it becomes politically unpopular in an election year — in future sessions. The governor is exploring a soda tax to pay for childhood obesity and diabetes prevention. An increase in the barrel tax on petroleum products — or diverting money from the barrel tax that now goes to balance the budget — could be used to fund watershed protection or other environmental programs.

"I’m from Hawaii Kai but today I’m from Missouri," state House Minority Leader Gene Ward (R, Kalama Valley-Hawaii Kai) said of the governor’s comments about taxes. "Show me and I’ll be believe it."

Hawaii News Now video: Abercrombie administration submits supplemental budget to Legislature