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Hawaii state budget

On June 23, 2011, Gov. Neil Abercrombie signed Hawaii's $21.9 billion biennial state budget. Based on the budget drafted by the state legislature, the governor must reduce state spending by $50 million in each of the next two years.^[1] The state faced a $71.6 million budget deficit for FY2011 and a $771.9 million shortfall through FY2013, according to Gov. Abercrombie.^[2]

Hawaii has a total state debt of approximately $36,310,406,000, when calculated by adding the total of outstanding official debt, pension and other post-employment benefits (OPEB) liabilities, Unemployment Trust Fund loans, and the budget gap. ^[3]

See also: The Hawaii State Budget on State Budget Solutions

[edit] FY 2012-13 State Budget

• See past state budgets

Budget Director Kalbert Young said that the state estimates a $19 million shortfall by end of FY2013.^[5]

Supplemental FY2013 State Budget

The legislature passed in on April 28, 2012. Negotiators approved $428 million in new bond-financed state construction, including $250 million for repair and maintenance projects. The $428 million was more the House and Gov. Neil Abercrombie had wanted but less than the Senate had proposed. The additional money takes the general obligation bond portion of the budget to $825 million in FY2013.^[6]

In Dec. 2011, Gov. Abercrombie released his $188 million supplemental budget request for FY 2013 to state lawmakers. The supplemental budget can be found here. The governor's proposal does not include new taxes, but the governor said he would be open to tax increases by the legislature.^[7]

The Senate Ways and Means Committee unanimously passed the supplemental budget on April 2, 2012. It funds the governor's proposals in his own supplemental budget proposal.^[8] The Senate passed the supplemental budget bill, House Bill 2012 on April 10, 2012.^[9]

The Senate wants to invest $500 million in capital improvement projects at state facilities to stimulate the economy. That's $200 million more than what the governor included in his proposed budget. The House, however, does not want to increase the state's debt. The issue was unresolved on April 27, 2012, the last day of the session for committee hearings.^[10]

Biennial State Budget

In a speech to legislators about the state's fiscal health, Gov. Abercrombie said that Hawaii faces an “undeniable storm” of fiscal challenges that could upend the state’s economic foundation. One of the challenges he listed was the state's unfunded liabilities, including an $8 billion unfunded liability in the public-worker retirement fund and a $14 billion liability in the public-worker health care fund. In the same speech, the governor said that his administration had finished cutting $50 million in discretionary cuts for FY2012 and FY2013 through financial management, such as restructuring debt service, thus sparing some agencies harsh cuts.^[11]

Gov. Abercrombie signed the $21.9 billion biennial state budget on June 23, 2011. Based on the budget drafted by the state legislature, the governor has to reduce state spending by $50 million in each of the next two years. In a June 16 memo, the governor instructed state department directors to identify low-priority programs for possible elimination and take other cost-cutting measures.^[1]

The FY2012-13 budget increases spending to pay higher Medicaid costs^[1], but the state plans to cut Medicaid coverage to 10 days a year in April, the fewest of any state, pending federal approval.^[12]

The budget also increases spending to cover increasing public worker health care and debt service costs. A summary of the operating and capital budgets can be found here.

The budget authorizes $11 billion in spending for FY201, with $5.4 billion in the general fund and $10.9 billion for FY2013, with $5.5 billion in the general fund, overall an increase of approximately 7 percent from FY2011.^[1]

The spending plan assumes approximately $180 million in labor savings from contract talks between the administration and public-sector labor unions — or about a 5 percent pay cut. In addition to $600 million in spending reductions, the budget relies on about $600 million in separate tax increases, with the an excise tax on contractors, businesses that sublease, airlines and others, predicted to generate around $400 million.^[1]

Abercrombie also signed into law a capital improvements project budget that includes $1.8 billion for fiscal year 2012 and $1 billion for fiscal year 2013.^[1]

[edit] Governor's Proposed Budget

Overall, Gov. Abercrombie proposed a $10.8 billion budget for FY2012, which is a 6.1% increase over the FY2011 budget, and an $11 billion budget for FY2013, up 8.2% from FY2011.^[2] The general fund portion of the proposed budget is $5.5 billion in FY2012—a 12.6% increase, and $5.7 billion in FY2013—a 16.4% increase.^[2]

The governor promised not to raise the general excise tax.^[2] The Senate, however, introduced a measure to increase the general excise tax 1% and it would eliminate several business exemptions as a way to help eliminate the budget deficit over the next two years.^[13]

[edit] Legislative Budget

State legislators agreed on a final version of the state's $11 billion FY2012-13 budget, which relies on pending tax increases generating $500 million over the next two years to fund the spending plan to balance the state's $1.3 billion projected shortfall. Although legislative leaders said that the budget has $600 million less than that proposed by the governor, overall, the new budget increases state spending from FY2012. That is due to multiple factors, including rising Medicaid enrollment, the end of federal stimulus funds, and increasing public worker health expenses.^[14]

The House and Senate voted to pass tax increases on businesses, vehicles and large incomes, raising more than $600 million over the next two years to help address a projected $1.3 billion deficit during that time. They also cut $600 million from Gov. Abercrombie's requested spending, drained the state's savings accounts and reduced government health costs to pay for the state's $11 billion annual budget. ^[15]

The Legislature avoided approving broad, unpopular proposals to tax pension income or raise the general excise tax, which is paid on most transactions statewide. Instead, the biggest tax hike hit construction subcontractors, subleasors and Hawaiian Airlines. Those businesses will lose their exemption to the state's general excise tax, which is 4.5 percent on Oahu and 4 percent on neighbor islands, generating about $200 million a year for the government. ^[16]

On March 9, 2011, the state House Finance Committee approved House Bill 200, its $10.98 billion draft of the state budget for FY2012, which is less than the version than Gov. Neil Abercrombie proposed but still a 7.1% more than the FY2011 budget. It also provides for $10.9 billion in spending in FY2013, an increase of 7%. The general-fund portion of the budget, over which lawmakers and the governor have the most control, is $5.4 billion in fiscal year 2012, a 10.2% increase, and $5.6 billion in FY2013, a 14.7% increase. The end of public workers furloughs after FY2011 account for some of the higher costs, which may be less if Gov. Abercrombie and public-sector labor unions agree to labor savings in contract talks.^[17]

For the next two fiscal years, legislators have approved $11 billion and $10.9 billion spending plans — an $800 million increase over this fiscal year — to cover higher Medicaid, public-worker health care and debt service costs and to make up for the end of federal stimulus money.

Highlights of the 2012-2013 budget include:^[18]

• Expected to raise about $200 million per year, the legislature removed exemptions to the state's general excise tax currently granted to businesses including subcontractors, subleasors and Hawaiian Airlines.
• A $55 increase to register a car after July 1, 2011
• Cap the counties’ share of the Transient Accommodations Tax to $85 million which is expected to increase tax revenue $32 million in fiscal year 2012 and $38 million in 2013.
• Raising the daily rental surcharge from $3 to $7.50 for cars rented from locations other than the airport (cars rented at the airport already have a $7.50 daily surcharge) and diverting $4.50 of the daily surcharge to the state general fund will bring in over $60 million in new taxes.
• Eliminating the state income tax deduction and limiting the amount of itemized deductions that can be claimed by high income earners, the state expects to generate nearly $52 million in new tax revenue per year. A high income earner is defined as individuals with an adjusted gross income over $100,000, a head of household with an AGI over $150,000, and joint filers with an AGI more than $200,000.

The Senate draft includes $11 billion in spending in fiscal 2012, and $10.9 billion the following year.^[19]

Ways and Means Chairman David Ige outlined the primary differences between the two chambers' versions were^[19]:

• The Senate rejected every request to restore funding to make up for furloughs.

• The Senate identified $30 million worth of state government vacancies (out of $80 million total).

• The Senate rejected Abercrombie's promise to cover a larger share of public workers' health premiums, which would have cost $54 million in both 2012 and 2013. The draft instead reflects a 50-50 split.

• The Senate reviewed the governor's requests for "add ons" ($50 million in each year), and only funded about two-thirds of the request in the first year, and one-third in the second year.

Union Contracts

Labor costs account for about 70 percent of Hawaii’s state government spending. The Hawaii Government Employees Association, the state’s largest government employee union, tentatively accepted a salary reduction of 5% and reductions of retirement perks. The agreement is an improvement over the prior two years, when state employees took a 10% salary reduction and two monthly furlough days. Unlike in other states, there are no efforts to curb the collective bargaining rights of unions in Hawaii.^[20]

[edit] Budget transparency

See also: Evaluation of Hawaii state website or find sample transparency legislation at the Sunshine Standard

[edit] Budget review period

See also: Constitutional provisions regarding reading of bills

Article 3, Section 15 of the Constitution of the State of Hawaii requires a 48-hour review period before any bill, including a budget bill, can be voted on for final passage.

[edit] Government tools

The following table is helpful in evaluating the level of transparency provided by a state spending and transparency database:

Criteria for evaluating spending databases

State Database	Searchability	Grants	Contracts	Line Item Expenditures	Dept/Agency Budgets	Public Employee Salary
State Procurement Office	Y	N	Y	N	N	N

• Contracts are searchable.^[21]

[edit] FY 2011 State Budget

Find the state’s FY2011 Comprehensive Annual Financial Report (CAFR) compiled by the state government here.

In May 2011, Moody's Investors Service cut the state's bond rating from Aa1 to Aa2, citing "strained financial operations following the recession-driven fall-off over the last several years" as the reason. The latest projection for FY 2011 revenue is 1.6 percent lower than FY2010. The downgrade could result in slightly higher borrowing costs the next time the state floats bonds.^[22]

Then-governor Linda Lingle signed the $11.9 billion FY2011 budget into law on June 28, 2010.^[23] Gov. Lingle proposed in December 2008 a biennium operating budget for fiscal years 2010 and 2011 totaling $22.42 billion, $11.1 billion in FY 10 and $11.3 billion in FY 11.^[24] After contentious negotiation in the Hawaii State Legislature, the balanced FY2011 budget included $1.1 billion in cuts by the governor to generate the money needed to address the $1.2 billion shortfall. {{citation missing}

At the start of this year's legislative session, Hawaii faced a projected $1.2 billion budget deficit through June 2011, but eliminated that shortfall through a budget that includes tax increases, cuts, and savings from last year's layoffs of more than 800 state employees.^[23][25] The budget appropriates more than $10.2 billion for executive branch operations and almost $1.7 billion for executive branch capital improvement projects.^[23]

The state legislature passed House Bill 2200, the state's $11.9 billion budget, on April 27, 2010, and sent it to Gov Lingle.^[23][26][27] The House passed the budget unanimously and there was only one no vote in the Senate.^[28]

Federal funds

Hawaii received approximately $80 million from the federal government under H.R. 1586, a $26 billion plan to give states money for Medicaid and education that the President signed into law on August 10, 2010.^[29] Lillian Koller, director of the state Department of Human Services, said that the state was likely to get between $30 million and $40 million in Medicaid funding. The state is also anticipating $39 million for education.^[30]

"This federal bailout, like those that preceded it, is intended to be a one-time shot in the arm that must be paid for in the future," Gov. Lingle said in a statement. "It merely defers the day of reckoning that will require a reprioritization of state services and a reduction of spending."^[30]

Cost Cutting

• The final budget cuts 800 state jobs.^[26]
• State lawmakers cut an additional $7.3 million from the operating budget of the University of Hawaii.^[31]

Sources of Additional Funds

• To reach a balanced budget, the state canceled tax credits given to high-technology investors under Act 221, which would save the state approximately $13 million.^[27][26]
• The House and Senate also passed House Bill 2542 which provides for siphoning $46 million from special funds to the general fun to help balance the state budget.^[27]
• The legislature passed HB1907, which caps itemized deductions claimed on state income tax returns until Jan. 1, 2016, for higher income brackets, which would save the state $93 million.^[27][26]
• The state budget also repeals deductions for political contributions.^[27]
• The legislature raised the cigarette tax by $0.20 cents per pack.^[26]
• Car rental fees will increase from $1 per day to $4.50 a day^[25]
• $1-a-barrel increase for imported oil is expected to bring in another $13.2 million.^[32]

Gov. Lingle vetoed a bill that would increase the barrel tax on petroleum products from 5 cents to $1.05, which would generate $22 million a year that lawmakers want to help with the deficit.^[27]

How the budget was balanced The state faced a $1.2 billion two-year shortfall. The House Budget Committee released this list of the budget cuts. Furloughs of state employees lessened the shortfall by $366.7 million and are reflected in the general fund cuts.^{[citation needed]}

The budget includes a bond measure providing for the issuance of about $326 million in state general obligation bonds to finance state capital improvement projects.^[23]

[edit] Budget Background

Hawaii has an annual Legislative session and sets a biennial budget in odd years. In practice the budget is submitted each year. State agencies submit their budget to the Governor in September each year. The Governor submits the budget in December, 30 days before the Legislature convenes on the 3rd Wednesday in January, which meets for 60 working days. The state’s fiscal year runs from July 1 to June 30.^[33]

[edit] Budget figures

The following table provides a history of Hawaii's expenditures and gross domestic product (GDP).

[edit] Accounting Principles

Main article: Hawaii government accounting principles

The Hawaii State Auditor is Marion M. Higa. In May 2008, the Legislature reappointed Ms. Higa to her third 8 year term to start on July 1, 2008. The State Constitution in Article VII, Section 10, establishes the Office of the Auditor. The Constitution specifies that the Auditor be appointed for an eight-year term by a majority vote of each house in joint session. The Auditor may be removed only for cause by a two-thirds vote of the members in joint session. It is the constitutional duty of the Auditor to conduct post-audits of the transactions, accounts, programs and performance of all departments, offices, and agencies of the State and its political subdivisions. The audit reports are published online.^[35]

The Institute for Truth in Accounting (IFTA) rates Hawaii “Tardy” in filing the state’s Comprehensive Annual Financial Report (CAFR) – The annual report of state and local governmental entities. IFTA rated 22 states timely, 22 states tardy, and 6 states as worst. IFTA does not consider Hawaii’s CAFRs, and those of the other states, to be accurate representations of the state’s financial condition because the Generally Accepted Accounting Principles (GAAP) basis does not include significant liabilities for the pension plans and for other post employment benefits, such as health care.^[36] Hawaii's CAFRs are published online by the Hawaii Department of Accounting and General Services. Russ K. Saito is the Hawaii State Comptroller.^[37]

[edit] Stimulus

Hawaii has received $0.68 billion in federal funding.^[39]

[edit] Public Employees

Main article: Hawaii public employee salaries

Main article: Hawaii public pensions

Labor costs account for about 70 percent of Hawaii’s state government spending. The Hawaii Government Employees Association, the state’s largest government employee union, tentatively accepted a salary reduction of 5% and reductions of retirement perks. In the prior two years, state employees took a 10% salary reduction and two monthly furlough days. Unlike in other states, there are no efforts to curb the collective bargaining rights of unions in Hawaii.^[40]

According to 2008 Census data, the state of Hawaii and local governments in the state employed a total of 90,599 people.^[41] Of those employees, 68,101 were full-time employees receiving a net pay of $287,265,552 per month and 22,498 were part-time employees paid $23,445,784 per month.^[41] More than 56% of those employees, or 51,042 employees, were in education or higher education.<ref name=census

[edit] See Also

• Hawaii taxpayer-funded lobbying
• Hawaii public pensions

[edit] External links

[edit] Additional reading

• Los Angeles Times,"Hawaii is far from an economic paradise," January 2, 2010
• Gov. Linda Lingle,"2009 State of the state address," January 26,2009

[edit] References

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