Citing an “astounding” rebound in state tax collections this year, Gov. David Ige announced a plan Monday to deposit $1 billion in the state’s budget reserve fund next year to prepare for whatever fiscal crises may lie ahead.

Ige’s new $16.9 billion budget proposal also includes hefty increases in spending for the state Department of Education and the University of Hawaii system. The governor said he is not planning any tax increases.

Tax collections for the first five months of the current fiscal year, which ends June 30, are running more than 27% ahead of collections for last year, a startling pace that Ige said is being driven by strong consumer spending, rebounding visitor arrivals and solid state excise tax collections.

“This budget request is very different from our budgets of the last two years, in which we had to cut over $1 billion and all agencies had to slash spending,” Ige said in a press briefing Monday on his new budget proposal.

Governor David Ige walks into ceremonial room to announce the Hawaii Smart Health Card going live this friday.
Gov. David Ige’s proposed new budget for next year including all state and federal funds totals more than $16.9 billion. Cory Lum/Civil Beat/2021

The extra money will allow the state to launch initiatives that are “responsive to the pandemic,” and also to restore services that were cut during the past two years, he said.

Ige acknowledged that some of that money will be sought by the state and county public employee unions that are in arbitration or are now bargaining for better pay under contract reopeners.

“We do appreciate the sacrifices that our public servants have made during the past two years,” he said. “I look forward to the negotiations with the units. We do anticipate and hope that we will be able to get to a fair conclusion.”

Ige declined to say what percentage increases would be appropriate in this round of bargaining.

The largest new item in the proposed budget is Ige’s plan to deposit $1 billion in the rainy day fund, which is a spectacular amount.

The state entered the pandemic with about $378 million in the emergency and budget reserve fund — money that was quickly drained — and the fund now has about $300 million.

But Ige said the state had to borrow $750 million to make payroll during the worst of the pandemic shutdown, something state government never had to do before. That loan allowed the state to avoid furloughs and layoffs until federal aid came through earlier this year, he said.

Putting $1 billion in the emergency reserve fund now “would well position the state for an economic downturn like we’ve seen during this pandemic,” he said.

That idea was greeted with great skepticism by House Finance Chairwoman Sylvia Luke, who said she cannot justify to the public a plan that stashes $1 billion for later.

Representative Sylvia Luke in support of early learning measure on crossover day at the Legislature.
House Finance Chairwoman Sylvia Luke said it will be difficult to explain to the public why the state would bank $1 billion given Hawaii’s pressing social needs. Cory Lum/Civil Beat/2020

“There’s too many needs out there and too many things we need to take care of that need immediate attention,” Luke said.

Leading lawmakers in the House and Senate are revisiting a package of policy proposals they endorsed in 2020 in the weeks before the pandemic hit that included an increase in the state minimum wage to $13 an hour, tax relief for working people, and expansion of early education and affordable housing programs.

Some of the specific ideas may change — for example, tax relief might be provided by adjusting the state income tax brackets — but the House and Senate are committed to taking another look at those proposals, she said. Homeless programs will also be a focus, Luke said.

Ige is projecting the state will close the books on this fiscal year on June 30 with a general treasury surplus of more than $850 million but also anticipates a surge of federal funding in the months ahead that will help finance some of his proposals.

His proposed budget for the year beginning July 1 including all state and federal funds is more than $16.9 billion, which is an increase of 10.2% over the current year’s budget. Ige’s proposed construction budget for the year ahead totals more than $2.7 billion.

For the state Department of Education, Ige is proposing an extra $100 million to restore funding due to reductions during the pandemic, and $32.5 million in extra compensation for classroom teacher differentials.

Those pay differentials are offered in areas where shortages, such as special education and Hawaiian language teachers, exist.

The administration is also seeking $61.8 million for the state’s Safe Travels Program, for National Guard costs, and for pandemic-related expenses. Another $30 million in state and federal funds is sought to provide contingency funding for statewide Covid-19 operations.

Ige is requesting an additional $240 million in construction funding next year to upgrade public school facilities, and an extra $86.5 million for the university system for modernization, maintenance and technology upgrades across the state.

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