Budget cuts hit construction, schools

Gov. David Ige has proposed a package of spending cuts for the next two years that includes slashing the state construction budget financed with general obligation bonds to $1 billion from $1.5 billion during the next two years.

That reduction in construction spending would save the state nearly $20 million in borrowing costs during the two years beginning July 1, according to a message Ige sent to lawmakers Monday. Lawmakers have not yet been provided with a list of which state construction projects the administration proposes to cut.

House Finance Chairwoman Sylvia Luke said the House has proposed its own revisions in the Ige budget that also incorporated cuts in the two-year construction budget from the $1.5 billion originally proposed by Ige to about $1.1 billion.

The House proposed those cuts “because we also had some concerns that $1.5 billion was too large to sustain,” Luke said. “So, we completely concur with what the governor is doing now, which is pulling back on projects because he’s worried about the future debt service.”

The state Department of Budget and Finance is also recommending wiping out over the next two years $20 million that was supposed to fund the governor’s grant program to encourage innovation in public schools.

The administration is also suggesting lawmakers trim another $20 million from the budget over the next two years that had been earmarked for boosting education funding by increasing the schools’ allocations based on the weighted student formula.

Ige is also proposing to pull back on his plan to fund dental benefits for adult Medicaid recipients for potential savings of about $14 million over two years, according to documents provided to lawmakers.

At the same time, the Ige administration is asking lawmakers to authorize $30.6 million in severance payments for Maui County hospital workers whose jobs will be privatized later this year.

State lawmakers in 2015 authorized the privatization of Maui Memorial Medical Center, Kula Hospital & Clinic and Lanai Community Hospital, and the state struck a deal last year to have Kaiser operate all three facilities. Most of the employees at those facilities are expected to remain there when Kaiser takes over, but the public worker unions successfully negotiated severance packages for them now that the hospital employees will no longer enjoy the fringe benefits of being public workers.

The latest package of budget proposals is prompted by new tax collection estimates from the state Council on Revenues.

When the administration drafted its proposed budget last year, the council was predicting robust growth in general treasury tax collections of 5.5 percent this year. However, the actual growth in tax collections appears to have slowed, and the council in January reduced its projection to 3 percent growth for this year, and then reduced it again earlier this month to 2.5 percent growth.

The council has also reduced its projections for growth in tax collections for the year that begins July 1 to 4 percent from 5 percent, and reduced its growth projections for the following year to 4 percent from 4.4 percent.

Those reduced tax growth projections don’t exactly qualify as a fiscal disaster, but they have forced the Ige administration to set out reductions in its proposed $7.4 billion general treasury budgets for each of the next two years. Each percentage-point reduction in tax collections reduces the amount of money available to the state by about $60 million.

Among other adjustments by the Ige administration is a proposal that lawmakers scale back significantly on an initiative to increase state contributions to the public employees’ pension fund, which has an unfunded liability of about $12.44 billion.

State Budget Director Wesley Machida said the administration had originally proposed increasing state contributions into the pension fund by about $200 million over the next two years, but is now proposing $100 million.

Department of Education officials say they’re hopeful Ige’s original funding requests for public schools will be revisited as the budget makes its way through the legislative process.

“As we await further clarity on recent budget adjustments, the department is committed to working with legislators on the budget items that were approved by the Board of Education,” Amy Kunz, senior assistant superintendent and chief financial officer, said in an emailed statement. “At this stage in the session, we are hopeful that the education budget remains a priority to strengthen student achievement.”

The governor’s original budget in December proposed adding $28 million to the per pupil funding pot known as the weighted student formula for next year — much lower than the $50 million boost the Board of Education had requested. At the time, Ige touted the $28 million as the “largest investment in instruction at the school level ever.”

The Department of Education had sought that boost in per pupil funds as a way to to help schools narrow achievement gaps between high-needs students and their peers.

However, in a revised budget the governor sent to lawmakers last month, Ige reduced that request to $10 million, and now even that money is being eyed for cuts.​

The proposed reduction would mean the department’s per-pupil budget would be flat for next year. The DOE received about $887 million for the current fiscal year to allocate through the weighted student formula.

Also recommended for the chopping block is a controversial $10 million annual appropriation that Ige had sought to establish an innovation grant program that public schools could use for out-of-the-box approaches to improve student outcomes.

The draft of the budget developed by the House does not include additional per pupil funds or any money for the innovation grants.

There are other costs on the horizon that are not yet accounted for in any of the budget drafts. Contracts for all of the state’s public workers unions expire this year, and the Ige administration and lawmakers still don’t know how much extra the state may have to pay for negotiated public worker raises or additional benefits.