Nicholson asked Takahashi if he knows how much longer he will need to examine the witness.
“It’s not going to end today,” the chairman observed.
“No, it won’t,” Takahashi replied, and Halvorson rolled his eyes. “I hope for half a day, but I’m not sure.”
The lawyers and chairman agreed to resume Young’s examination at 1:30 p.m. next Thursday, Dec. 22. After the budget director’s morning budget meeting with state House leaders.
Takahashi seems to be running out of steam with his questions about the $88.2 million labor savings cut, which was contained in section 96 of the state budget.
“What is the implication of section 96?” he asked the budget director, after an extensive discussion about the means by which Young could achieve the savings.
Halvorson objected on the grounds that the question has been asked and answered at least three times already.
Nicholson sustained the objection, and Takahashi followed up: “Is there anything else you see about implications of section 96 that you have not already testified? I’m just trying to make sure we have a complete record.”
Young paused before replying, in what was almost his last statement for today.
I think I’ve sufficiently conveyed to you what I believe are the overall larger implications of the $88.2 million.
In my opinion, there is no connection between the $88.2 million and collective bargaining. It is not a mandate to the office of collective bargaining. It’s a mandate and requirement about the execution of the budget.
The executive branch is choosing to get there with the guidance and assistance of the collective bargaining process.
Takahashi followed up by asking the budget director if, to his knowledge, the Office of Collective Bargaining established a 5 percent pay cut and 50-percent employer contribution to health care as part of its goals for 2011.
“As far as I know, there is no stated objective or goal in collective bargaining,” Young replied. “That’s out of respect for the dynamics of that process. There’s no way to guarantee the outcome of collective bargaining. I respect and appreciate that.”
Takahashi has been hammering at the budget director on whether the contribution amount for retirement benefits is negotiable.
“Is any aspect of the state’s employee retirement system, structure, benefits or program negotiable with the unions under chapter 89?”
Young doesn’t have a chance to answer before the labor board chairman interrupts.
“Are you saying that chapter 88 is unconstitutional?” Nicholson asks Takahashi. “It seems to be negotiable. It’s a cost item. Unless you’re talking about taking away the right of public employees to negotiate over their pensions.”
“That’s a very good question, Mr. Chair,” Takahashi responds.
A long pause ensues.
“That’s a door that’s being opened here,” Nicholson says ominously.
The Legislature budgeted for Young’s department to achieve $88.2 million in “labor savings,” he testifies.
He had nothing to do with setting that amount and has no idea what it amounts to in wage percentages for each of the labor unions. But his office has not hit the mark yet, he says.
The current approach he and the governor chose has been to achieve those savings through bargaining. But in his mind, Young said, that amount can be saved in a variety of ways.
“Labor savings, in my mind can be achieved by multiple other methods other than collective bargaining, such as layoffs, shuttering of programs, elimination of positions, denial to fill approved and funded positions,” he tells Takahashi. “The Legislature didn’t say how to achieve those savings, but they did set the mark that it must be $88.2 million in savings.”
Hawaii owes debt “in excess of $4 billion, closer to $5 billion,” Young testifies. “We currently have 20 years worth of outstanding debt.”
This latest bond issue refinanced $488 million of that.
What does that mean, Takahashi wants to know. Young puts it in terms a homeowner can understand.
“Say you have an outstanding mortgage on your home that you took out maybe in 2003, at, say, 5.5 percent interest. Fast forward to 2011, when you can go down the street to the bank and get a new 30-year mortgage at 4 percent.
“You’ve refinanced your mortgage. You maybe had 20 years left on your 5.5-percent rate. Now you have a 4 percent interest rate over 30 years. That’s tantamount to the same thing that we did here with this transaction.”
Young says he refinanced the $488 million at a cheaper rate, and restructured it so the timeline for when the various debts mature is different.
Deputy Attorney General Halvorson has repeatedly objected to the line of questioning around the state’s bond sale and other unanticipated revenues.
HSTA’s lawyer has been on the topic for at least three hours now.
“What’s the relevance?” Halvorson keeps asking.
Takahashi has responded with, “I’m trying to get a clear picture of this.”
Which doesn’t answer Halvorson’s questions about relevance.
Although he has echoed Halvorson’s curiosity about relevance, the board chairman is allowing Takahashi to proceed.
Young testifies that he believes Hawaii’s latest interest rate on its debt (around 3.4 percent) is a historic low.
“So that lower interest rate and favorable sale allowed you to incur a greater debt at a lower price long term for the state?” Takahashi asks.
Young says it’s actually greater debt at the same price.
“And you’re able to do this in the middle of a European debt crisis and the fiscal budget shortfall crisis?” Takahashi asks, almost incredulous.
Young said he believes Hawaii was able to achieve its low interest rate because of the European debt crisis.
“You believe the European debt crisis helped you?” Takahashi asked, his voice sounding even more incredulous. “Please. Tell us how you believe the European debt crisis helped you.”
Young explained that interest rates on U.S. treasuries and governmental issued bonds have been dropping, because investors are buying them up. Hawaii’s issued bonds are relatively secure, he said, when compared with the debt turmoil in Greece and other European countries.
“It’s a flight to quality,” he said. “A lot more investors are wanting to buy more secure debt, and some investors do believe that issuers like Hawaii, relative to the U.S. government and countries in Europe, are a much stronger debt risk.”
Nicholson calls for a 10-minute recess. Takahashi says he doesn’t know if he will be finished with the witness by the end of today.
Young testifies that his office estimated it would cost the state $158.8 million per year to end furloughs for all state employees.
By contrast, the recent bond sale is projected to yield only $59 million in savings spread over the next eight years. That amount includes the interest the state will avoid paying in the later years because it paid off faster in the earlier years, the budget director says.
Despite the relatively small amount in projected savings, he testifies, the administration accounted for ending furloughs. Their budget proposal included a 6 percent and 8 percent increase for fiscal years 2012 and 2013, respectively.
Hawaii’s primary revenue sources for its general fund are the general excise tax and the individual income tax, Young testified before the board.
Takahashi wanted to know how they play into the Council on Revenues’ projections. The resulting exchange, as so many of them in this case, involved almost half the people in the room.
Takahashi: In the period from December 2010 to June 30, 2010 — sorry, June 30, 2011 — what did the collection of these two taxes show?
Young: What did they show?
Takahashi: Yes. What did they show?
Young: I don’t understand what you’re asking.
Takahashi: Did the growth of revenue collection improve positively in the period from Dec 2010 to the present?
Halvorson: Objection! Improve over what?
Takahashi: Prior periods. To what extent did COR rely on that to support its forecasting?
Halvorson: Those are in evidence, they speak for themselves, so asking this witness these questions is a waste of time.
Nicholson: You should probably subpoena someone from the Council on Revenues about this. Objection sustained.
Takahashi is deeply interested in the state’s recent bond issuance, and its credit rating.
Young testifies that Hawaii’s bond rating is currently two notches below Aaa, which is the highest one awarded. Hawaii’s rating of Aa puts it “somewhere in the top third of states,” Young says. He adds that two counties in Hawaii have higher ratings than the state does.
Takahashi asks Young how Hawaii’s bond interest rate compares to other states.
“Anecdotally, if you look at other states that sold in same general time period that Hawaii did, Hawaii’s rate is lower than some other issuers,” the budget director says. “And some of those have a slightly higher rating than Hawaii did.”
“But Hawaii is borrowing at a lower rate?” Takahashi asks.
Yes, Young confirms.
We’re back from lunch, and Takahashi is back on the topic of the state’s finances at the end of fiscal year 2011.
He wants to know if Young thinks Hawaii’s financial picture is better now than it was under former Gov. Linda Lingle’s leadership. It sparked a snippy exchange between the attorney and the witness.
“In my opinion? I’d like to think I’m doing a better job for the state,” Young said.
“Is your opinion based on any fact?” Takahashi asked.
“The fact that I’m still employed by the governor,” Young replied, at which HSTA President Wil Okabe in the audience laughed out loud.
Nicholson abruptly ended Takahashi’s line of questioning and sent everyone into lunch recess until 1:30.
We’ll be back then.
Halvorson and Nicholson want to know where Takahashi is going with his questions about budget shortfalls, the Hurricane Relief Fund and the Rainy Day Fund.
“Are you trying to show that the state had money and therefore should not have made an agreement that was made with HSTA for a 5 percent pay cut?” Nicholson asks Takahashi. “You’re saying that should not have happened if there were funds available to pay the status quo for all bargaining units?”
No, Takahashi says.
“I’m trying to show that the April 27, 2011 threats that were made about 10 percent cuts, which ‘could lead to nasty things, including layoffs,’ were empty,” he tells the board chairman. “No such philosophy or policy existed to support it in the administration.”
Young testifies that the governor’s administration used a number of strategies to address the budget shortfall in the 2011 fiscal year.
“We cancelled a number of operational contracts in various departments, we suspended the operations of a number of programs, denied requests for hiring various positions,” Young tells Takahashi. “There’s a lot of methods to address small pieces of the overall shortfall.”
The union attorney tells the labor board that based on Young’s testimony so far, Superintendent Matayoshi’s warning to HSTA negotiators about possible teacher layoffs was “a complete fiction.”
“Why?” asks Chairman Nicholson. “Because Ms. Matayoshi didn’t inform Mr. Young of it? I don’t know how you’re creating this fiction, but you can address it in your brief.”
State chief negotiator Neil Dietz told HSTA negotiators in April that if they did not accept a 5 percent wage cut, state lawmakers might impose a 10 percent cut instead. Young testifies he knew nothing about the possible 10-percent cut.
Takahashi: Did you ever tell Mr. Dietz the Legislature would impose a 10 percent cut if HSTA didn’t accept a 5 percent wage cut.
Takahashi: Did you ever provide an opinion to Mr. Dietz of what you thought the Legislature would do if HSTA did not agree to a 5 percent cut in wages with respect to a 10 percent cut?
Young: I have given Mr. Dietz my opinion based on my various conversations with legislators, about where the sentiment on the status of where collective bargaining was going relative to the budget.
Takahashi: When did you give him your opinion about the sentiment of lawmakers?
Young: I don’t know, but during the course of legislative session.
Takahashi: Did you ever tell him in your opinion that legislators would impose a 10 percent cut if HSTA did not accept a 5 percent cut in wages?
Young: No. I never told Mr. Dietz that the Legislature would impose a 10 percent cut if teachers did not accept a 5 percent cut.
Halvorson objects to the repetitious questioning.
“If (Takahashi) wants to find out what the opinion (Young) shared with Mr. Dietz was, then ask that question: What the opinion was that he shared with Mr. Dietz.”
But Takahashi doesn’t ask. He moves on.
Gov. Abercrombie preferred to avoid layoffs, Young testifies.
Takahashi calls it a policy, but Young disagrees.
“It’s probably more accurate to describe it as a philosophy, a personal understanding, or mutual understanding of each other’s grasp of that philosophy, that the governor preferred not to utilize layoffs as a fiscal conservation or control measure,” Young says.
Where was that philosophy articulated, Takahashi asks.
In the budget, Young says.
Does that philosophy still stand today?
“As far as I know, generally yes.”
Halvorson is impatient.
“We can stipulate that the governor would like to avoid layoffs,” he says. “We could also stipulate that he’d like to avoid a train wreck. I don’t know why we’re stating the obvious.”
Labor board chairman Jim Nicholson tells Takahashi to move on.
An example of Takahashi’s questioning style:
“To your knowledge, has the council from December of 2010 to the present day, to your knowledge, has the Council of Revenues to your knowledge revised the revenue forecast for fiscal year 2012 or fiscal year 2013?”
By the time the question is completed, the first part has been forgotten.
“Since when?” Young asks.
“Since the time you prepared your budget,” Takahashi responds.
The answer is yes. Young says the council has changed the revenue projection a number of times. Relevant to this case, because it is based on those projections that the state creates its budget — and determines how much it needs to cut from or it can add to its expenditures.
Takahashi asked Young a number of questions about the budget office’s budget proposal for fiscal years 2012 and 2013.
“In your request for a general fund appropriation, did you include as part of the increases the funds necessary to restore wages of employees without furloughs?”
Young says they did contemplate that. The governor wanted to end furloughs.
“So your intent in submitting the budget was to ensure that furloughs would not be carried forward for the fiscal year starting July 2012?” Takahashi asks.
He testifies that the Council on Revenues projected 6 percent and 8 percent growth in the state’s revenues for FY 2012 and 2013, respectively.
“Was that above the level of funding without furloughs for those years?” Takahashi asks.
State budget director Kalbert Young took the witness stand this morning, and preliminary questioning began.
Within six minutes, the deputy attorney general made his first objection, already frustrated with the direction this examination is taking.
HSTA attorney Herb Takahashi asked Young about the history of the Department of Budget and Finance.
“Objection,” said Deputy Attorney General Jim Halvorson. “I know he’s a history major, but is that why he’s called to the stand? He’s the budget director, he’s got other things to do.
“This hearing has already dragged on long enough. What’s the relevance to this case?”
Stay tuned. We’ll begin coverage of the hearing as soon as it starts.