The timing was perfect for Jay Fidell’s Think Tech Hawaii.

On the very day when the Senate Ways and Means committee approved a draft of Hawaii’s budget, the state’s leading finance officials led a panel discussion on how it was all done.

The budget dealing with both this fiscal year and next is about $200 million less than Gov. Neil Abercrombie requested.

Budget and Finance Director Kalbert Young, Senate WAM Chairman David Ige, House Finance Chairwoman Sylvia Luke and Vice Chairman Aaron Johanson assessed the current economic climate, talked about core budget priorities, described what was being done about the state’s unfunded liabilities, forecast how the state’s economy looks going forward and explained what it was that happened to that so-called $844 million “budget surplus” that Gov. Neil Abercrombie has been boasting about.

On that last point: There was never a surplus per se, said Luke, but rather a budget carryover that was always going to be eaten up by collective bargaining agreements with labor unions.

The panelists also spoke in plain English to a VIP audience at the Lainakea YWCA Thursday and showed that the state’s top money-minders have genuine respect for one another and actually seem to enjoy working with each other — something that has not always been the case in recent budget deliberations.

Even people who pay attention to how state government crafts a budget probably walked away from Thursday’s discussion after learning something new — or at least they gained greater clarity. Former Gov. George Ariyoshi was among those listening closely from a front row seat.

Bob Toyofuku, a longtime lobbyist who moderated the discussion at the Laniakea YWCA downtown, set the tone for the budget process “explainer” by walking folks through the timeline.

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Budget and Finance Director Kalbert Young is “bullish” about Hawaii’s economy.

It begins in December, when the administrations sends its proposed budget to the Legislature. That’s when WAM and Finance begin holding public hearings to learn of the specific needs of various government departments and agencies.

The Legislature formally opens in mid-January, and the Finance committee finishes its work on the proposed budget by mid-March; by then, members are aware of most bills that have substantive funding aspects.

Then the budget goes to WAM, which passes the revised budget back to the House, which is what happened Thursday. (The state Judiciary budget is contained in a separate bill.) The final work will be done in conference committee between the two chambers, which takes place during the last two weeks of April.

Conflicts will have to be resolved during that time, including how much money will go to capital improvement projects — for example, to build a new gym at a high school on Maui — and for grants in aid that include social services agencies.

‘Fortitude and Sustainability’

Toyofuku said that even though budgets are mapped out on a biennial basis and adjusted in the second year depending on tax revenues and growth projections, lawmakers also take a peak six years down the road — to “look beyond,” as he put it, so that the state is on track “to stay in the black.”

At the panel discussion, the governor’s point man on the budget, Kalbert Young, took things from there. He painted a rosy near-future picture for Hawaii.

Young said he is “bullish” on the state’s near-term economic prospects, in spite of the recent Council on Revenues downgrade of growth projections — the one that came out two weeks ago saying there would no revenue growth for Hawaii in 2014.

That revised forecast was a reason for WAM to trim the governor’s original budget more than Finance did.

PF Bentley/Civil Beat

Lobbyist and moderator Bob Toyofuku walks audience members through the budget process.

Young said it was important to keep in mind that the council did not forecast negative growth but rather positive growth numbers. Revenues into state coffers are not reversing and will instead continue to increase by at least several percentage points.

“We are still in a positive economic cycle series that we can look forward to in the next several years,” he said, explaining that the council’s quarterly forecasts are not necessarily an indicator of the economy’s health.

Why is Young so bullish?

Because tourism remains the top industry and it enjoyed very well in 2012 and 2013. Hawaii, he said, thanks to a robust visitor industry, was one of the first states to come out of the national recession and that many states and municipalities — like Detroit — are still struggling.

(Young made no mention of total year-over-year visitor arrivals dropping 4.3 percent in February and total visitor spending coming in flat compared with the same period the previous year, as the Hawaii Tourism Authority announced Thursday.)

Another reason for Young’s optimism is a booming construction sector. If the rail project on Oahu and the development of Kakaako “come to fruition,” said Young, they will drive the overall economy and contribute to the state’s healthy revenue stream.

The key is for state government to demonstrate “fortitude” and “sustainability,” balancing its budgets “in light of recessionary pressures,” controlling the size of government and dealing with unfunded liabilities of pensions and health for state workers.

Question for Young: Where does the state get its money?

His answer: For general funds that annually total between $5 billion and $6 billion, half comes from the general excise taxes, 25 percent from individual income taxes and 25 percent from a combination of corporate income taxes, the transient accommodations tax and other sources. The other half of the state’s money, about the same size as the general fund, comes from special funds — “stand alone operations,” Young said, like revenue generated from airports, highways and harbors.

‘A Very Tight Budget’

Young and Toyofuku spoke at length Thursday because Ige, Luke and Johanson were late to the panel because of House and Senate floor sessions. But each had budget talking points to share.

Ige, who is running against Abercrombie in the Democratic gubernatorial primary, said the budget priority was to look at “core functions” that needed funding as opposed to programs that would expand spending into new areas, as the administration had proposed.

“The rule of thumb,” he said, “is that a 1 percentage point reduction is about $50 million, and the effects are cumulative.”

Very cumulative. In real dollars, that works out to almost $1 billion in less revenue by fiscal year 2016.

PF Bentley/Civil Beat

Ways and Means Chairman David Ige was one of four panelists.

The focus is on the biennial budget, however, and Ige said the Legislature is now looking at a $300 million carryover balance.

Luke explained that the vaunted $844 million surplus never really existed because lawmakers knew that about $600 million would have to go to collective bargaining agreements. In fact, Luke said, lawmakers believed early on in fiscal deliberations that they were dealing with “a very tight budget.”

Luke said the assumption of a huge budget surplus led to “a lot of confusion,” and that the public was mislead to believe the state was sitting on a large pile of money. State agencies, she said, asked for more money to start new programs, but the extra money was never there.

Luke said that she, Ige, Johanson and especially Young, who is in the governor’s cabinet struggled to handle cash requests from department heads. How did they pull through? By being able to work together.

“If relationships are not working, you can’t put the budget to bed,” she said.

Johanson echoed Luke’s observations, adding that his colleagues were committed to reducing spending and reforming the way budgets are conceived. For example, he said, departments must look carefully at how they handle vacation payouts and vacant positions.

“Sometimes a taxpayer is left wanting in the end because a core service is not funded, or money is wasted on frivolous expenditures,” he said, adding that “changing the culture of the way we appropriate and do budgeting will be a win for taxpayers and state government.”

Which isn’t to say that everyone will be satisfied with outcomes. Still to be worked out in conference committee is how much money goes to grants in aid, and Luke said there are more requests than can be met. Toyofuku said he got the message, telling one of his clients seeking grant money to brace for bad news.

“I’m pretty straightforward with my client, and the reality sinks in,” he said.

Perhaps the biggest budget reality of all is the matter of unfunded liabilities. That means building on the hundreds of millions of dollars put aside every year to pay for rising health and pension costs. Luke gave credit to Ige and Young for dedicating $217 million for this purpose in last year’s budget, an expenditure that will grow to $500 million by 2019.

“It’s like paying down a mortgage,” Luke said. “The more you put in, the less it is in the future.”

Contact Chad Blair via email at or follow him on Twitter at @chadblairCB.

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