The breathtaking scope of the federal bailout of state government was on display Wednesday as House Finance Committee Chair Sylvia Luke announced the state now has enough money to repay a $700 million unemployment insurance loan on behalf of Hawaii’s employers.

Luke also said in an interview she budgeted enough cash to repay another $750 million that Gov. David Ige borrowed last year to help cover state payroll and other operating costs, and said she expects to have some money left over to tuck away in the state’s “rainy day” budget reserve fund.

Luke presented the House draft of the state budget for the next two years at a Finance Committee hearing Wednesday afternoon.

Hawaii State Capitol building.
The Diamond Head side of the Hawaii State Capitol building. The proposed House draft of the state budget unveiled Wednesday would restore money that was cut from social services, and pay off $700 million the state borrowed to pay unemployment benefits. Cory Lum/Civil Beat

In another surprise, Luke said in an interview the state will be able to make its scheduled payments for the next two years into the Hawaii Employer-Union Health Benefits Trust fund to cover future health care costs of state employees and retirees.

Ige had planned to defer those EUTF health benefit payments for five years to save about $1.85 billion, but Luke said Wednesday that won’t be necessary now.

The Ige administration has been warning for months there would be deep, painful cuts in state spending after tax collections took a dive during the pandemic. But the proposed budget Luke presented Wednesday suggests the federal bailout has mostly fixed the problem.

Perhaps the most surprising component of the House budget proposal is Luke’s plan to repay $700 million that the state borrowed from the federal government to cover the cost of unemployment benefits for jobless Hawaii workers.

Technically Hawaii’s employers are supposed to repay that money, but Luke and others at the Legislature want the state to repay the loan along with about $40 million in interest.

Lawmakers point out it was the government that shut down much of the local economy during the pandemic, and employers had no choice but to close their doors and lay off workers.

Ige had said the state did not have enough money to repay the unemployment debt, but that was before Congress passed the American Rescue Plan. The new federal law provides $1.6 billion to shore up the state’s finances, prompting Luke to make plans to repay the unemployment debt.

Luke also said the proposed House budget would reverse the most alarming cuts that Ige had planned for some social service agencies, and will restore almost all of the planned cuts to the state Department of Education and the University of Hawaii system.

In fact, she noted that the federal bailout routed substantial sums directly to the DOE and the UH, which means their budgets should be made whole or more, she said. The DOE alone will receive $391 million in federal aid, she said.

The draft budget that Luke presented to the public on Wednesday now goes to the full House and a floor vote, and then to the state Senate for further consideration and amendments.

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