The state response to the sudden collapse in tax collections this year will almost certainly involve layoffs of state employees in addition to twice-a-month furloughs of thousands of state workers, Gov. David Ige said Friday.
During a wide-ranging discussion with the Civil Beat editorial board, Ige noted his administration has already resorted to borrowing $750 million to help meet payroll costs this year “for the first time in history,” and launched a state program review to cut $600 million in annual general fund operating costs.
“I do believe that there was no way to avoid layoffs,” Ige said. “I don’t have the specific numbers. We continue to work through and finalize the budget, but I wish there was a way that I could say we wouldn’t be laying people off, but I do think that because of the size of the program review and the amount of money that we need to cut from the budget, I do believe that it does include layoffs.”
Ige said he directed his staff to minimize the number of layoffs during the administration’s multiple reviews of the budget, but gave no further specifics.
Hawaii tax collections have crashed during the tourism shutdown triggered by the COVID-19 pandemic, and Ige had previously hinted layoffs might be needed in addition to furloughs to help reduce the cost of state government during the next two-year budget cycle.
However, his Friday remarks were the clearest public warning yet that layoffs are indeed part of his proposed budget, which must be submitted to state lawmakers by Dec. 21. More details about Ige’s budget plan for the two years beginning July 1 will be made public in the week ahead.
Annual state tax collections abruptly dropped from an all-time high of $7.14 billion down to $6.69 billion last fiscal year, and are expected to decline even further to about $5.96 billion during this fiscal year, which ends June 30.
Tax collections are then projected to rebound to nearly $6.5 billion in the fiscal year that begins July 1, but that recovery will depend on a variety of factors such as the rollout of the newly approved vaccine, the response to the crisis by Congress and President-elect Joe Biden, and the willingness of the public to travel.
Ige has already drawn down almost all of the money in the state’s “rainy day” budget reserve fund, and used his emergency powers to defer a $388 million payment the state was supposed to 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.
When asked what other spending cuts are in the works, Ige mentioned the millions of dollars the state spends on contracts with outside providers who handle everything from services for youth and the homeless to environmental programs.
“As you know, there are many services the state provides through private contract providers and nonprofits. You know, that’s always something that we’re looking at. We definitely will be looking at scaling back,” Ige said.
Lisa Maruyama, chief executive officer of the Hawaii Alliance of Nonprofit Organizations, said many of the health and human services providers were warned by the state months ago to prepare for reductions in their contracts ranging from 5% to 20%.
Maruyama said she was told by a representative of one nonprofit that has a contract with the state Judiciary that the provider will have to absorb a 30% cut.
“Those cuts are not going to be sustainable for the nonprofits to do these services well,” she said. “If you’re just existing on a state contract alone and these cuts are going to come, I can’t see how they’re going to be able to do that, and especially if you are going to be providing COVID emergency response services.”
The public worker unions have attacked Ige’s plan to impose furloughs of two days per month on thousands of public workers including public school teachers, which works out to a pay cut of slightly more than 9%.
The Hawaii State Teachers Association has said it will challenge the furlough plan in court because it has a binding contract with the state.
Ige acknowledged the teachers’ contract, “but what do you do when we don’t have the revenues to make payment on the contract? I can’t print money, so if they have ideas about how, I suppose we could raise taxes, that would be one option, but I don’t have the authority to raise taxes directly.
“Right now, the cost of state government exceeds the revenues that we’re receiving, and we need to take action in order to balance the budget,” he said.
Randy Perreira, executive director of the Hawaii Government Employees Association, said that “from what we know of the state budget, there’s no way the governor can cut $600 million or so from the operating budget without eliminating programs, and therefore impacting people.”
Perreira said he was unhappy with suggestions by Ige that the furloughs were a substitute for layoffs. “He’s acknowledging what we’ve known all along, there will be people let go,” Perreira said.
In an email, Department of Education communications director Nanea Kalani said it’s “too soon to say” whether the DOE could experience teacher layoffs or other employee cuts.
Though the DOE’s submitted budget to Ige includes general fund reductions of 102 full-time state office positions, Kalani said these “can include vacant positions that the Department had budgeted for.”
“We won’t know the position impacts at the school level until mid to late January when the Department evaluates schools’ financial plans to determine how the cuts to (the weighted student formula) and special education will be absorbed,” she said.
Civil Beat reporter Suevon Lee contributed to this story.
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