Major pieces of the state budget for the next two years are falling into place, with House and Senate lawmakers earmarking state and federal funds that will be used to repay more than $1 billion the state borrowed during the pandemic.

Earlier this year Gov. David Ige and members of the Legislature feared they would be forced to make deep budget cuts and slash social services, but an infusion of more than $1.6 billion in federal funding from the federal American Rescue Plan Act has brightened lawmakers’ outlook considerably.

House and Senate negotiators announced Monday they have reached agreement on a new budget for the two years that begin July 1, and will now send the spending plan in House Bill 200 to the floor of each chamber for final votes next week.

Finance Chair Sylvia Luke questions mayors in joint WAM Finance Meeting.
House Finance Chairwoman Sylvia Luke and Senate Ways and Means Chairman Donovan Dela Cruz, center, in 2019. Lawmakers say the new budget does not require any tax increases, but they are still considering possible increases in state conveyance, capital gains and estate taxes. Cory Lum/Civil Beat

Lawmakers provided relatively few details about the latest budget document, but House Finance Chairwoman Sylvia Luke said the new draft includes more than $313 million to repay a chunk of the $750 million that Ige borrowed last year to help cover state operating costs as tax collections collapsed.

Senate Ways and Means Chairman Donovan Dela Cruz told his colleagues another $705 million in federal funds will be used over the next two years to repay money the state borrowed from the federal government to cover the cost of jobless benefits for unemployed workers.

Technically that debt is the responsibility of Hawaii’s employers, who are required to pay unemployment taxes to finance the state unemployment insurance system.

However, House and Senate lawmakers contend the state should repay the federal loan because it was the state that shut down Hawaii tourism last year to slow the spread of COVID-19. Ige has said he agrees.

Ige initially had planned for layoffs and furloughs of public workers to cope with the state budget shortfall, and proposed a budget in December that mapped out budget cuts for state departments that ranged from 5% to 20% in some cases.

However, lawmakers said Monday there are no furloughs or layoffs planned. The extra injection of federal funding and raids on state “special funds” made it possible to cancel most of the cuts that Ige had proposed.

Special funds are accounts that have their own dedicated sources of revenue that is normally reserved for specific purposes. When lawmakers raid those funds, they strip out that money and use it to balance the state budget.

Luke said Monday that House Bill 1298 will sweep more than $100 million from a variety of special funds into the general treasury.

Dela Cruz said the budget approved by House and Senate conference committees on Monday does not rely on any tax increases, but lawmakers are still considering some tax hikes.

Conference committees are scheduled to meet Tuesday morning to discuss House Bill 133, which would increase the state capital gains tax.

Lawmakers are also expected to meet later this week on House Bill 58, which would increase both the Hawaii estate tax and the conveyance tax on sales of property worth more than $4 million.

Del Cruz has said he hopes to use revenue from those tax increases to replenish the state budget reserve or rainy day fund, which the Ige administration drained last year as the pandemic set in.

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