Lawmakers and Gov. David Ige are planning initiatives to “restructure” government to cut costs to cope with the state budget crisis. The Ige administration is setting a goal of cutting a whopping $600 million from next year’s operating budget.
House Finance Chair Sylvia Luke, meanwhile, is predicting the state can save $130 million or more per year by freezing positions as state workers retire.
Luke, one of the most powerful members of the Legislature, indicated she is inclined to shield the University of Hawaii and the public education systems from the brunt of those cuts, saying it does not make sense to reduce the ranks of public school teachers or university professors right now.
Cuts on that scale would certainly have an impact on services to the public, but neither Ige nor lawmakers are saying yet which government departments may have to absorb the largest reductions.
The Ige administration has instructed state departments to make plans for budget cuts of 10%, 15% or 20% from their spending, depending on the department, and informed the public worker unions the target is to cut $600 million from next year’s operating budget.
Randy Perreira, executive director of the Hawaii Government Employees Association, told his members in a video message on Nov. 20 that those cuts “are going to be difficult to achieve without shutting down some programs and potentially cutting staff.”
In a recent disclosure to bond investors, the Ige administration announced it is taking a “two-phase” approach to managing the state budget crisis that was triggered by the coronavirus pandemic and this year’s shutdown of the state tourism industry.
Ige has already tapped into the state’s “rainy day” budget reserve fund, and sold nearly $750 million in short-term general obligation bonds in October to borrow cash to help finance state government operations in the near term.
He also used his emergency powers to defer a $388 million payment the state was supposed make this year to pay for future health care obligations for public workers. Looking ahead, Ige plans to ask lawmakers for permission to defer four more years of similar payments for future health care obligations, for a total savings of $1.85 billion.
The administration has also proposed two-day-per-month furloughs for unionized state workers in most collective bargaining units, a step Ige hopes will save the state about $300 million per year. But some of the unions have publicly criticized that idea, and the furlough plan has been delayed until at least Jan. 1.
Perreira, who leads the state’s largest union, warned his members in the video message that the state budget scenario is truly dire.
“As we go forward, I just hope that everybody can become clear. We’ve already been asked in some cases why we wouldn’t agree to a furlough that would then take the place of layoffs, or prevent layoffs,” Perreira said in his message to union members. “Guys, I hate to say it, but the revenue picture is so bad that absent any additional federal help, we likely face the prospect of both furloughs and layoffs.”
In fact, Ige’s disclosure to bond investors last month reports that annual state tax collections abruptly dropped from an all-time high of $7.14 billion down to $6.69 billion last fiscal year. Tax collections are expected to slide even further to about $5.96 billion in this fiscal year, which ends June 30.
Tax collections are projected to rebound to nearly $6.5 billion in the fiscal year that begins July 1, but nobody can be certain that will happen.
How the Hawaii economy will fare next year depends on an array of unknowns such as COVID-19 infection rates on the mainland, the approval and rollout of a vaccine, the response to the crisis by Congress and President-elect Joe Biden, and the willingness of the public to travel.
Given those uncertainties, the Ige administration describes the second phase of its coping strategy as a program review that is underway now “to ensure that state expenditures are in line with reduced revenue projections going forward.”
The results of that initiative will be shared with lawmakers next month when Ige presents them with his proposed budget for the next two years.
Ige has not released any details yet about the administration’s plans, and the state Department of Budget and Finance would only say that “budget discussions are ongoing.”
In the meantime, Luke said lawmakers are launching a review of retirements with an eye on saving money by leaving positions vacant as certain state employees retire. That would not include positions that are necessary for public safety, such as corrections officers, she said.
The Employees Retirement System processes an average of 2,300 retirements from the state and counties each year, and about 1,620 people had filed for retirement through the end of November. The ERS expects to have at least an average number of applications for retirement through the end of December, since the end of the year is usually a busy time for retirements.
But Luke said about 6,600 state employees are now eligible for retirement — excluding teachers and UH system professors — and her understanding is that there have been an above-average number of inquiries this year about retirement.
If one-third of those who are eligible to retire decide to leave state government now, Luke calculates the state could save $130 million a year on salaries and fringe benefits by leaving those jobs vacant. “I think one-third is pretty realistic. It might actually end up being half,” she said.
She said lawmakers won’t know exactly how many people will retire and which jobs they will be leaving until about two months into the 2021 legislative session. But public workers may see this as the right time to retire because they want to avoid furloughs, and it seems unlikely the unions will be able to negotiate significant raises for their members in the years ahead.
“This is the time it might be forcing above-average retirements,” Luke said. Whether those people will be replaced “really depends on the agency,” she said.
In some cases lawmakers may want to restructure or consolidate agencies, or “based on how the outlook will be for the next four-plus years, we may have to just eliminate that as part of our government function. So, it really depends, but those are serious discussions we are having right now,” she said.
Luke said Gov. Linda Lingle’s administration tried a similar approach during the Great Recession in 2009, but ended up hiring and filling significant numbers of positions, which resulted in “very little savings.” This time, lawmakers plan to work closely with Ige to discourage departments from filling positions, she said.
House Republican Minority Leader Gene Ward said in a written statement that “with 50% of our budget dependent upon the (general excise) tax, we need to move the mindset of this government from being rated the most anti-business state in the nation to being at least in the top twenty in the nation if we expect to raise enough money to fund our huge state budget and try to get out of the $2-3 billion debt we’re incurring.”
State government has tried to impose layoffs during economic downturns in the past, but a process known as “bumping” under civil services rules limits the savings from layoffs. Those rules dictate that when a senior employee is laid off, that senior worker is then allowed to “bump” a more junior employee, and can take the junior employee’s job at the senior employee’s original, higher pay rate.
That can then trigger a disruptive chain reaction of bumping from one job to the next that results in lower paid, less experienced employees losing their jobs, and little savings to the state.
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