According to the March 10 projections from the Council on Revenues, Hawaii faces a nearly $1 billion deficit over the next two years. Our priorities at the Legislature are now even more challenging and are twofold: to balance the budget and to preserve essential services for the public.
In 2009, Hawaii closed a $2.1 billion deficit; about half was through budget cuts. In 2010, we closed an additional $1.2 billion deficit, and again, about half was through budget cuts. Consider that the Legislature closed a $3.3 billion deficit over the past two years and must now close a $1 billion deficit this year. The entire state general fund is about $5 billion.
The budget cuts taken in 2009 and 2010 affected the public through furloughs, a shortage of food safety inspectors, cuts in Child and Adult Protective Services initiatives and cuts to programs like Kupuna Care and Adult Day Care.
The spending cuts the House has proposed come from all areas of state government. These cuts include reductions to the public employees’ retirement system and Medicaid benefits; reducing the number of health aides and counselors; and a salary decease for legislators, executive officers, judges and probably teachers and other employees.
However, to maintain the core services that the public demands, we cannot rely on budget cuts alone. The Legislature could eliminate the departments of Taxation, Agriculture, Attorney General, Human Resources, Labor, Land and Natural Resources, and Business, Economic Development and Tourism, and still not close the budget deficit.
In the budget bill passed by the House, we ended furloughs and provided for abused women, the handicapped, the aged and vulnerable children. Most of the increase in this fiscal year’s budget pays for these essential services. It now falls to the governor and the labor unions to determine, through collective bargaining, whether furloughs will continue to be needed in the future.
Despite the cuts in government spending, there is still a need to increase revenue. The bills we have passed out of the House will generate an estimated $300 million per year. When we looked at revenue-generating bills, however, we protected low- to middle- income residents who can least afford higher expenses.
One of the bills that has generated much debate is House Bill 1092, House Draft 1, which taxes the pension income of individuals with a federally adjusted gross income of $100,000 per year, and couples or surviving spouses with a federal adjusted gross income of $200,000 per year. About 4,000 of Hawaii’s 555,000 tax filers would be affected, less than 1 percent of Hawaii taxpayers.
No one wants to raise taxes. But if we must ask everyone to make a sacrifice, it should include those at high-income levels. We also considered that Hawaii is one of a handful of states that doesn’t tax pensions; 40 states do. It is also a fact that retirees without employer-funded pensions are already taxed on their retirement income.
In these difficult economic times, especially in the wake of the Sendai earthquake and tsunami, we have to be willing to make sacrifices and consider all proposals to close the budget gap facing our economy. It may well get worse before it gets better.
The global economic crisis has made it clear that our economies will never be the same and that we must all adjust to a new normal.
Let’s envision what we want Hawaii to look like when we recover from the recession, and work together toward that end.