BY GOVERNOR NEIL ABERCROMBIE – In my State of the State address seven months ago, I pledged to always give you an honest account of the state of our government. At that time I said that our canoe—our beloved Hawai’i—was on the brink of capsizing.
At the time, we faced an $844 million deficit over the biennium. That number later ballooned to $1.2 billion. Of that deficit, $214 million had to be closed over the first seven months of our term largely due to the previous Administration’s decision to withhold refunds from taxpayers.
Our community was divided in the wake of arguments over public school furloughs and civil unions. Our government was paralyzed by years of gridlock. In March, Japan was confronted with a devastating earthquake and tsunami that caused ripples of economic anxiety here in Hawai’i.
With the understanding of the Legislature, support of public employees and extensive community dialogue we faced these issues and we’re overcoming them.
I am happy to report that because of decisive action and a willingness among many to cooperate, our canoe did not huli. Instead, in the first half of 2011, we stabilized our financial situation by making prudent use of the resources we had and made tough decisions with a constant eye on the future. From December of last year to the end of this fiscal year on June 30, 2011, we overcame a $214 million deficit, and for the first time in three years, I can report to you that we are entering the new fiscal year in the black.
We have prepared and are now implementing a comprehensive action plan to meet our current and long-term challenges. We are doing this within the budget we have. Our Administration has gone through a detailed process examining all government activities.
With tight fiscal management of our bond issues and a significant cost savings on our health plans for government employees, we are reorganizing and retooling, while minimizing the negative impact on public services.
We ended Furlough Fridays and restored services to the public. Led by the far-sighted example of members of the Hawai’i Government Employees Association who agreed to pay and benefit adjustments, we are on the way to balancing the budget. It is imperative for the fiscal stability of the state and the very survival of our pension and health benefit plans that similar clear-eyed understanding be incorporated in all other contracts.
The Gathering Storm
We have addressed the fiscal crisis we inherited. But we have serious work to do. We have people in need of basic services, children to educate, and jobs to create.
And the hardest part has yet to be faced. There is an undeniable storm gathering on the horizon. It is just inside our field of vision, but far enough away that it is tempting to ignore it as we have for so many years.
There are five elements to this storm. Each one alone can upend the economic foundation of our islands and the progress we have made. Each one alone can tear our social and cultural fabric to shreds.
But each one can be overcome with fidelity to sound fiscal policy, determined action, and by working together.
First, we must face the state’s long-term financial responsibilities without flinching. Our unfunded liability is $8 billion for our employee retirement fund and $14 billion for government medical benefits. Our per capita debt is the third highest in the nation and this fact is relentlessly eroding our credit worthiness. The days of ignoring this threat are over. Everything that we have worked for in collective bargaining on pensions and benefits, along with the basic services that taxpayers expect, is on the verge of being lost. I’m not so interested in assessing blame as I am in setting a firm course of correction.
The second part of the storm is the soaring cost of healthcare. As healthcare takes more and more out of our paychecks, there are fewer resources available for other priorities. For government, that means less money for services. For businesses, that means less money for salaries, benefits, and profit. Simply put, healthcare costs will swallow our economy and all the jobs and savings that go with it. We have to act immediately to contain these costs and keep our people healthy through prevention and good public health practices.
The third threat is our over reliance on outside imports for energy and food. The political and economic instabilities throughout the world today should cause each of us to ask if we are doing enough to make Hawai’i more self-sufficient. Our island resources are abundant, and yet we continue to be reliant on others for oil and food. To survive, we must make progress in expanding agricultural activities and deploying renewable resources, but we must keep the pressure on ourselves to move with urgency. These sustainable activities are the basis of a new economy that balances environmental stewardship and job growth.
The fourth threat I see is a human capital deficit. We pay a steep price when we fail to invest in our children and in programs that prevent people from sliding into despair. That price will continue to rise unless we change course. We have to provide better education and support for all our families, beginning in early childhood, and create the jobs that will keep our children here at home.
The fifth element of the storm is coming from Washington, D.C. We cannot ignore the fact that the rancor and debate in the United States Capitol could have a profound negative impact on the future of our islands. Potential cuts to Medicaid and defense spending could badly damage our economy. And we continue to bear all of the burden of the federal government’s failure to address its responsibility to Compact migrants.
These storm threats are real. They are threats that we cannot run from. These common foes know no special interests or political party. All the arguments and accusations of today will drown in their destructive force.
We need to be about breaking up this storm front. We need to be about reversing its course and blunting its impact. By clearing away the fiscal wreckage of the last Administration, we’ve made a strong start.
The transition to a New Day is underway. In erasing the deficit we were handed in December, we’ve made the pivot to the positive side of the ledger. We are rebounding.
Our New Day Plan outlines three waves of change therefore that will allow us to weather the storm ahead; three waves that run counter to the strong currents of the status quo:
1. Create good jobs and grow a new, sustainable economy
2. Invest in people, beginning with our youngest children
3. Transform state government into an efficient enterprise
Our first task is immediate job growth as we shift Hawai’i’s economy to a sustainable foundation. We are creating good jobs for people so they can do more than just make ends meet. We are already starting to see signs of improvement, and we will continue pressing ahead with our $1.4 billion investment in New Day Work Projects. These are public works projects that will put money into the economy by modernizing our public facilities, improve energy efficiency, upgrade irrigation systems for agriculture, and bring our transportation infrastructure into the 21st Century. At the same time, we are building the foundation for our next economic boon by capturing our own renewable energy and developing ultra-high speed Internet capabilities to give Hawai’i the competitive edge that we need. And by entering into public-private partnerships to make improvements on public lands, we will be building much needed housing, reinvigorating public spaces, increasing opportunities for growing our own food, and creating sustainable communities across our islands. We are doing this while improving the business climate for our entrepreneurs and small businesses.
Our second charge is to invest in the education, skills, and wellbeing of Hawai’i’s people. These investments will earn dividends in both the short- and long-run. More importantly, these investments give us the intellectual, social, and cultural base to fuel our economy for years to come. We are using what resources our budget allows and seeking new resources. We are building private-public partnerships in early childhood, healthcare technology, housing, preventative social services, and other long term priorities that we have ignored. We are moving on Race to the Top initiatives to improve our public schools. We are making progress on homelessness, and we are changing our approach to public safety so that we can bring our prisoners home and ultimately reduce the number of people who end up in prison or on the streets. Taking action now will make a big difference later.
Our third focus is to transform state government into an efficient and effective enterprise. With reorganization, we are conducting government as the professional enterprise it must be to meet the public need. My Budget Director, Kalbert Young, will function as the state’s Chief Financial Officer; and the State’s Comptroller, Bruce Coppa, will be the state’s Chief Operations Officer. We will continue rehabilitating our fiscal health by following a financial plan that will recapitalize our reserves, like the Rainy Day and Hurricane funds, pay down our debts, and carefully manage our cash flow. We are professionalizing our human resources management to bring out the best from our outstanding public workforce. Our new Chief Information Officer, Sanjeev “Sonny” Bhagowalia, is transforming government services with proposals for hardware and software that will provide taxpayers with the best value for their dollar.
We are constantly uncovering old problems and we’re addressing them with fresh ideas and a determination to do what is necessary. One need only look at Mayor Wright public housing, where residents went without hot water for seven years until our Administration took over and fixed the situation. We are ending outdated policies, and we’re reorganizing functions across departments.
For example, our Administration was tasked with finding an additional $50 million in savings in order to balance our budget. Because of smarter and better fiscal management, we will do this with minimum impact on our public employees and state programs.
Against the Status Quo
Charting a new course is difficult and unnerving, but we cannot sustain a status quo ruled by doubt, or distrust, or selfishness, or fear. The status quo insists that we conform to the way things have always been. It is obsessed with illusory short-term gain at the expense of long-term stability. It favors the few. It outflanks the middle class, and it marginalizes those who need help the most. It questions and casts doubt upon new ideas. It stifles creativity and limits opportunity.
We have become accustomed to fiercely protecting whatever we have today regardless of the needs of tomorrow. When we retreat to the status quo, we relinquish control over our own destiny. The difference today is that we no longer have the luxury of time. Years of putting off tough decisions have finally caught up with us. Our liabilities are looming and the bill is now due.
Today, roughly 90 percent of the state’s $5.7 billion general fund budget is spent on services that are either mandated or at the very core of government. Most of it goes to public education; caring for the elderly, the needy and the sick; and paying the interest on our debt. Our population is aging and growing in numbers. Our young people are at risk of leaving, and costs continue to rise. We can’t cut our way to a solution either in personnel or in programs. Under the previous administration, despite draconian cuts to services and rhetoric about government waste, the state budget still grew by roughly 5 percent per year. We have no choice but to change our ways.
Sometimes that change will be frustrating, especially as some will continue to deny the realities we must face.
The answer is a steady commitment to the productive and constructive action I’ve outlined. We know what the difficulties are and we’re ready for them. Positive change is already under way. We are moving with confidence to build a New Day in Hawai’i.
I began this report saying I was going to give an honest account of what we face and what we’re doing. As recently as this Sunday, everyone has seen how we’re overcoming homelessness and giving people hope for the future. We’re doing the same on all fronts.
What we need now is faith and trust in ourselves. We can do it. We are doing it. And we’re succeeding.