Gov. Neil Abercrombie, in a status report on the state’s financial condition, said Wednesday that the state has closed a sizable budget deficit but faces an “undeniable storm” of fiscal challenges that could upend the state’s economic foundation.
In an address at Washington Place, the Hawaii Democrat said the state overcame a $214 million deficit from the time he took office in December through the close of the fiscal year in June and was on track to erase a projected $1.2 billion gap over the next two years.
The governor said the state began the new fiscal year in the black for the first time in three years after a fiscal crisis inherited from former Gov. Linda Lingle.
But he warned that five long-term financial challenges that may be tempting to ignore must be confronted.
Abercrombie cited an $8 billion unfunded liability in the state Employees Retirement System and a $14 billion liability in the state Employer-Union Health Benefits Trust Fund. He said the state’s per-capita debt is the third highest in the nation and is eroding the state’s credit rating.
He said rising health care costs are becoming too much of a burden on government and private sector businesses. He said the state is overly reliant on imported fuel and food.
Abercrombie said the state has failed to adequately invest in early education programs for children and job creation that may keep people from leaving the islands.
He said potential federal cuts to Medicaid and defense programs, along with a lack of federal money to provide education and social services to Pacific migrants, could badly damage the state’s economy.
“These are threats we can’t run away from,” the governor said. “These are common foes. They know no special interest. There’s no political party involved in this. All the arguments and the accusations that we either have had or could have will drown in the overall destructive force of these threats.”
The address, which was streamed live on the Internet, was meant to give Abercrombie an opportunity to plot a course after a legislative session and a few public-relations mistakes left his administration a little shaken.
Abercrombie will bring in Kate Stanley, a former state lawmaker with good relationships at the state Capitol, as a senior adviser to help the administration connect with lawmakers on policy. His communications advisers have sought to bring more discipline to the administration’s message.
State House and Senate leaders said the governor appears to have a better grasp on the state’s financial condition than when he took office and discovered the deficit was far larger than he expected.
State tax revenue projections last fiscal year were heavily influenced by Lingle’s decision to delay income tax refunds to help balance the budget on paper. Abercrombie tapped the state’s hurricane relief fund and the rainy day fund to get through the fiscal year. He said Wednesday that restoring money to the emergency funds is a priority.
“We enter this new fiscal year with a clean slate, and all of that kicking the can down the road and withholding payments and all that artificial balancing is done with, so at least we can start moving forward,” said state Sen. David Ige (D, Aiea-Pearl City), chairman of the Senate Ways and Means Committee.
Rep. Marcus Oshiro (D, Wahiawa), chairman of the House Finance Committee, said it will be important to replenish the emergency funds as soon as possible, since the depletion could influence the state’s bond rating.
“It’s a good approach right now to suggest that we look at that first and foremost, to use some of the projected surplus to replenish those two funds,” he said.
House Minority Leader Gene Ward (R, Kalama Valley-Hawaii Kai) described Abercrombie’s address as “long on rhetoric and short on specifics.”
“Unfortunately, Mr. Abercrombie’s solutions focus on spending more on government services rather than growing our economy and creating jobs,” he said in a statement. “His statement today didn’t even mention our small businesses or entrepreneurs who are risking everything every day to keep our economy moving and provide jobs for our people.”
One Democratic lawmaker, speaking privately, said Abercrombie should refrain from sweeping rhetoric until he can announce more concrete results. The governor mentioned the hiring of a chief information officer, the restoration of hot water at Mayor Wright public housing, and progress on helping the homeless as examples of accomplishments, but that is not the scope of change he suggested was possible as part of his “A New Day in Hawaii” agenda.
The Abercrombie administration also detailed Wednesday how it plans to make $50 million in spending cuts ordered by the Legislature in fiscal year 2012 and fiscal year 2013. Lawmakers gave the governor the discretion to make the cuts so he could achieve some of the restructuring he promised in his “New Day.”
But most of the savings this fiscal year will come from an equal split on health insurance premiums with public workers and renegotiated health care contracts — about $20 million — and from lower debt service from not issuing bonds — about $10 million.
The administration plans to save $8 million at the state Department of Human Services — in part by consolidating welfare services contracts — and about
$5 million at the state Department of Health — in part by reducing home and community-based waiver services. The University of Hawaii expects to save
$3 million through strategic replacement of vacancies from retirement and attrition.
The Abercrombie administration avoided the deep budget cuts many state departments feared when asked to prioritize programs and services earlier this summer.
“They are not as steep as the departments were asked to turn in. They are not as steep as the $50 million could have been,” said Kalbert Young, the state’s budget director.
Abercrombie said the transition to his “New Day” is under way and indicated that his administration would continue to focus on the broad goals of creating jobs, investing in people, and transforming state government so it is more efficient.
In a riff on one of his campaign themes, the governor said the state could not sustain the status quo.
“What we need now is faith and trust in ourselves. We can do it. We are doing it. We’re succeeding,” the governor said.
