Reality Check: State’s Finances Grim, State Agencies Asked to Cut Spending by 10 Percent

Kalbert Young
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Kalbert Young

BY MALIA ZIMMERMAN –Reality check. That is what Hawaii Senate Ways and Means committee members, and state administration officials, got today during an exchange between senators and the state budget director, Kalbert Young.

During questioning led by Sen. Donna Mercado Kim, and followed up by Sens. Donovan Dela Cruz, Ronald Kouchi, Sam Slom, Jill Tokuda and Carol Fukunaga, Young outlined the state’s rapid revenue decline.


He announced that every state department funded by the general fund is being asked to make a 10 percent spending cut just to get through the end of the fiscal year this June.

“The Executive branch is imposing further spending restriction over the last four months, restricting about 10 percent of departmental allocations. That’s gonna be quite significant. We’ve already heard from a number of departments that it will be more than they can afford to meet expenditures for their departments,” Young said.

The state administration, which is proposing a $23 billion operating budget over the next two years, was already anticipating at least a $71 million shortfall, based on the state’s Council on Revenue’s previous 2 percent growth rate projection from this past December.

That did not stop newly elected Gov. Neil Abercrombie, D-HI, from proposing spending increases and tax increases to soda, alcohol and retirees’ pensions, to cover his expansion plans for government.

The Council, which under state law, meets quarterly to determine the state’s fiscal and economic projections, met again in March just four hours before the earthquake and tsunami struck Japan and 12 hours before the tsunami arrived in Hawaii.

At that meeting, which Young said was just hours too early, the Council reduced its growth projections from 2 percent to a 0.5 percent, leaving lawmakers and the budget director scrambling to make up a $132 million shortfall.

With the tsunami’s impact on tourism, the crisis in the Middle East driving up oil prices and further slowing economic growth, Young said his office is now predicting a budget deficits of some $232 million over the next four months — $160 million more than was expected  just days ago.

The Council on Revenues will meet again Tuesday for an emergency session at the governor’s request to sharpen its predictions, taking recent events into account.

The situation is “quite severe,” Young told lawmakers, noting that the state could have to shutter programs that are already in existence and reduce the operations of departments over the next four months. Departments already are under fiscal restrictions, spending limitation and hiring freezes, he said.

Young said that the Abercrombie administration also is targeting special funds.

“We’re not going to be able to get out of the current fiscal year without raiding everything in the Hurricane Relief Fund, everything in the Rainy Day Fund, and sweeping a lot of special funds and we’re still short,” Young said.

Senators, many who have supported tax hikes this session, grilled Young for more than an hour on the administration’s plans to generate revenue without tax increases and special fund raids.

They said they have been hearing from their constituents who are opposed to any tax hikes without major cuts in government spending first.

Dela Cruz, who got Young to admit that the governor did not yet have a short term plan to boost job creation or push government programs that could bring in immediate revenue, said he could not support a General Excise Tax hike without a plan in place.

Young pointed out that the governor hasn’t offered any proposed increase in the GET, (which would impact every level of transaction of goods and services), but said that it is not out of the question.

“I think the administration remains open but we’re not at this point necessarily proposing that that is the single and only answer. It is somewhat enticing because the GET represents one single shot to address a large amount of revenues but the administration is not proposing that right now,” Young said.

Dela Cruz, who grew increasingly agitated with some of Young’s answers, said “eventually you’re going to leave us no choice” (but to raise the GET). “If you’re going to raid all the funds, and you have no plan for job creation, maybe you’re not proposing it (a GET tax hike) but you’re leaving us no choice but to come up with that.”

Slom, the only Republican in the 25-member Senate, said the state’s fiscal problems have been a long time coming and are a result of the legislature’s refusal to cut spending over decades.

“We’re talking about cutting and you have every one of the bureaucrats in the state right now in this room begging for more money. We (the Ways and Means committee) spent four hours yesterday reviewing the budget. But what we really did was reduce some of the increases that were proposed, and we’re still above what the base budget was in the first place. Every single family, business, individual has had to take a hard look at what they’re doing and physically cut back…How can the governor still propose a budget that is an increase over what we’ve had?” Slom asked.

While Young admitted that the governor’s budget did increase spending, he said it is just to restore cuts from the last administration that left the government unable to operate efficiently and provide the services its promised.

“We are at the critical juncture where I’m sitting here asking you to consider what we are proposing is to provide a minimum level of service. Sustaining programs that have been reduced for a number of years already. The cuts and deficit discussion that we’re having today really, the heart of that discussion is are we going to do away with some of those programs? I’m not telling you what those programs are,” Young said.

Kim, who led off the questioning, said that she does not believe the public and many of the legislators realize how dire the state’s financial situation really is.

Young said: “We do not as a state have the adequate revenue trajectory to sustain the state government as it currently exists. Without revenue enhancements we are talking about closing up about $230 million worth of existing programs in the last four months of this year or we’re talking about closing up about a billion dollars worth of operating programs in the next two fiscal years.”

“Everyone can complain about the level of state government. If you want a program we have to find a way to pay for it.  We are not requesting money for discretionary programs. This is for critical and essential services.”

Young said the main question is “What is the level of service that the public, that the administration would want and expect of state government?” He added: “Right now we feel that the level of service that is being promised is not the level of service that’s being provided.”

Jim Dooley contributed to this report