2017 Legislature: Money woes are the elephant in the room

There will be hand-wringing over lagging tax collections, and anxiety surrounding the discovery last week of an extra $3.7 billion shortfall in the public workers’ pension fund.

There will be political pressure for public employee raises, and urgent requests from city officials asking that the excise tax surcharge be extended to keep the money spigot open for the budget-busting Honolulu rail project.

Economically speaking, these are the best of times in Hawaii, but you won’t know that by watching the scramble for money shaping up at the Legislature this year.

Tourism arrivals, visitor spending and tax collections are all at record levels. The state closed the books last year on a budget surplus of more than $1 billion — the largest in state history — and finances looked so good in September that national rating agencies gave Hawaii its best combined credit rating and outlook ever.

Yet somehow there still isn’t enough money to go around, and everybody wants some.

“It’s a money year, again,” said House Democratic Majority Leader Scott Saiki. “There are just really significant areas that need more funding.”

The Legislature will gather for its 29th biennial session Wednesday at 10 a.m. at the state Capitol. Among the nagging problems that confront lawmakers are the lack of affordable housing, the condition of congested state highways, and aging facilities such as the Oahu Community Correctional Center that need to be refurbished or replaced, said Saiki (D, Downtown-Kakaako-McCully).

Gov. David Ige unveiled a draft two-year, $28.5 billion budget last month that attempts to address some of those concerns. The budget — which includes spending from federal and special funds as well as the state general treasury — sets out $100 million next year in construction funding for affordable housing and related infrastructure, and $50 million for construction and renovation of public housing projects.

Ige’s budget proposes to spend $173 million more next year from the general treasury than the state expects to collect in taxes and other revenue. Ideally, spending does not exceed revenue, but the state can rely on its hefty year-end surplus to make up the difference.

Still, lawmakers such as Senate Ways and Means Committee Chairwoman Jill Tokuda contend new developments have thrown Ige’s budget out of whack. Last week, Tokuda opined that “the governor should just go back and start from scratch” to develop a new budget.

Part of the problem is state tax collections have been essentially flat for the first six months of this fiscal year, growing by only 0.6 percent through the end of December. Tax experts and economists say they can’t explain why collections are not growing more rapidly in a booming state economy, and the discrepancy presents a serious problem.

Ige’s budget for this year was based on a projection that collections would grow by a robust 5.5 percent, and every percentage point that projection is off represents about $60 million in taxes that was budgeted but might never be collected.

Adding to concerns are new projections that the pension fund for state and county workers has an unfunded liability of $12.44 billion, a whopping $3.7 billion more than lawmakers had thought. Paying off that extra liability over the next 30 years would cost the state about $300 million extra per year.

Tokuda (D, Kailua- Kaneohe) called that figure “stunning,” and well beyond any amounts lawmakers or Ige had intended to commit to the fund.

Further complicating the budget is ongoing union bargaining. Contracts for all of the state’s public worker unions expire June 30, and Ige proposed no pay increases for the next two years for several unions, including the Hawaii Government Employees Association, the University of Hawaii Professional Assembly and the Hawaii Fire Fighters Association.

The state estimates that giving unionized public workers even a 1 percent raise for the next two years would cost the general treasury $86 million. The largest of the unions is HGEA, which has rejected Ige’s no-raise proposal and is headed to binding arbitration in February for the first six HGEA bargaining units.

Ige says he didn’t budget anything for raises, but House Speaker Joe Souki said there likely will be money available for pay increases this year.

“There is enough money,” said Souki (D, Waihee-Waiehu-Wailuku). “We don’t tell how much money we have for raises because they’re going to take all that and more. … The governor is no dummy. I’m sure he has, in little pockets here and there, the money for it.”

Even so, Souki said he expects this will be a tough legislative session. Apart from the scramble for money, lawmakers will confront a double whammy on taxes because the city and the governor’s office are seeking controversial tax changes that would directly affect most consumers.

The city will ask lawmakers to once again extend the half-percent excise tax surcharge on Oahu to complete the 20-mile rail project. The surcharge currently provides about $230 million a year for the project.

The surcharge was originally proposed as a temporary source of funding for rail but had to be extended to cover the project’s skyrocketing cost. The latest rail financial plan estimates it may cost as much as $9.5 billion.

The surcharge is scheduled to expire at the end of 2027, but it will not provide enough to cover the cost of building the rail line unless it is extended again.

Souki said he wants to make the surcharge permanent so the rail can be built to the University of Hawaii at Manoa, but Saiki said the House approaches any such broad tax increase cautiously.

If the excise tax is going to be raised or permanently extended, “there are other state programs that could also benefit from that, and the House does not want to preclude consideration of those other areas, such as public schools and human services programs,” Saiki said.

If lawmakers were to agree now to the city proposal to permanently increase the tax for rail, “in the future it would be very difficult to again increase the (general excise tax) for other purposes,” he said.

Meanwhile, Ige has said he will again ask the Legislature to approve increases in the state’s gas tax, registration fees and weight tax to fund highway construction to ease traffic congestion. Lawmakers rejected those increases last year, and Souki said he will leave it to Ige to persuade lawmakers to approve the gas tax hike this year — if he can.

Souki said polls show 73 percent of residents believe traffic is the biggest problem facing their communities, but those polls also show the public doesn’t want hikes in gas taxes, weight taxes or registration fees.

The Legislature likely will also debate proposals for what some describe as “compassionate choices” in dying, meaning establishing a legal way to provide medical aid in dying for people who are terminally ill and mentally capable.

State Sen. Josh Green, a physician, held hearings on that issue years ago when he was Health Committee chairman in the state House, and again after he moved to the Senate.

Terminally ill patients who were unable to get full relief from their pain presented powerful testimony in support of the bill, he said, and advocates from the liberal wing of the Democratic Party also backed the idea.

Objections came from the medical community “who were adamant that they did not want to be the prescribers of medications that are the cause of death,” Green said. Opponents also included some religious groups.

Perhaps the most passionate opposition came from people who were severely disabled, Green said. Some disabled people were concerned that medically assisted suicide would become “the path of least resistance for health care,” he said.

After long and contentious hearings, Green said there was too little support for the proposals to advance them out of his committees. But “the world changes, as we’ve seen on gay marriage and marijuana legislation, and maybe this,” he said.

Environmental groups and anti-GMO activists will also be pushing this session for bills that tighten regulations over agricultural pesticide spraying and the cultivation of genetically engineered crops following a November decision by a federal appeals court that threw out three county ordinances that restricted pesticides or instituted bans on GMO crops.

Ashley Lukens, director of the Center for Food Safety, said top priorities will include requiring buffer zones between ag fields sprayed with pesticides and sensitive areas, such as waterways, schools, hospitals and nursing homes, as well as mandatory disclosure of restricted-use pesticide spraying.

Currently, agricultural companies voluntarily disclose the restricted-use pesticides they are spraying on their fields, such as atrazine and permethrin, which is published online as part of the state’s Good Neighbor Program.

Mandatory reporting would “ensure that information reported is accurate and timely, and if there are gaps or failures or mistakes, that there are some sort of repercussions in statute that keep these companies accountable,” Lukens said.

Star-Advertiser reporter Sophie Cocke contributed to this report.