Monday, February 21st, 2011 | Posted by Greg Wiles |  Print This Article

Abercrombie Unveils Budget, Renews Call for Structural Changes

Neil Abercrombie - Courtesy of joemygod.blogspot.com

BY GREG WILES

Gov. Neil Abercrombie is revising an intial two-year budget with an additional $728.6 million in spending that will be paid for with a mix of cuts and funding mechanisms, including measures that have had a lukewarm reception in the legislature.

Abercrombie unveiled his budget to the media in a President’s Day holiday briefing in which he reiterated his belief that structural changes need to be made if the state is going to have a more prosperous future.

“This budget represents more than just numbers on a piece of paper – it represents more than an accumulation of numbers in such a way as to satisfy on paper the constitutional requirement to balance it,” said Abercrombie.

“What we’re trying to do is put together and what we intend to is put together a restructuring plan that will allow us to invest in ourselves and our human capital.”

The budget is Abercrombie’s first since taking over the state’s top job in December and comes roughly 100 days into his administration. Abercrombie previously had submitted a rough budget built on what was given to him by former Gov. Linda Lingle’s administration.

That budget had projected a $771.9 million budget deficit for fiscal years 2012 and 2013.

The proposal being presented to the legislature by Abercrombie represents a much modified version of one left for him by former Gov. Linda Lingle’s administration. As such it includes higher spending that Abercrombie says is needed to restore essential state services, such as rebuilding the state agricultural inspection system.

It represents an amalgamation of sorts –  included in it are budget increases to restore certain government services cut by Lingle, chopping of tax breaks, cuts to Medicaid and retiree healthcare spending as well as other measures to balance the budget and increase spending on buildings, water systems and other capital improvement projects.

Kalbert Young, Abercrombie’s budget director, said the state books should be balanced during the next biennium, but also acknowledged the plan relies on the passage of several measures that have had a cool reception at the legislature.

These tax proposals include:

• A new soda tax that would raise $75 million over the biennium.
• Raising the tax on alcoholic beverages. Raises $40 million.
• Increasing the tax rate on timeshare properties, $57.6 million.
• Repealing state tax deduction, $188 million.
• State tax on certain pension income, $314 million.

The budget proposes program cuts to:

• Temporary Assistance to Needy Families, $57 million over two years.
• Reduced Medicaid Services, $75 million.
• Labor Savings from Collective Bargaining or other, $176.4 million.
• Elimination of retiree Medicare Part B reimbursements, $88.5 million.

In all, the budget envisions a little more than $500 million extra over two years in tax revenue, and $405 million of program cuts.

“We will not shy away from difficult choices or use gimmicks to mask our problems,” Abercrombie said.

“Our proposal requires a combination of repealing tax exemptions, making the current tax code more fair, addressing unfunded retirement and health liabilities, and pulling back on those social services for which there has been no funding source.”

But some of Abercrombie’s proposals have stalled or been amended at the Legislature, such as the soda tax or taxing certain pension income. The budget proposal leaves a small amount of wiggle room should these measures be tabled, including taking $46 million this fiscal year from the state’s rainy day fund and $42 million next year from the Hawaii Hurricane Relief Fund.

Abercrombie’s budget architects also were conservative about recent Council of Revenue projections that forecast 3 percent growth this year. Young said the council made its estimates before some lackluster November tax data was submitted and the administration decided to use more conservative numbers projecting 2 percent growth.

If the 3 percent forecast does pan out the Administration will gain another $101 million in tax revenue over the biennium.

Abercrombie rejected criticism that his administration should be using the council’s most recent estimates.

“Our obligation was to present numbers to the legislature that represent our best judgment to where we are and what we are likely to face,” he said.

The governor also dismissed the idea of seeking a general excise tax increase should his revenue or other budget proposals fail. He said raising the tax would only max more serious financial problems the state is facing.

“If rely on the GE Tax as some sort of solution we would avoid ever coming to grips with the structural changes we need to make,” said Abercrombie, who declined to say if he’d veto a GE Tax increase if a bill landed on his desk.

Young said the budget also includes a $1.2 billion increase next year in the capital improvements budget and another $500 million the second year.

He said to be considered for funding the projects needed to solve a critical need and be able to get underway immediately.

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Author: Greg Wiles

Greg Wiles is a long-time business journalist who currently works for Hawaii Reporter. His previous experience includes the Honolulu Advertiser and Bloomberg News.

Greg Wiles has written 69 articles for us.