2017 Legislature: Money woes are the elephant in the room
BRUCE ASATO / BASATO@STARADVERTISER.CO
Members of the State House of Representatives were in session in the House Chamber at the Capitol.
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.”
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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.
25 responses to “2017 Legislature: Money woes are the elephant in the room”
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Like the Rev. Jeremiah Wright said: “…chickens are coming home to roost”. With respect to Hawaii, the chickens are of the social-progressive breed, reliant on taxing, spending and borrowing. The inevitable is now occurring. Other people money is running out. Truth be told, there was no surplus of more than $1 billion when he state closed the books last year. The “budget surplus” was a ruse, a trick designed to fool the public. As of this date, the public does not know what the “books” show because the “books”, aka, State of Hawaii Comprehensive Annual Financial Report for the fiscal year ending June 30, 2016 (CAFR-2016) has not yet been published. When it is, it will show the rest of the story, the debt that is. In all probability, the largest in state history.
As for the national rating agencies that gave Hawaii its best-combined credit rating and outlook ever, that only has significance with respect to the state’s ability to borrow more money from the lenders. The banks, who underwrite the bonds are more than happy to lend it as long as they believe the state can and will further increase the taxes on the taxpayers. It has little to do with the finances and well being of the people who have to pay off the debt. Keep in mind that these are the same rating agencies that were rating the mortgage-backed securities from many of the same banks that led to the 2008-2009 market crash and subsequent recession
Well said! It is important to note that the ERS pens!on fund has ALWAYS had BILLION$ in unfunded liabilities. It is an unrealistic goal to be fully funded. Our government simply needs to learn to live within its means. That means REDUCING the pens!on benefits workers are ent!tled to before we go bankrupt like the city of Detroit.
Remember, the pens!on fund is not the ONLY state ent!tlement program with unfunded liabilities in the BILLION$. There is also the EUTF health fund. Government retirees may end up having to choose which one is more important. Money does not grow on trees.
“Money does not grow on trees.”
Yes it does! Go ask any Banana Republic! LMAO
All kidding aside, you must realize that under current federal laws states can not ever default a.k.a file for bankruptcy. What the “D”onkey Banana Republic of Hawaii will do is continue to grow the liabilities to the point of nuclear meltdown that will eventually come bank to haunt it. California, another “D”onkey run state, is a perfect role model, their government pension system, CalPers, is literally half a trillion in the hole!!! Yes, you read it correctly, half of $1-trillion dollars in the red! LMAO
What has the “D” State of California done? Simple, they milked their tax base to the point that major Fortune 500 firms are moving out of state to much cheaper states like Texas by the droves! We shall see the state completely implode at some near future.
In the meantime we should encourage Hawaii’s ERS pension to invest 100% of their funds into future investments they shoved down the rest of our throats. They should put their money where their mouth is, by investing 100% of their pension into rail! LOL
Well said! It !s important to note that the ERS pens!on fund has ALWAYS had B!LL!0N$ !n unfunded l!ab!l!ties. It !s an unreal!st!c goal to be fully funded. Our government s!mply needs to learn to l!ve with!n !ts means. That means REDUCING the pens!on benef!ts workers are ent!tled to before we go bankrupt l!ke the c!ty of Detro!t.
Remember, the pens!on fund is not the ONLY state ent!tlement program w!th unfunded l!ab!l!t!es !n the BILL!0N$. There !s also the EUTF health fund. G0vernment ret!rees may end up having to choose wh!ch one !s more !mportant. Money does not grow on trees.
Kaaaboommmmm! And this time with Republicans in office, there will be NO bailout for the “D”onkey run state!
What bailout did Obama give Hawaii? Only the truly ignorant would want to brag about his stupidity.
agree. But Jill is also right: Ige has been totally discredited by submitting such a dishonest and ludicrous budget.
I would like to introduce, to the governor & the state legislature, as well as to the mayor & the city council, Grandma Economics..
Don’t spend, more than you make. Don’t count chickens, before they hatch. Never borrow money, on a plantation salary. Never gamble, on a sure thing. Always invest your money, into your home. Don’t count on other paddlers, paddle your own canoe.
Yes, it is sickening that there is only talk of raising taxes, and nothing about prioritizing spending, or cutting waste, or cutting useless fat and bureaucracy from the government.
And the people keep voting the same lame ducks over and over again.
I said this before the election and some can vouch for me. The governor and legislature were bragging about the billion dollar surplus before he election. I said the surplus would turn into money woes shortly after the election. I’ll be darned if I wasn’t right once again.
Some things are predictable in Hawaii.
‘problems that confront lawmakers are the lack of affordable housing, the condition of congested state highways’!!! Are they too dim-witted to understand that all this roots in overpopulation mainly caused by rampant immigration. The lines at the immigration center are daily spitting more people from miserable countries into our haven. We are getting just as miserable as the rest of the world.
Problem will fix itself. Based on current trending sea level rises, in year 2100 Waikiki will be the worlds most modern coral reef with a 50 foot high observation tour called the rail as tourist ride throughout its partially sunken pillars and stare at the once amazing city of Atlantis, I mean Waikiki! LOL
Plenty of hand wringing followed with the predictable “YES…with reservations” to allow MORE mindless, irresponsible spending…
With a booming economy and $1 Bil surplus, why is the Gov proposing yet again to raise the gas tax and registration fees? Not a penny to our inefficient and ineffective DOT until that department is “re-engineered” to become better, faster, cheaper. They also need to have substantial, real plans to mitigate our choke neck traffic rather than all the bolt-ons of the past that are marginal at best and make traffic worse with the 24/7 gridlock caused by work done at night and weekends.
Money woes? What happened to that billion dollar surplus that someone talked about awhile ago?
I hope they invested it rail! LOL
Not one mention from an elected official about reducing, or at least, freezing spending levels. Not one. Just more talk about how to conjur up new tax and fee revenues.
Pay State obligations and quit spending money on all the new projects/programs no matter how politically lucrative they are to you guys.
But we can afford and tax the people for RAIL? Makes a lot of sense, doesn’t it. Legislature should be looking at ways to reduce the people’s tax burden, not increase it.
My I ask if anyone else realizes that the State measures its “Surplus” using Cash Basis accounting?
And it is dangerously different from Accrual Accounting that is legally required of members of the Public who are engaged in the production of everything the politicians take and spend, i.e. required of businesses run by the Public.
For example, Abercrombie “refinanced” $0.4 billion of bond debt into $1.4 billion of debt to “save money”. Since he is part of the Government Sector, the $1 billion of additional Cash he borrowed increased the State’s Cash receipts $1 billion, and he is allowed to count that as part of year-end Cash “Surplus”.
On the other hand, if an executive of a business run by members of the Public Sector reported the borrowed billion as Profit, she or he would go to jail.
Note: I consider us the Public Sector, and politicians as the Government Sector. That’s why businesses that create the wealth politicians take and spend are correctly called “Publicly-Traded Companies, isn’t it? The split is Public-Government, not Public-Private, because we are the Public and members of the Public have a right to private lives.
I guess to be “balanced” I should also ask if anyone remembers the footnotes to the government statement reporting Lingle’s fabled $700 million “Surplus” from her “vibrant and expanding economy”? It is the footnote that reported she left unspent $700 million of cash authorized for repairing the deteriorating WW-II buildings in when Hawaii houses its schools.
Again, not spending money on overdue repairs and maintenance does increase the reported “Surplus”. But all it accomplishes is pushing that cost to the future. The need for the skipped maintenance and repairs doesn’t go away.
But wait … what was future for Lingle and Aberchrombie is now our present. And here we are.
So, I ask. Does no one else see the inconsistency between politicians telling us ours is a “vibrant and expanding” economy out of one side of their mouths, and out of the other side telling the press their “Experts” are baffled by the fact tax collections are materially lower than those “Experts” were paid to “project”? Because I see an inconsistency.
And I remember. Perfect consistency doesn’t “prove” a truth, but a single inconsistency always proves at least one falsehood.
My Solution? I side with America’s Founders who warned us that without powerful Checks and Balances, Power will always ultimately corrupt the politicians who hold so much.
And in that area Hawaii’s GOPs have failed miserably. The deconstruction begun to elect and keep Lingle elected has left Hawaii’s 86* most important offices with only 6 nominally GOP occupants. Sadly Checking and Balancing only themselves. [*86 = 1 Gov. 5 Mayors. 2 US Senate, 2 US House, 25 State Senate, 51 State House.]
So, it is time to build a Replacement Party I think. The DEM/GOP monopoly didn’t always exist. They just replaced the Parties that preceded. The Greatest Story Ever Told records … To all things that is a Season that ends. And who in their right mind would want to see America Ruled by exactly two, and only these two Parties till our sun burns out in 5 billion years?
Oh … A system that offers “Exactly, and Only Two” choices is the literal definition of “Polarized”, but it is
literally impossible to “Polarize” 3 or more of anything.
Happy New Year
TAPP
Excellent analysis.
Pardon my ignorance, but what is “TAPP”?
Most of the heavily “D” devout states like California, Hawaii and NY are all living a pipe dream. Their Utopian Libtard viewpoint of free money from the sky lie will eventually implode like the housing bubble.
Like Margaret Thatcher famously said…. The problem with socialism is that you eventually run out of other people’s money. LOL
Once again your ignorant is rearing its ugly head. Two of the three states you mentioned have super vibrant economies and if they were to exist as a separate country, they would each be a top 20 economies in the world. You should count your blessing that some of these blue states’robust economy balance out the many under-performing red states that you’re so highly praise. Just another stupid redneck who would rather cut off his nose to spite his face.
You better pray that Cali and NY won’t implode. These two heavyweights are the ones that doing the significant heavy lifting for the U.S. in term of economic output. Your bottom 20 under-performing red states combined could not carry the jockstrap of these two blue states. But whatever, if you want to cut off your nose to spite… then who am I to interfere.
Love Souki’s comments that the Governor has some money in his little pockets here and there.