UH regents reach budget impasse

Members of the University of Hawaii Board of Regents Budget and Finance Committee couldn’t agree Thursday on how much money to seek from the state Legislature for the financially troubled UH Cancer Center, and instead passed out a budget proposal omitting the $5 million university officials had wanted.

The committee did vote unanimously to approve the rest of the approximately $11 million in budget add-ons for next fiscal year that UH Chief Financial Officer Kalbert Young presented, including $3 million for UH-Manoa’s struggling athletics program and $3.5 million for a university initiative to boost research and innovation.

But the committee was deadlocked on an amendment that would have reduced the $5 million request for the Cancer Center to a symbolic $1 placeholder. The vote was 4-4, with committee Chairwoman Jan Sullivan voting in favor of the motion and committee Vice Chairman Barry Mizuno and board Chairman Randy Moore voting against it.

The full board will take up the budget proposal at its next meeting, scheduled for Oct. 15 on Maui.

That’s also the deadline for state departments to submit a fiscal year 2016-17 budget proposal to the state Department of Budget and Finance for consideration in Gov. David Ige’s budget request to the Legislature.

The supplemental requests would add to the $428 million in general funds lawmakers have appropriated for UH next year as part of the state’s biennium budget.

Some regents said it would be premature to lobby lawmakers for the $5 million when an external consultant is still working on a business plan for the Cancer Center, which has been overspending revenues by $7.5 million to $9.5 million a year and burning through its reserves. Other regents said they believe the nominal placeholder could signal a lack of support from the regents.

“We do have an ongoing consultant report that hopefully will give the regents some options with regards to how to deal with the Cancer Center moving forward,” regent Benjamin Kudo said. “My suggestion from a strategic standpoint in approaching the Legislature would be that we not put a specific dollar amount, but, say, a $1 (placeholder) so that we don’t have to defend the $5 million, which we really don’t know at this time whether that’s the real figure or not.”

Regent Simeon Acoba argued that the placeholder could send the wrong message.

“I think putting $1 causes more confusion because it signals, at least to the governor, that we stress no opinion one way or the other,” Acoba said, adding that the move conflicts with the requests from the UH administration and the center’s interim director.

Young, a former budget director for the state, told the committee both strategies have strengths and weaknesses. “We’re talking about legislative chess at this point,” he said.

Acoba replied, “It seems to me you’re almost checkmated if ask you for a dollar.”

Young acknowledged the $5 million request was somewhat arbitrary but aimed at signaling to lawmakers the “order of magnitude” of the center’s troubles.

“The $5 million number is not hard and fast and will not answer some of the broader questions I think that everyone is expecting to hear, such as what is the ultimate turnaround solution for the Cancer Center,” he said. “So whether it’s $5 million or $10 million or $1 million or $20 million, it is difficult to get to the qualitative numbers around what supports that amount. … We’re hoping that that can be expected out of the business plan that will be delivered.”

UH-Manoa in August announced it had hired consultant Charles Cosovich, a director at publicly traded Navigant Consulting Inc. of San Francisco, to develop a business plan for the struggling Cancer Center.

The center’s money troubles, according to university officials, stem from a flawed business plan that assumed UH’s share of the state cigarette tax would remain steady at nearly $20 million a year to fund operations. But as fewer people smoke, the center’s share of the revenues has dropped off sharply.

Under former Director Michele Carbone, the center pursued building a new, $100 million facility in Kakaako using that faulty business plan, which has saddled the center with an $8 million annual mortgage payment it can’t afford.

Dr. Jerris Hedges, dean of the John A. Burns School of Medicine and interim director of the Cancer Center, told the regents that the $5 million would help free up cigarette tax revenues that are being used to cover about 20 positions. By instead using state general funds and making the positions permanent, he said, the state would pick up the cost of fringe benefits for those employees.

“Were we to receive the $5 million in (general-funded) support from the state, that would actually be the equivalent to approximately $7.25 million of support,” Hedges said. And with the center projecting it’ll be able to limit its operating losses to $7 million this year by halting recruitment efforts, Hedges said that support “would be a significant step forward in a more sustainable Cancer Center.”

Regent Lee Putnam said she voted to keep the Cancer Center’s full request in the budget to be consistent.

“The way I looked at it is the board correctly has not totally made a decision about the future of the Cancer Center, nor have we totally made a decision about the future of Division 1 athletics,” she said. “And since we voted to include a major request for athletics, I think we should also include a major request for the Cancer Center. They’re equally problematic at this time, in my view.”