WASHINGTON — Hope for the best, but plan for the worst. The State of Hawaii is abiding by half of that adage.

The administration of Gov. Neil Abercrombie has signaled that the biennial budget it submits to the Hawaii Legislature in December will assume Congress finds a way to fix the sequestration cuts set to take effect at the end of the year.

If left unaddressed, the state believes, the cuts would erase a total of $35 million to $40 million of federal support from more than 100 Hawaii government programs.

“Each of the departments in the state that receive federal funds, they’ve been talking with the federal agencies, but there’s been very little insight because the federal agencies don’t even have insight on where they would start these cuts,” state Budget Director Kalbert Young told Civil Beat last week.

The sequester is one component of the so-called “fiscal cliff” now facing the country. (The other major piece is the expiration of Bush-era tax cuts.) Congress and President Barack Obama agreed in August 2011 to impose automatic across-the-board cuts to federal programs if negotiators were unable to shave more than $1 trillion in spending by January 2013.

When it was created, the sequester was intended to serve as motivation for a larger deal and was seen nearly universally as bad fiscal policy. But as the deadline approaches, some are now saying allowing the country to go off the cliff would be preferable to some lopsided forms of a deficit deal. For example, Politico reported Sunday that Democrats are reluctant to cave on tax cuts for the wealthy.

If Congress is unable to strike a deal before the end of the year, the federal government would cut $65 billion from federal programs for the last nine months of the 2013 fiscal year, from January through September. Half would come from defense programs, and half from social programs.

Young, working with the federal government, has determined which state programs would lose funding under sequestration.

The 119 programs on the chopping block are facing cuts on the scale of around 8 percent. The largest cuts in terms of total value are from education:

Other state programs with a lot riding on sequestration include:

  • $2.7 million for the WIC Supplemental Feeding Program administered by the Department of Health
  • $2.1 million for the Head Start Program administered by the Department of Human Services
  • $1.6 million for the Public Housing Operating Fund administered by the Department of Human Services
  • $1.5 million for the Unemployment Insurance Program administered by the Department of Labor and Industrial Relations

But while Young’s figured out which programs could lose federal funding and how much they could lose, it doesn’t answer the all-important follow-up.

“So the question is, if I had to make up $40 million of lost federal funds, as the finance director, how would I do that?” Young said.

The state could fill in the gap and operate the program on a full budget or it could operate the program on a marginally smaller budget. If neither of those options is palatable, a program could be axed entirely.

“Without speaking specifically to which exact programs, states will do a little bit of both,” Young said. “The answer would be that if you lost a significant portion of funding, at some point you would have to not do the program.

“The cuts will not be uniform. The different grants and different programs may be cut in differing amounts,” he said. “The scenario assumes that whatever cuts occur, that is pretty clean, and the question is only does the state want to replace those federal funds with state funds. I don’t know where or how some of these will be worked out.”

He said the administration is contemplating the value of every program and trying to project what each one would look at if the state lost all or part of the federal funding.

“I think there’s always programs that can be trimmed and reduced, but ultimately it becomes a policy decision, whether it’s at the federal level or state level or at the municipal level,” he said. “Which programs should be funded to serve which group of constituencies?

“What would that program look like? … How badly do we want these programs?” he said. “These are questions that are actively being discussed, 120 times.”

Meantime, Young has to submit his budget to the Legislature by Dec. 17. There’s no guarantee Congress will have addressed sequestration by that date.

“If I had to go in on a budget today, it assumes that sequestration is fixed. And if it’s not fixed, or if there’s some impact to it, the executive branch will have some opportunity to communicate revisions to the budget,” Young said.

Budget revisions during the legislative session are not uncommon, and Young said he’s already been in touch with key lawmakers about the approach the administration is taking.

“They will not be surprised, but they are also aware that if we get some federal cuts, there will be some revisions. We’ll have to work together on how those reductions are actually cleared into the budget,” he said. “Sequestration is just another aspect that we have to keep aware of.”

The Hawaii Board of Education took a similar approach last month when it sent its budget to the governor.

The Department of Education accounts for receiving $20 million less in stimulus money, but anticipates $2 million more in federal funds due to labor savings, budget documents show. The documents don’t reflect any potential sequestration cuts. Nor was there any discussion of that scenario in the department’s budget presentation to the board. So the DOE’s projected budget for Fiscal Years 2014 and 2015 is actually a bit higher than Fiscal Year 2013 in terms of federal funds.

The state government would not be the only Hawaii entity hit by sequestration. Island nonprofits would see a reduction in funding, and county governments could be asked to pick up some slack as well.

“The one thing that people should know is that federal sequestration does have an impact down to the individual because you’re talking about reducing funds to the states,” Young said. “That’s really what’s happening across the country. It flows from the top down. As the federal government reduces its spending, states are being asked to step in and fill the gap. And similarly when states can’t fill the gap, municipalities are being asked to fill in the gap. So all of these expenditures flow downhill.”

While the social programs side of the ledger is Young’s main focus, simliar cuts are set to take effect for defense programs as well.

Hawaii, by virtue of the heavy military presence, could see a hit to the economy from defense industry cuts. The Pew Center On the States, exploring the impact of the fiscal cliff on the states, said federal defense spending accounts for 15 percent of Hawaii’s gross domestic product. That’s the highest mark in the country and far above the national average of 3.5 percent.

Asked specifically about the impact of the cuts on the operations at Kaneohe’s Marine Corps Base Hawaii and other Hawaii military installations, MCBH Media Officer Lt. Diann Olson said in an emailed statement that the base has not yet done a full assessment.

“Sequestration is alarming due to both the magnitude and the mechanism, because the law calls for across-the-board cuts. We have not yet fully assessed the impact of how sequestration may affect specific Marine Corps programs or departments,” Olson wrote. “The Office of Management and Budget and the DOD are working closely to understand the law and assess its impacts.”

— Nathan Eagle contributed to this report.

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