The cost of state government will rise to $12.6 billion in the fiscal year that starts July 1, an increase of about 4 percent over the current year, due largely to contractual requirements such as health benefits and raises negotiated by the previous administration, Gov. David Ige said Monday in unveiling his proposed budget for the next two-year cycle.
Those obligations would push the budget to about $13.1 billion from all sources of funding in the following fiscal year, an increase of about 8 percent.
Although the budget mostly reflects contractual obligations, Ige said he and his advisers continue to review all department budget requests and expect to identify their priorities by the State of the State speech in January.
"We do anticipate that we would be putting a more specific imprint on the budget in January as we get department directors on board and they’ve had a chance to view the budget requests and budget proposals that were developed as part of the budget process," Ige said at a news conference held in his office.
The sources of funding include $6.5 billion in general funds for fiscal year 2016 and $6.8 billion for fiscal year 2017.
Ige also released a capital improvement projects budget of $1.1 billion for fiscal year 2016 and $638 million in fiscal year 2017. Of those amounts, the requests for general obligation bonds total $290.8 million and $255.9 million, respectively.
Healthy carry-over balances have allowed the state to develop a financial plan without layoffs or reduction-in-funding proposals, but the state still continues a trend of deficit spending that Ige said is likely to continue in the short term. The carry-overs allow for a balanced budget as required by the state Constitution, he said.
Although Ige said he does not see the need to pursue a broad-based tax increase to balance the budget, he stopped short of saying he would veto a tax increase if one were passed by the Legislature.
"I’m committed to working with the Legislature so there’s no surprises," Ige said. "I cannot see a situation where I think a tax increase would be warranted in this session, but I’ve been involved long enough to know that sometimes things happen."
Ige said he would pursue tax modernization strategies in an effort to collect unpaid taxes and close loopholes that may be allowing some taxes to go uncollected. He said the state could potentially recoup "hundreds of millions" in revenues without increasing taxes.
"I do believe that we need to make investments in tax modernization in the Department of Taxation in collecting taxes already owed from taxpayers," Ige said. "We’re going to be focusing on that before we look at any broad-based tax increases."
Sen. Jill Tokuda, the new chairwoman of the Senate Ways and Means Committee, applauded Ige’s prudent approach in his first budget.
"I think that you’d have to start to look at creative ways to start to raise and diversify revenues," Tokuda (D, Kailua-Kaneohe) said. "I don’t think anyone comes into this wanting to, off the bat, start to raise taxes."
Ige continually acknowledged there would be little in the way of new initiatives.
"The fiscal reality is that there isn’t a whole lot of money," Ige said. "Past decisions made are driving the bulk of the increase."
Ige said there were no funds set aside for the much-maligned Hawaii Health Connector, the state’s marketplace for insurance established under the federal Affordable Care Act. He said the Health Connector might still be identified as a priority after further consultation with new Cabinet members.
"We’ve had some preliminary discussions about the Health Connector, but we’ll be working through that," Ige said. "As we get a more specific transition plan, then we would make the request for whatever funds would be required."
The budget remained status quo for community hospitals, but Ige said new leadership at the state hospital system, coupled with new directors at the departments of Health and Human Services, could bring about change.
"This budget includes the same general fund subsidy for the hospital system, so it is clearly less than what they are asking for," Ige said. "It really is about getting new leadership on board — fresh eyes will be looking at the challenges of providing quality health care in rural communities."
Ige also noted that the budget did not include any requests from the University of Hawaii, except for the pay raises negotiated for faculty last summer.
"We will be evaluating all of those requests with the new department heads and establishing priorities," he said. "It’s very clear that leadership is about having priorities.
"We’ll be working with the new Cabinet members as they come on board to review the request and make decisions about those programs that are most important."
Ige still has a number of vacancies to fill in his Cabinet, but said he expects to announce a few more appointments in the coming days. He said there remains a chance he could have the entire Cabinet named by the end of the year.
