The senator in charge of finalizing the state’s budget says Hawaii lawmakers have just two options to balance this year’s budget: raid special funds or “completely shut down spending.”

Hawaii faces an estimated $1.3 billion deficit between now and the end of the 2013 budget year. In the short term, lawmakers need to make up a $232 million shortfall in the next three months to meet the state requirement for a balanced budget.

“We’ll have to find moneys already in the budget and try and divert them, or completely shut down spending. Really, that’s the only two options to close the deficit in the current fiscal year,” said Sen. David Ige, chairman of the Ways and Means Committee.

Ige’s committee heard testimony Monday on House Bill 200, the House’s draft budget. (Read a related story about the hearing by Chad Blair.) The Senate is now in charge of proposing a balanced budget for the current year and the upcoming two budget years. The committee did not make a decision Monday, but Ige said they’ve already made cuts from the $10.98 billion in spending for fiscal 2012 and $10.97 billion for fiscal 2013 in the House budget. A Senate budget draft is expected by the end of next week.

GET Hike an Option for Future Years

Asked if a hike in the general excise tax is being considered for the upcoming 2012 and 2013 fiscal years, Ige said it could be an option, but that lawmakers are more interested in finding solutions for sustained economic growth.

“I think if you look at the financial plan as you project out six years, then obviously all of those kinds of issues come back into play,” Ige told reporters in response to a question about a possible GET increase. “I do think that we want to take a reasoned look. Obviously there are issues that are currently before us, and we don’t want to — and I think that there has been consistent conversation about the process — we really don’t want to be looking at the one-time kinds of things … for proceeding forward. … We’re trying to make conscious decisions about managing the budget on the spending side, looking at labor costs, and then looking at revenue increases that can be sustained for a longer period of time that establish a firm base for the economic recovery.”

Ige also touched on former Gov. Linda Lingle‘s decision to delay tax refunds, saying the move simply helped balance the books on paper.

“We haven’t really talked about delaying tax returns, for example, and I think the (Council on Revenues) in their deliberations in March really talked about the fact that it’s really hard to figure out what’s going to happen in the last quarter because of those kinds of activities that really just were done for bookkeeping purposes rather than really trying to resolve the fiscal situation,” Ige said.

Senate Has the ‘Tools’ to Close Gap

Ige said if the Council on Revenues maintains its projection for 0.5 percent growth in tax revenues for the current year, the Senate has a good handle on how to fill the budget shortfall. Under that growth projection, the deficit is closer to $969 million through 2013.

“If the council doesn’t make a change, I think the course we’re planning, we’re kind of in the ball park,” Ige said. He noted the Senate has advanced bills for a liquor tax, a “streamlined” sales tax, eliminating state income tax deductions and itemizations, and that it’s scheduled to hear testimony on a proposed pension tax.

“Obviously what has happened in Japan and its impact is significant and I’m not exactly certain where the council is going to be going or not,” he said. “I think that if you look at the last Council on Revenues projections, I think that we have the tools in front of us to try and deal with that. If it’s significantly different than that, then that’s a challenge.”

Kalbert Young, director of the Department of Budget and Finance, is pegging the deficit at about $1.3 billion, which assumes negative 2 percent growth in tax revenues.

A clearer indication is expected Tuesday when the Council on Revenues holds a special meeting to reconsider its forecast at the request of Gov. Neil Abercrombie. The current forecast came out just hours before the devastating Japan earthquake and tsunami hit.

“We respect the advisement of the Council on Revenues,” Young testified Monday, “but at the 0.5 percent rate of growth, the state would have to collect $408 million in each month for the rest of the fiscal year. In the history of the state, there hasn’t been more than two consecutive months with that kind of collections. … It gives me reason to issue caution and concern that we may be looking at a rate south of 0.5 percent or even less than 2 percent growth.”

State Department Budgets Slashed by 10%

Young told the committee that raiding the state’s Hurricane Relief Fund, Rainy Day Fund and dozens of special funds would not be enough to close the gap.

“All three would have to be availed to eat the majority of the shortfall, and even if we took all three of those, it won’t be enough,” Young said.

He said the administration is looking at any special funds that can be “swept” by means of a 2010 law — Act 192 — that allowed certain special funds to be tapped to address last year’s budget shortfall.

Young told lawmakers the Abercrombie administration also is calling for a 10 percent cut to all state departments to help close the deficit for the current year. He said the spending cuts would generate between $14 million and $15 million and would come from general fund appropriations.

Young told Civil Beat the cuts would include so-called “non-committed costs” like travel expenses, training programs, office supplies, unawarded contracts, utility bills and salaries for vacant positions.

“We’re not talking about laying off people or pay cuts,” Young said. He said there would be an appeal process for departments whose budgets mostly go toward labor, including the Department of Education and Department of Public Safety.

Lawmakers asked Young if Abercrombie is reconsidering his commitment to cover a bigger share of state employees’ health benefits — an $18 million added expense for the current budget year.

Young responded that he hasn’t had a conversation about it with the governor since the earthquake.

He gave lawmakers a grim picture of the challenge ahead.

“When you have only four months to make up that difference — you’re talking about some very limited choices,” he said. “We’re literally talking about shuttering programs that are already in existence, or suspending operating budgets in a landscape where departments are still under fiscal restrictions such as spending cuts, hiring freezes, and even with those in place, a $71.6 million shortfall would have taken a fair amount of effort to close that gap. Now to take it to $232 million, the executive and legislative branches will have to be engaged to do some significant measures.”

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