The state House and Senate sent Gov. Neil Abercrombie yesterday a balanced budget and financial plan with some cushion to close a projected $1.3 billion deficit, but lawmakers have left little in reserve if the economy stagnates further.
Lawmakers have given the governor the authority to tap the state’s hurricane relief fund, the rainy day fund and other special funds to fill the gap for the fiscal year that ends in June.
For the next two fiscal years, legislators have approved $11 billion and $10.9 billion spending plans — an $800 million increase over this fiscal year — to cover higher Medicaid, public-worker health care and debt service costs and to make up for the end of federal stimulus money. They have also made more than $600 million in spending cuts over two years in the governor’s budget request. The budget presumes $176 million in labor savings — equivalent to a 5 percent pay decrease — from contract talks between the governor and public-sector unions.
But the budget balances because of more than $600 million in new revenue over two years, including the temporary suspension of general excise tax exemptions on nearly two dozen business activities. That would generate about $400 million and is the largest single tax adjustment since the recession sent projected deficits climbing.
“I’ve always said that we will work with the budget we have,” Abercrombie said in a statement. “We will seize on this opportunity to transform government and move forward with our ‘New Day’ plan.”
The budget and financial plan contains a healthy carryover balance that could act as a sponge if the state Council on Revenues lowers the revenue forecast when it meets again later this month.
“That’s going to have to serve as our backup should the Council on Revenues numbers head lower,” Senate President Shan Tsutsui (D, Wailuku-Kahului) said.
But if the council significantly reduces the forecast, that would pose an immediate problem for Abercrombie this fiscal year, and the budget for the next two fiscal years would be knocked out of balance, with little left in reserve because the hurricane relief fund and rainy day fund would likely be drained.
House Speaker Calvin Say (D, St. Louis Heights-Wilhelmina Rise-Palolo Valley) said a major downturn in the council’s projection could prompt Abercrombie or House and Senate leaders to consider a special session to respond.
“The bigger issue, right now, is that can we get through the recession in the next two years?” Say said.
Senate Minority Leader Sam Slom (R, Diamond Head-Hawaii Kai) said that despite the struggle by majority Democrats to close the deficit, the budget is still a “budget buster” because it increases spending over this fiscal year.
Tsutsui said that while the budget deficit dominated the session, he believes lawmakers were productive on public policy.
Early in the session, lawmakers approved civil unions for same-sex and heterosexual couples and the structure for a new appointed school board. Yesterday, lawmakers agreed the state should recognize native Hawaiians as an indigenous people. Tomorrow the House is expected to give final approval to a bill that would reduce retirement benefits for future public workers to help address unfunded liability in the Employees’ Retirement System over the next 30 years.
The House and Senate cast final votes on dozens of bills yesterday, leaving only some loose ends for tomorrow, when the 60-day session is scheduled to adjourn. Although the floor sessions were
anticlimactic after the tension of conference committee negotiations last week, there were still some clear divisions about how the budget was balanced.
The Senate voted 17-8 to suspend general excise tax exemptions on business activities, but 14 of the “yes” votes were with reservations. Several of the “no” votes were from a faction that preferred an increase in the general excise tax with rebates for the poor and middle class to help contain the deficit.
“That was never the Senate’s position, but it was one of those things, right?” Tsutsui said of suspending tax exemptions. “We knew we were kind of backed into a corner once the governor decided that he wouldn’t entertain the GET increase with the exemptions and rebates.
“And that was a big component in the financial plan.”
Sen. Rosalyn Baker (D, Honokohau-Makena) said lawmakers were trying to operate a “21st century government with a 1965 revenue stream,” a reference to the last time the general excise tax was increased.
In yesterday’s most eloquent moment, several senators of native Hawaiian descent spoke of the potential historic significance of state recognition for Hawaiians. Under the bill, a five-member commission within the Office of Hawaiian Affairs would define and create a roll of native Hawaiians, a possible precursor to negotiations with the state over land use and cultural issues.
Senators described the legislation as a state companion to a federal recognition bill sought by U.S. Sen. Daniel Akaka, D-Hawaii, which would treat Hawaiians similarly to American Indians and Alaska natives.
Sen. Malama Solomon (D, Hilo-Honokaa) said that while Hawaiians do not need a state law to confirm they are indigenous people, the bill, like the apology resolution signed into law by President Bill Clinton in 1993, could be part of the reconciliation for the overthrow of the kingdom of Hawaii in 1893. She read senators the last verse from the “Queen’s Prayer,” composed by Queen Liliuokalani in 1895 while under house arrest at Iolani Palace after the overthrow. “And so, to our elder,” Solomon read in both Hawaiian and English. “Protect us beneath your wings. And let peace be our portion. Now and forevermore.”
While lawmakers scratched at tax exemptions and special funds for revenue to balance the budget, they also raised fees to replenish some special funds.
Lawmakers voted to increase the vehicle registration fee and the vehicle weight tax, with the new money going to the Highway Fund. The registration fee would go to $45, a $20 increase, while the weight tax would increase by a penny, to 1.75 cents per pound. Together the proposals are expected to generate about $56 million a year.
Rep. Joseph Souki (D, Waihee-Wailuku) said Highway Fund revenue — which goes toward badly needed road repair and maintenance — has been reduced by less gasoline being sold because of higher prices, smaller and more efficient cars and more people taking public transportation.
“Without this additional revenue we are not going to get the highways fixed,” Souki said. “This is not a threat. This is a promise.”
House Republicans said higher vehicle fees would place an added burden on residents already overwhelmed by rising consumer prices.
“It certainly is a well-intended measure, but I just think the timing of this particular cost-of-living increase is just too much for some of my constituents to bear,” said Rep. Aaron Johanson (R, Mapunapuna-Aiea).
In the House, lawmakers also took up a pair of bills that had been left on the negotiating table Friday after disagreements about tax policy ended conference committee talks.
The House agreed to accept the Senate draft of the bill to reduce benefits and make other structural changes to the Employees’ Retirement System, which is facing a $7.1 billion unfunded liability.
The House also agreed to the Senate version of a bill that extends a 5 percent pay cut adopted in 2009 for lawmakers, the governor, the lieutenant governor, department directors, judges and other officials that was set to expire in June.
The pay cut would be extended through December 2013.
“We really looked back on what was the unfinished business of this session, and it was still out there so we thought it was appropriate to move it since the conference committee couldn’t come to an agreement,” said House Majority Leader Blake Oshiro (D, Aiea-Halawa).