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Budget agreement reached; proposals to close gap pending



State House and Senate negotiators reached an agreement tonight on the final draft of the two-year state budget, but put off decisions on the revenue-generating bills to balance the budget and close a $1.3 billion deficit until tomorrow.

The budget draft, which now goes to the full House and Senate for final votes, involves $11 billion in state spending in fiscal year 2012 and $10.9 billion in spending for fiscal year 2013. The general-fund portion of the budget, over which lawmakers have the most control, is $5.4 billion in fiscal year 2012 and $5.5 billion in fiscal year 2013.

The budget draft would increase state spending over this fiscal year but is less than Gov. Neil Abercrombie’s budget request.

The increase in spending is mostly due to higher Medicaid, public-worker health care and debt service costs.

Lawmakers set aside $88 million a year in labor savings based on the new contract reached between Abercrombie and most units of the Hawaii Government Employees Association, which calls for a 5 percent pay cut, the equivalent of one furlough day a month for state workers. Lawmakers presume that the governor will reach similar deals with the Hawaii State Teachers Association and the United Public Workers.

Lawmakers, however, chose not to use state general funds to finance scheduled pay raises for the University of Hawaii Professional Assembly as part of the faculty union’s six-year contract reached two years ago. Instead, lawmakers directed the University of Hawaii to cover the faculty raises from special funds.

Lawmakers also made about $120 million a year in state programs cuts, but gave the Abercrombie administration the discretion over how to make about up about half of the amount through the governor’s restructuring efforts.

The big-ticket revenue-generating bills on the table tomorrow to close the deficit would suspend general excise tax exemptions on targeted business activities, divert money from a rental car surcharge to the general fund, cap itemized deductions on higher-income taxpayers, repeal a state tax deduction on higher-income taxpayers, and impose a pension tax on higher-income retirees.

State Sen. David Ige, the lead Senate budget negotiator, said today that the Senate would not agree to a pension tax, preferring instead to expand the repeal of the state tax deduction to cover more taxpayers.

State Rep. Marcus Oshiro, the lead House budget negotiator, said the House was not ready to give up the pension tax as an option and argued that it fits within the House’s philosophy of directing tax increases on higher-income taxpayers.

House and Senate conferees also reached agreement tonight on a capital improvement projects budget of $1.8 billion in fiscal year 2012 and $1 billion in fiscal year 2013, including improvements to schools and public housing.



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