The Hawaii Legislature is back in recess after passing a number of bills aimed at shoring up a $1 billion shortfall in the state budget and setting aside $1.3 billion in the state’s rainy day fund.

Legislative leaders said Thursday they will take a three-week timeout and use that time to figure out how best to spend those rainy day funds on emergency budget issues and keeping programs afloat. They also want to take another look at the budget cuts they just passed in House Bill 2200 to make sure they hold up.

Lawmakers tentatively plan to reconvene on June 15.

Gov. David Ige, who now gets to consider the bills passed Thursday, said his administration will also look to make sure the legislators did not axe positions that have actually been filled or take funding that could be used by agencies.

“We want to make sure they didn’t make inadvertent cuts that reduce warm bodies,” Ige said. “That causes layoffs.”

The Legislature recessed again Thursday after passing bills cutting government spending. Cory Lum/Civil Beat/2020

Pay cuts, furloughs and layoffs were all things Sen. Donovan Dela Cruz and Rep. Sylvia Luke, chairs of the Legislature’s money committees, hoped to avoid by cutting unfilled positions and taking unspent funds from departments.

But state budget director Craig Hirai told senators at a committee hearing later Thursday afternoon that furloughs may be imminent even with the budget cuts. Hirai said his department has proposals to avoid such things in the short term, but “typically they aren’t sustainable.”

“You’ve just depressed everyone, Craig,” Dela Cruz said.

Ige, who is a former chair of the Senate Ways and Means Committee, had proposed pay cuts and furloughs in March.

He said Thursday that eliminating vacant positions could slow Hawaii’s economic recovery. 

“As anyone who was involved in the last economic recession remembers, when we eliminate vacancies, it really hampers the restoration of services,” the governor said.

What’s Getting Cut

The Legislature made cuts almost across the board, including to the state Department of Health, the agency tasked with leading efforts to combat the coronavirus. 

The DOH would have about $38 million less to spend this fiscal year, which ends June 30. Its budget would also see a dip of about $20 million in fiscal year 2021.

At a press conference Thursday afternoon, DOH Director Bruce Anderson echoed Ige, saying the administration is still working with the Legislature on the budget.

“I think they’re generally familiar with our situation,” Anderson said of the lawmakers, adding that lab capacity should be expanded to help deal with the virus.

The DOH is facing some cuts even as it is taking the lead on Hawaii’s coronavirus response efforts. Director Bruce Anderson, left, said his agency needs more lab capacity, among other things. Cory Lum/Civil Beat/2020

In fact, state labs would lose $1.1 million and five supposedly vacant positions under the spending plans approved by lawmakers. Adult mental health programs run by DOH could see a cut of $11.4 million — about 66 staff — this fiscal year. 

Various social services programs like child protective services and child care also could see cuts this year of about $49 million.

About $30 million of that comes from a fund used to support the state Department of Human Services Med-QUEST division, which also makes insurance payments. That division will get increased funding next year, however.

The Department of Education could also see about $45 million in cuts under HB 2200, although the DOE has already identified $150 million that could be used to shore up its budget.

Lawmakers put $1.3 billion through two separate measures into the state’s rainy day fund until they return in mid-June when they would have more time and better information on how to distribute it.

Luke said the governor has given no indication that he plans to veto any of the budget measures passed Thursday.

Revenue Picture Not Good

The state Council on Revenues is scheduled to update its revenue projections for the state next week. 

If May tax collections from the Department of Taxation are any indication, it won’t be pretty.

“Don’t freak out,” DOTAX Director Rona Suzuki told a panel of senators before reading out collections numbers.

So far for May, general excise tax collections are at $151 million — down from $314 million this time last year. The tourism tax has netted the state just $4 million.

Income tax still held at about $83 million, but corporate tax collections fell to $4 million, Suzuki said.

State tax revenues are way down this year. Screenshot from DOTAX

The Council on Revenues is expected to make revenue projections for the last few months of this fiscal year as well as the next five fiscal years.

State Economist Eugene Tian, while not a member of the council, told lawmakers the state could see a drop in revenue of about 6% in 2020 and 14% in 2021.

That could mean anywhere between $400 million and $1.3 billion less in general fund revenues. Economists have previously predicted shortfalls as high as $1.8 billion.

Ige’s administration will be able to borrow about $2.1 billion in low interest federal loans to give the state more cash-on-hand if needed.

Lawmakers also approved more than $2.1 billion worth of bond-financed capital improvements projects.

Government spending has been considered good fiscal policy to keep the economy afloat during downturns. However, Hawaii’s rate of borrowing may surpass the state debt limit.

Rep. Gene Ward, the House minority leader, said that with the state’s level of borrowing, it’s time to start diversifying the economy.

“We’ll need to grow ourselves out of the huge amount of debt we are putting ourselves in,” Ward said on the House floor.

Not all lawmakers were on board with the new budget measures.

Sen. Laura Thielen, who voted no on two of the budget bills, said at least some of the money should have been used to provide some financial assistance to folks still waiting for their unemployment claims.

Thielen earlier this week expressed her concerns that not enough was being done to help people impacted most by the economic downturn.

Sen. Russell Ruderman echoed Thielen’s sentiments on the Senate floor, saying the state should not be afraid of borrowing money to shore up its budget, while using other funds to help working families.

“We can handle long-term debt,” Ruderman said. “Families without cannot handle their current situations.”

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