It’s been the year of the Amazing Shrinking Budget. The size and scope of this one is far larger than the Maui County ledger that Kalbert Young once oversaw — and though at 41 he’s among the youngest in the state budget and finance director job, he’s sanguine about the challenge. Budget balancing is, he said, like chasing a moving target.
“Businesses and business managers probably are most familiar with this because it’s run the same way that any business would run,” said Young, a 1987 Maryknoll School graduate who holds a University of Hawaii master’s degree in business administration and an undergraduate degree in American history.
“You’re basically running your operations on what you believe will be your projected revenues, and you cut and curtail your business operations to the extent you think your revenues are not going to keep pace with your expenses. In that regard, the state is the same as any business.”
But that’s about the only similarity. Young has heard the narrative about running government like a business, a sentiment he dismisses as “naive.”
“In fact, the majority of services that government provides, it provides because the private sector would not provide them, because there is no revenue incentive,” he added. “It’s not a business.”
Young defends the Abercrombie administration goal of restoring at least a modicum of the basic services that have fallen away during the recession. And he is hopeful that investing in a coordinated state computing system will add efficiency in the long run. More immediately, the wrangling with lawmakers over the current deficit presents a high hurdle, but Young’s keeping his eye on the real prize: a more affordable government that can still deliver.
“I would rather have a fully functional Department A than half-functional Departments A, B and C,” he said. “Let’s pick the course and go there.”
QUESTION: How do you respond to critics of the original budget, which widened the deficit?
ANSWER: If you look at where the increases were, … they were in what I would consider fixed, noncontrollable items. Debt service increased … increased utility and operating cost. Fringe benefit expenses is probably the largest increase. Also, the retirement system. For instance: Payments into the retirement system are also projected to increase. The amount we have to pay in to sustain the retirement system is important. Otherwise … you’re talking about a collapse of the retirement system. … When you look at the budget, … only $50 million (of the increase) represents any of what I would consider expansion in programs. But even with that, you’re not talking about new programs that never were in existence. You’re talking about restoration …
Q: … Of programs that were cut during the Lingle administration?
A: Or previously.
Q: Could you give any examples of what fell into that $50 million restoration category?
A: Reinstatement of the agricultural inspectors, funding of DBEDT (Department of Business, Economic Development and Tourism), reinstatement of some Department of Health programs — the dental program, early childhood — it was all included in the Temporary Assistance for Needy Families funding, which was federally funded before. And when all those funds went away, or never materialized, the question was: Are those programs worthy to be funded using general funds? So for the Abercrombie administration it was “yes,” in some minor fashion; that was included as part of the “50.” But it was not to say they were expanded. The state was already providing them. We were actually curtailing them, but still agreeing to fund them at some base level.
Q: So when the House reacted by ratcheting it back, were they assuming that they could get other savings?
A: I believe that’s what the House assumes, that there could be savings garnered elsewhere. Savings is interesting, because you come down to a fundamental philosophy about what is the current state of your state government.
The state has cut to such a point over the last four years that any further cuts, you’re literally talking about which programs are we going to shutter and eliminate. Because there’s really not much more talk about skinnying up. Literally, you have programs operating at 50 percent capacity. … So, are we talking about stopping services? Does the public realize that restaurants used to have health inspections twice a year, and now they get inspected once every two years? That’s what we’re talking about. And now if you want to cut, are we talking about inspecting them once every three years? Is that sufficient for people?
Q: The talk this week about a 10 percent reduction: Is that only for the budget hole for the rest of the current fiscal year?
A: It’s part of the solution to close the gap, to get through the last four months of this year.
Q: What are the other parts of the solution?
A: In no particular order: We will likely need to use the Hurricane Relief Fund, the rainy day fund. We will not be issuing any general obligation bonds this entire fiscal year, so that will save on debt service. We will be sweeping some special funds into the general fund. We may be asking for authorization to utilize the tobacco settlement fund. Just those alone could equal as much as $220 million, depending on how deep you want to sweep on some of the special funds.
Q: You say the Council on Revenues’ projection, a 1.6 percent revenue decline, is too optimistic. Where would you put it?
A: I’m actually looking that the revenue actualization could put us somewhere about negative 2 percent. So that would put us somewhere around $232-238 million. … But some have actually said that even negative 2 is somewhat optimistic. The reason for that is because in the last four months of last fiscal year, the state withheld tax refunds. It artificially inflated the revenue receipts for the last four months of last year. It basically pushed forward that to this year.
Q: So it’s like an IOU?
A: That’s what it is, IOU, yeah. But you gotta remember, the last four months of last year, even when we did that, the average revenue receipts in the last four months from last year was $389 million. If the state was to collect $389 million in the last four months of this year, we would be at negative 2 percent. And we are not proposing to withhold tax receipts. … Maybe we’re in the infancy of seeing a full-on recovery process, but then the earthquake and the tsunami thing kind of dampens that, too.
Q: Beyond the current year, are you looking at maintaining that 10 percent across-the-board cut for the next biennium?
A: It’s too early to tell how that will all play out. We are working very closely with leadership in both the House and the Senate that satisfies what they feel is the fiscal perspective and philosophy, and that also satisfies where the Abercrombie administration would like to lay a groundwork to deliver the New Day promises, which is to provide a government that is responsible and delivers services to the public. That’s what we pay taxes for. … If I have to pay taxes, let me have the services I’m paying for. I don’t want to be paying for crippled services.
Q: Do you think some functions of government can be eliminated, or bureaucracies restructured, to reduce spending further?
A: I’m sorry if I seem like I’m going to skirt that, because I’m going to try to avoid my personal bias in answering this, but I’ll answer it this way. As long as I’ve worked in government, I have not seen any government program that didn’t have its own vocal constituency advocating for it. So to that extent — if we are talking about “Are there any programs the government could stop doing?” — there’s a number of programs the government could stop doing because it’s not part of its constitutional mandate to do them. But there will always be people who are going to be detrimentally affected by it.
Q: For whom there is no other recourse?
A: Possibly no other recourse. And the public probably doesn’t realize, but the government has actually effectively ended a number of programs, through its course of RIFs (reductions in force), budget reductions and spending cuts already.
Q: Do you have examples of those?
A: The vector control program; they didn’t realize that … over the last three years, basically, we have nobody doing vector control. It probably should have been evident to people when we had that Chinatown rat thing going on. But now you have dengue fever and I don’t know if people are asking, “Hey, what happened to all the spraying?”
Q: Why was it vector control that was pared away?
A: Probably because you haven’t had a dengue fever outbreak since Maui in 2001 or 2002, just because there’s no emergency, (but) something’s always going to come up later on. The Department of Commerce and Consumer Affairs decimated its banking and financial institutions regulation division. This is a division of about six people; they have two. You talk about the financial crisis and banks, and the state of Hawaii does not have any financial institution regulators.
Q: So why? Was it expediency? Or through attrition, retirements?
A: It’s all of those. It was an implemented, concerted hiring freeze; reduction by attrition was in play. They are legitimate, viable fiscal measures any business would implement. … I think because the down cycle has run so long … that program of reduction by attrition, hiring freeze, elimination of positions may have run too long. Because now you’re at this point where you have to talk about, “Should we even be doing this?” Because if you want to do X, you’re going to have to staff up, and you’re going to have to pay money to get these people in there. And it’s money we don’t have.