Gov. David Ige is planning to borrow money from the federal government to raise cash to navigate the budget crisis caused by the coronavirus pandemic, but said layoffs, pay cuts or furloughs of Hawaii public employees are inevitable if Congress and President Donald Trump don’t come through with more help.
In an interview with the Star-Advertiser last week, the governor outlined features of the new financial plan his administration has developed to ride out the economic malaise caused by the pandemic, which triggered an abrupt economic shutdown and a steep dive in tax collections. But Ige warned there is more pain ahead.
“The reality is that the European Union just shut down travel from the U.S.,” Ige said. “I mean, nobody wants travelers from the U.S. because the virus is raging, and two-thirds of our visitors come from North America. How do we manage that in a way that allows us to get our economy going?”
Given the sudden dropoff in tax collections and the collapse of the critically important tourism trade, Ige said the state cannot continue to spend at the rate it has been. The administration must take steps to reduce payroll costs, and the available options are layoffs, pay cuts or furloughs, he said.
“Those are the three choices,” Ige said. “I do think federal aid is really the only answer that would be helpful. At least with what we’ve looked at, just trying to make the financial plan work, if the federal government would provide more relief that would allow us more time for the economy to recover.”
When asked to respond to Ige’s comments, Hawaii State Teachers Association President Corey Rosenlee said in a written statement that “HSTA appreciates leaders in the Hawaii Legislature have budgeted the money to avoid state employee pay cuts and layoffs. Republicans in the U.S. Senate need to take action to pass federal stimulus to avoid making this situation worse.”
HSTA has about 13,700 members.
Representatives of the United Public Workers and Hawaii Government Employees Association did not respond to a request for comment Friday.
The state Council on Revenues earlier this year downgraded its tax collection projections because of the pandemic, leaving state government with a $2.3 billion budget shortfall for the two fiscal years that end June 30, 2021.
Ige warned public worker union leaders in April that he planned to impose 20% pay cuts for teachers and most other state employees, along with a 10% cut in pay for first-responders such as police officers, firefighters, nurses and emergency medical technicians, according to an account of the meeting distributed by Rosenlee to HSTA members.
A month later Ige backtracked on that plan, saying there is no “immediate need” for pay cuts.
Balancing the budget
But the state must put a new financial plan into place to balance the budget, and state lawmakers in May passed bills to authorize strategies such as cutting the funding for vacant state positions and substituting borrowed bond money for cash appropriations to free up more operating funds.
Ige has not yet signed those bills into law, which means they have not yet taken effect. In fact, he vetoed one of the measures because he said lawmakers neglected to authorize a bond issuance the administration is planning for 2023.
Ige said last week his new financial plan includes borrowing $750 million from the Federal Reserve’s Municipal Liquidity Facility to help pay the state’s bills, but he is wary of additional loans from the program.
The cost of borrowing under the Municipal Liquidity Facility, which was set up to help state and local governments manage cash-flow issues, is very low, but “the challenge with the municipal loan program is it’s short-term,” Ige said. The state would need to begin repaying substantial chunks of that money almost immediately after borrowing it and would have only three years to close out the debt.
If the state economy and tax collections do not recover almost immediately — and some experts doubt Hawaii will bounce back that fast — the short-term borrowing could aggravate the state’s budget problems in the years ahead.
Hawaii qualifies to borrow up to $2.1 billion from the program, but “once you get over $1 billion, it really is not that helpful because we’ve got to pay it back in such a short interval,” Ige said.
Lawmakers also have given Ige authority to tap the Hawaii Hurricane Relief Fund if need be. The state drew on the hurricane fund to cover a budget shortfall triggered by the last recession in 2009-10 and later replenished the fund.
The governor asked for legislation to draw from the HHRF, which now holds about $183 million, but said he has no immediate plan to dip into that cash.
Lawmakers in Washington, D.C., and President Trump authorized extra unemployment benefits for both employees and independent contractors who have lost their jobs, and also passed the Paycheck Protection Program to support small businesses, but those programs are scheduled to expire later this year, Ige noted.
“For the last two months or so, the economic reality has been softened because of the federal funds,” he said. “But when that ends, there definitely will be very difficult challenges that we’ll need to meet. We’re going to have to make choices about the things that get funded and don’t get funded.”
From the perspective of public workers, the use of furloughs is more desirable than flat-out pay cuts, Ige said. Public employees would lose income either way, but at least they get some extra time off with furloughs, he said.
Some lawmakers have suggested Ige may not have the legal authority to unilaterally impose furloughs — an issue that was litigated during Gov. Linda Lingle’s administration — but Ige sidestepped that issue.
“We’re going to negotiate to arrive at something that makes sense. I’m not a fool, it certainly will be a challenge to do that,” he said. “I would say this: I have the constitutional requirement to have a balanced the budget, and I can’t spend more money than we have. So, if we don’t have the money, I can’t spend it, and so I gotta make the budget work.
“So, clearly all options are going to be on the table to make the budget work,” he said.
Ige’s warning about pay cuts or furloughs comes just days after state lawmakers voted to appropriate more than $150 million in general funds and an additional $50 million in federal and other funds to pay for pay raises for thousands of exempt employees and members of the Hawaii Government Employees Association and the University of Hawaii Professional Assembly.
The governor had a major role in negotiating most of those raises last year — although some were awarded through binding arbitration — and it was Ige who submitted the pay increase packages to the state Legislature for funding.
Lawmakers’ votes in favor of the pay raises on June 26 surprised and angered some observers because they came at a time when tens of thousands of private-sector employees have been thrown out of work due to the pandemic.
When asked if he feels that giving out raises to public workers now is the right thing to do, Ige replied that other bargaining units had already received raises, and “so from a fairness perspective, yes, I agree that the pay raises were consistent with the pay raises already granted to the other units.”
Ige said raises worked out to about 3% per year on average for union members and exempt employees, and said those raises “were negotiated in good faith and based on the financial condition of the state at the time.”
Of the vote itself, Ige said that “I wish they would have taken action earlier, but we’re here, and we’ll have to make sure that everything fits in the financial plan.”
He added: “We are going to have tough decisions to be made, and right now the revenues don’t support the size of state government today, and so we are definitely going to have to find a way to move forward and make the budget work.
“I’ve said publicly, and I’ve told the public servants, that any kind of pay reductions will be the last resort. We’re going to exhaust all other means to make the budget work,” he said.
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