Continuation of Balanced and Responsible Approach to Budget-Making

The Legislature probably will not have to make another extraordinary effort to balance the state budget during the 2012 session, despite the recent downward projection of state general revenues by the Council on Revenues.

Because of the Great Recession, the Legislature during the past three years had to balance the state budget by a combination of painfully difficult expenditure reductions and targeted revenue enhancements. Of major significance, the Legislature was able to maintain essential public services without increasing the general excise tax rate or the income tax on low- and moderate-income persons. This balanced and responsible approach rejected extremism and expediency in favor of reason and fortitude.

This balanced and responsible approach, in my view, positioned Hawaii for the current economic recovery, which admittedly is still fragile.

This fragility of the economic recovery makes imperative the continuation of the balanced and responsible approach during the 2012 regular session. For the short-term, the Legislature must maintain stability with respect to the state budget. “Maintaining stability” means no new taxes that divert substantial new general revenues for the financial plan from private residents and businesses. “Maintaining stability” means no major general fund appropriation increase for the expansion of state programs.

Maintenance of Economic Recovery and Promotion of Immediate Job Growth

The economy of Hawaii is projected to grow only gradually in the near future. Jobs also are projected to increase only gradually. Yet, the recovery may be jeopardized by events outside our control, such as the European sovereign debt problem, rising petroleum prices, and federal budget sequestration.

What may the Legislature do to maintain the economic recovery and job growth if public resources are unavailable for new or expanded business tax credits or employment programs?

My view is that the Legislature must be creative and willing to make difficult choices, some of which may be vehemently opposed by segments of the community. The Legislature must seek ways to expedite the construction of public infrastructure projects, so that money is quickly expended in the community. It is not sufficient to merely tout the “appropriations” for projects if actual “expenditures” do not quickly follow. The Legislature also must seek ways to eliminate or suspend mandates or regulations on businesses that increase their costs and divert income that may otherwise be spent on employees.

My approach during the 2012 will be practical and realistic. This approach should not be construed as a lack on my part of long-term vision or “dreams”. Rather, this approach recognizes that, for the short-term, a foundation of stability must be maintained — a foundation on which more expansive “dreams” may be built in the future.

‘Unfunded Liability’

On a final note, I would like to make the term “unfunded liability” as recognized by the general public as “subprime mortgage.”

Four years ago, almost none of the general public knew what a “subprime mortgage” was (neither did I). Since then, the term has become well-known because of the defaults of subprime mortgages, collapse of subprime mortgage bonds, and major contribution of those factors to the Great Recession.

The “unfunded liability” of the State for public employees’ health insurance is huge. The amount of the “unfunded liability” affects the State’s credit rating, thereby affecting the amount of debt service that must be paid by taxpayers on borrowed money. More importantly, if the “unfunded liability” is not controlled, more and more public funds will have to be expended for public employees’ health insurance, resulting in less and less public funds available for other public programs. Or, taxes will have to be increased to pay for the liability when due.

This is the reason all residents and interests, not solely public employees, should be concerned about the “unfunded liability” of the public employees’ health insurance program. (I emphasize that I do not intend that any solution negatively impact present retirees from State or county government.)

About the author: Calvin Say is Speaker of the Hawaii House of Representatives. He is president of Kotake Shokai, Ltd. and Secretary of Tokyo Bento Nichiyo.