In anticipation of a lowered economic forecast coming out next week, the House Finance Committee called for shaving a total of $500 million from the governor’s $14 billion budget proposal Wednesday.
Rep. Sylvia Luke, the committee chairwoman, told the audience in a crowded Capitol conference room that the flow of general excise tax revenue in fiscal year 2017, which ends June 30, has been less than expected.
It’s unclear exactly where the cuts will be made, but that should become evident when budget worksheets are made available next week.
The House is scheduled to send the budget to the Senate at that time, where Sen. Jill Tokuda’s Ways and Means committee will have the next crack at it.
“It is better to take a more aggressive approach and do further cuts now, as opposed to having a huge budget sent over to the Senate for them to do significant cuts,” said Luke.
If the Council on Revenues on Monday projects the state’s 3 percent rate of growth to decline — as Luke anticipates — it would mark the second time this year that the budget has had to be scaled back.
In December, Gov. David Ige submitted his budget draft to the Legislature: $14.2 billion for fiscal year 2018 (which begins July 1) and $14.3 billion for fiscal year 2019. It represented 4 percent and 5 percent increases, respectively, from the previous biennium.
But in early January the Council on Revenues dropped growth projections from 5.5 percent to 3 percent. That meant that the state had $155 million less to work with in the 2017 session.
When Wes Machida, Ige’s director of budget and finance, later testified before a joint session, Luke and Tokuda lambasted the administration for not submitting a “real” budget that took into consideration declining revenues.
The administration had crafted its budget months before the January revenue projection was issued. By mid-February, the governor reduced the proposal by about $220 million, primarily from decreases in education and the state pension system.
Luke expressed hope that the revenue picture would brighten (she described the flat tax levels as “puzzling”), but she had been warned that it could drop as much as 1 percent.
Machida, who was among scores of department representatives at the hearing, said Luke made a smart call.
“I think, given that revenues haven’t been coming in as expected, then it’s a good and reasonable approach to take, because there is only three more months left in the fiscal year,” he said. “A 1 percent swing either way is about $65 million.”
Rep. Kyle Yamashita, the Finance Committee member who handles the capital improvement projects portion of the budget, said he was looking at “a more conservative CIP budget, just shy of $1 billion.”
However, Yamashita said many CIP projects are “in the pipe now,” enough to “keep the economy going.” As Luke acknowledged, Hawaii’s unemployment is low and the economy is stable.
House Bill 100 is the primary legislative vehicle for the state budget.
As now drafted, it appropriates for operating and capital improvement costs $7.1 billion in general funds and $13.9 billion in all means of financing for fiscal year 2018, and $7.3 billion in general funds and $14.1 billion in all financing means for fiscal year 2019.
HB 100 has a Senate companion, Senate Bill 192, and differences will be worked out in HB 100 — probably during the two-week conference committee period at the end of April.
Given all the uncertainties in the current session, there is bound to be a lot of horse-trading between now and April 30, because final budget numbers dictate so much of what can or cannot happen in legislation and appropriations.
Major variables include settlements with 14 public sector collective bargaining units, and whether the state will transfer its share of the Oahu surcharge on the general excise tax to Honolulu to pay for the beleaguered rail project.
In spite of the sobering money numbers, the mood in the Finance Committee was buoyant.
Luke did not take to task any agency head, as is her wont. (Nearly everyone chose to stand on their written testimony rather than speak before the committee.)
Conference Room 308 was so crowded that many people lingered in the hallway, talking story about family, friends and politics. On more than a few occasions, potential testifiers had to be corralled, unaware that Luke had called for their department.
Luke also asked Machida to lead everyone in singing “Happy Birthday” to Rep. Romy Cachola. He did, and they did.
The full House is scheduled to vote on the budget bill next week.
Budget funding highlights as of Wednesday:
Department of the Attorney General
Department of Business, Economic Development and Tourism
Department of Budget and Finance
Department of Defense
Department of Education
Department of Human Services
Department of Human Resources Development
Department of Health
Department of Labor
Department of Land and Natural Resources
Department of Transportation
University of Hawaii System