Lawmakers are pressing state Director of Finance Craig Hirai for details on any tax increases that Gov. David Ige may propose this year, but Hirai says it is too soon to tell if Ige will resort to tax hikes to patch the hole that COVID-19 has blown in the state budget.
Hirai said he is also unsure how much money from the latest federal pandemic relief bill can be used to help cover state operating costs, and said the administration may soon amend the budget it submitted to lawmakers last month to tap more money in state “special funds” to help balance the budget.
Members of the House and Senate were repeatedly told during a pair of hearings Monday that key pieces of Ige’s proposed state budget for the next two years are still being finalized, while the opening of this year’s session of the Legislature is just 16 days away.
When House Finance Committee Chairwoman Sylvia Luke questioned whether the administration has the legal authority to impose furloughs on state workers after July 1 — another major component of Ige’s financial plan — Hirai said he will have to consult with the state Attorney General’s office on that question.
“So, you don’t know if it’s legal, but I would think that’s one of the first things you should have figured out prior to relying on those numbers,” said Luke. She contends the administration is legally required to negotiate any furloughs after June 30 with the public worker unions.
Ige has repeatedly said he plans to save $300 million a year by imposing furloughs of two days per month on tens of thousands of state workers, and first floated a furlough plan last April. Ige contends he has the authority to unilaterally furlough public workers, but now says he will not do so until after July 1.
Ige has also said he plans to lay off about 150 employees and may resort to tax increases to cover the cost of operations for state government over the next two years, but he has provided no specifics on his tax proposals.
Senate Ways and Means Committee Chairman Donovan Dela Cruz on Monday repeatedly asked Hirai what sort of tax increases might be in the works, but Hirai replied that “we haven’t finalized that.”
Some of the administration proposals are “revenue enhancements” rather than tax increases, he said, citing the suspension of transfers of money from state hotel tax collections to the counties as one example. Ige temporarily suspended those transfers to the counties last year when the pandemic hit.
Hirai said some “revenue enhancements” are already built into the proposed financial plan Ige submitted last month to lawmakers but refused to say how much money those tax increases or other revenue-raising steps might produce for the state.
“We have an amount in there, but then, as I said, we’re kind of having to re-analyze everything,” he said. “I don’t want to say what we had in the plan in terms of revenue enhancements because we might not do them all.”
Later, he added: “We don’t want to get people excited about tax increases that may never materialize.”
As the pandemic hit and tourism shut down, state general treasury tax collections dropped from an all-time high of $7.14 billion a year ago to $6.69 billion in the fiscal year that ended June 30. To deal 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 cover state operating costs for the current fiscal year that ends June 30.
The administration has also ordered state departments that are funded from the general treasury to plan for budget cuts of 10%, 15% or 20% during the two years ahead.
Cutting the budget will be unpopular with many, but lawmakers are also reluctant to raise taxes at a time when many Hawaii residents have lost jobs or income.
“Even if we were to raise taxes, we would not make up for the projected shortfall,” House Speaker Scott Saiki said last month. “We would have to increase the general excise tax several percentage points to make up for the shortfall, which is something I’m sure the Legislature would not do.”
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