Gov. David Ige is expected to unveil his next two-year budget proposal on Monday and it seems likely there will be something for everyone to hate.
Ige has already announced plans for twice-a-month furloughs for 10,160 state workers starting next month, and warned that state worker layoffs will also be necessary to cope with the gigantic state budget crisis triggered by the pandemic.
As bad as that may sound, it is just the beginning.
Ige also issued instructions to state departments earlier this year to plan for cuts of 10%, 15% or 20% of their general fund spending in addition to furloughs, and the public has not heard yet what the impact might be from those cuts.
The administration set a goal of cutting $600 million a year from the annual state operating budget, and Ige said making cuts of that magnitude has proved to be extremely difficult.
“Demand for service is the highest it’s been, and the reality is we just don’t have the revenues to sustain government as it existed,” he said.
To offer one example of what is at stake, the University of Hawaii system receives about $500 million a year in general funds, with the rest of its $1 billion per year budget coming from tuition or other sources. UH officials have been asked to identify ways they could cut up to $78 million in each of the next two years, or about 15%.
But the details of any UH cuts will not be made public until later. UH President David Lassner told lawmakers last week the Board of Regents approved a two-year budget that is essentially flat, adding: “We are not so optimistic that that’s what we will live with, but we did want to get out in front of the governor’s budget.”
Furloughs for UH employees are in the works, and executive managerial employees absorbed a pay cut starting in November, Lassner said. The university has also worked out a “retirement incentive program” as one way to save money on salaries, but that program has not yet launched, he said.
Hawaii Department of Education Superintendent Christina Kishimoto offered an even less encouraging assessment on Friday. She urged DOE employees to get involved as the Legislature takes up Ige’s budget proposal and reshapes it.
“Our funding was not adequate before the pandemic, and now we’re in a crisis. There’s no other way to describe this,” she said during an online interview with the Honolulu Star-Advertiser. “We are in a crisis in the public school system in terms of adequacy of funding, and we have never had predictable funding.”
Kishimoto has said the Department of Education was tasked with cutting $264 million a year from the public schools budget. The DOE’s furlough plans for next year for its 21,900 full-time employees — including 13,000 teachers — would be in addition to those budget cuts.
Ige has announced the anticipated state budget shortfall is $1.4 billion per year for the next four years, but state tax revenue is not expected to drop off by nearly that much.
State tax collections dropped from an all-time high of $7.14 billion a year ago to $6.69 billion in the year that ended June 30. To cope with that sudden drop, the Ige administration restricted hiring and spending last fiscal year, and used $648 million from the state’s “rainy day” budget reserve fund to help balance the budget.
Tax collections are expected to drop again this year to $5.96 billion, and the administration in October borrowed $750 million to help make up the difference in the current fiscal year that ends June 30.
The public worker unions contend Ige cannot simply impose furloughs on Jan. 1, but Ige says he has the power to do so.
Ige has said that marked the first time in history the state used borrowed money to help meet payroll, and that borrowed money must be repaid over the next five years.
The governor has also used his emergency powers to defer a $388 million payment the state was scheduled to make this year to pay for future health care obligations for public workers, and plans to ask lawmakers for permission to defer four more years of similar payments for a total savings of $1.85 billion.
The state Council on Revenues, a panel of experts tasked with estimating state tax collections, is projecting tax collections will recover somewhat in the fiscal year that begins July 1, bouncing back by about $500 million. The council expects total state tax collections will amount to more than $6.46 billion next year.
But Ige seems skeptical that will actually happen, remarking that it is “very difficult” to envision an abrupt $500 million increase in tax collections next year.
“When we look at what’s happening and the numbers of visitors who have come, and we look at the tax collections to date, we are seeing an improvement, but it has been slow,” he told the Civil Beat editorial board on Dec. 11.
Some observers still hold out hope for a federal bailout of struggling state and municipal governments, but Ige does not sound like he is one of them. The budget he will present to lawmakers Monday will assume “there will be limited additional aid from the federal government,” he said.
“Clearly we hope that that aid will be coming, but we’ve really built our budget on what we know today, as I am required to do by law and by (the) Constitution,” he said.
The governor expects his furlough plan will save another $300 million per year, but representatives of the state public worker unions have been resisting that plan. The public worker unions contend Ige cannot simply impose furloughs on Jan. 1, but Ige says he has the power to do so.
The unions have said they intend to “pursue all legal avenues” to stop the administration from unilaterally imposing furloughs, and the Hawaii State Teachers Association has said it plans to fight the furlough plan in court.
Senate President Ron Kouchi said last week that lawmakers are looking hard for alternatives to furloughs “because of the possibility that we wouldn’t prevail in a court case.” He said he is also worried about the impact of furloughs.
“I think it’s really challenging, with instructional days that would be missing for students, and as the economy starts to come back, we need people in the bureaucracy who are processing the paperwork, we need people at (the Department of Taxation) working to process those who are filing taxes to generate revenue,” he said.
From the legislative side, Kouchi said lawmakers are looking at possibly suspending or canceling some state tax exemptions for businesses to try to boost tax collections, a tactic that was used during the Great Recession to help shore up state government finances.
House Finance Committee Chairwoman Sylvia Luke said the Employees Retirement System expects about 2,000 public employees will retire this year, and calculates the state could save as much as $130 million a year in salary and benefits if the administration leaves those retirees’ positions vacant.
Luke also believes the state could “raid” unspent balances that have built up in state special funds, which are accounts that are funded by taxes or fees that are earmarked for specific purposes.
Lawmakers could make a one-time reduction in the state budget shortfall by shifting $400 million to $600 million in special fund money into the general treasury, she said.
Some advocates have suggested the state increase income taxes on the wealthiest families in Hawaii to help balance the budget, and Ige acknowledged a tax hike is a possibility.
“I suppose we could raise taxes, that would be one option, but I don’t have the authority to raise taxes directly,” he said.
When asked if he would sign a tax increase into law if the Legislature sends one to him next year, he replied: “I’m contemplating a couple of things myself, just to make everything work.”
However, Kouchi said last week that “there are really few people that you would want to increase taxes on during this time, so we’re hoping we’ll have other options available to us.”
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