GOVERNOR LINDA LINGLE NEWS CONFERENCE
Job Creation, the Economy and the Budget March 12, 2010
Aloha everyone. Thank you for coming by.
Today, we’re just about at the half-way point of the legislative session and we’ve done marijuana stores, gambling, foie gras and now is a great time to get re-focused on what this legislative session has to be about and that’s getting our economy back on track and creating new jobs all across the state.
The Legislature did take some action over the last few days to reduce the increase in the unemployment insurance tax. We continue to believe that it wasn’t a bold enough action, that they needed to reduce it by a larger amount over a longer period of time and we continue to urge them to go back and take another look at it and bring additional relief to businesses.
This could be the difference between a business staying in business or going out of business. It could be the difference between keeping an employee on the payroll or having to let them go. It could be the difference between hiring a new employee or foregoing hiring a new person.
Those are all important results of legislative action.
I think it’s important to draw that linkage between what goes on in the Legislature and what the impact is on the broader economy and on families and individuals all across the state. So I would ask the Legislature to take another look at this, to increase the amount of savings for businesses in the amount of unemployment insurance taxes.
What I believe the rest of the session needs to get focused on is job creation. We have several steps that we are taking that don’t require legislation, which I’ll mention in a minute; but we have some that do require legislation.
- The first one is the hotel renovation and construction tax credit. We feel that’s an important way to get many of our construction workers back to work in the immediate term.
- We also have a proposal for a job creation tax credit that would apply to all kinds of businesses in the state. It would apply to businesses of 50 or fewer employees. It would be for three years and it would relieve businesses of having to pay their withholdings. So they would be able to get a tax credit in the amount of what the withholding would be. This would be a substantial savings to them. So if you’re a business contemplating hiring someone, this would give you an advantage if you do it now, rather than wait until later.
- The third legislative proposal we would like them to take some quick action on are the HCEI (Hawai‘i Clean Energy Investment) bonds to encourage homeowners and businesses to put renewable energy and energy efficiency devices and adjustments to their buildings. The HCEI bonds would require the cooperation of the county governments. They would need to pass ordinances to allow this money to be collected via the real property taxes.
Our DBEDT Director Ted Liu and Lt. Governor Aiona traveled to all four of the counties and met with the mayors, met with the council chairs on each of the islands and walked them through the project. I think the support is very enthusiastic on the neighbor islands, somewhat less so here on O‘ahu; but certain people on O‘ahu would benefit greatly if the ordinances could get passed.
The two programs I want to mention that don’t require legislation but that are very important for job creation – one is called Premium Plus. This is a program from our Human Services Director Lillian Koller that would have the state paying 50 percent of the cost of a health insurance premium for each new employee that you hire. We’re trying to get the federal government to pay half of our half. Even if the state ended up paying the entire amount of the 50 percent, we would benefit because having a person back to work, we’re not paying unemployment, they are paying taxes and it’s a win-win for the community.
We’re scheduled to begin Premium Plus on May 1st and we’re awaiting the decision from Medicaid on the mainland right now. This is the program I spoke with President Obama about, as well as the (Secretary) of the Department of Health and Human Services, Kathleen Sebelius.
The second program that doesn’t require any legislative approval and is moving forward is known as the Volunteer Internship Program, or VIP. This is being brought forward by our Labor Director Darwin Ching. Darwin is setting up a process so that a person who is collecting unemployment is able to actually get into a training relationship with an employer and continue to collect unemployment. The employer gets the labor of that person for up to eight weeks. They can use that as a time to judge whether that person has the kind of work habits they would want in a permanent employee but there is no obligation on the part of the business or on the part of the person in the VIP program to take a job that is offered or to offer a job. It’s a great opportunity for anybody who wants to get a foot in the door and convince a potential employer that they would be a great person to hire.
Those are the kinds of job creation ideas we want the Legislature to get focused on – both those that require legislation and support our programs that don’t require legislation.
Instead what we see are job-killing pieces of legislation, including a (oil) barrel tax that would raise the price of doing business and raise the price of living. We see an increase on timeshares by 30 percent – their taxes going up. And one of the most damaging, we feel, is the fee increases on businesses, and there are many of them.
The one I would mention today is an increase on the taxes on the health insurance premiums paid by organizations such as HMSA and Kaiser. The increase of that one tax alone will be $472 million over five years and that would be a direct pass through to the people of Hawai‘i. Another way of saying that is the Legislature is raising the cost of living by nearly half a billion dollars on people all across the state.
Yesterday, the Council on Revenues met and, as you know by now, they did have some change in their forecast. They kept the rest of this fiscal year at the negative 2.5 percent that they had predicted earlier. That’s through June 30th of this year. But for the fiscal year 2011, which begins on July 1st of this year, they reduced their projection from 7.6 (percent) down to 6 percent.
That change is going to be $65 million dollars in fewer dollars than we had anticipated. I’ve seen several numbers tossed around as to what that means. Our Tax Department prices it at $65 million through the end of FY11, which would be June 30, 2011.
Now, there are some actions that the Legislature has been taking in its budgeting and, in order to get a budget from the House to the Senate – a draft proposal – and we generally classify them as “shibai” actions. What we mean by shibai is they report to be one thing; but they’re in fact not. They’re something else. I want to be specific about that.
One of the shibai actions that the Legislature has taken has been adding back in positions but not adding the money and being able to go tell someone, “Well I added back a position.” But the fact is, if there’s no funding, then that means nothing. It’s a really vacant gesture – an empty gesture.
Second thing they did was to eliminate vacation payouts in the Offices of the Governor and the Lt. Governor. What this means is that the accrued vacation of all the people who work in these two offices – because their time in government ends at the end of my term – by law, they must be paid. Yet, the Legislature – the House side – the budget that went over, simply eliminated that amount. That would be impossible. It would be against the law to not make those payouts. So again, it’s shibai in convincing people that, “Well, we’ve reduced these budgets,” and then they can use the money somewhere else when in fact they don’t have the option to reduce those amounts. It’s a requirement under the law.
Next, they cut out transition funding in the Governor’s office. This would affect the next governor – whoever that person is. There is a statute passed by the Legislature that requires when you’re transitioning from one governor to the next, there would have to be $100,000 set aside for that transition. They have zeroed out that amount. Again, it’s a requirement under the law. It may have helped them in a shibai fashion to balance the budget on paper; but it’s not something they are allowed to do under the law without changing the underlying statute.
I want to address a key talking point that the House Finance Committee Chair has repeated over and over again. He uses an expression he lifted from my State of the State speech about “kicking the can down the road.” You all remember me making that point and he has picked up on it. It’s an interesting use of that expression – “kicking the can down the road.” He uses it in reference to the delay in paying the tax refunds. I want to address that specifically.
Our budget director has been completely transparent and open in her financial plan and in her review of that plan with legislators of both parties. She has gone down in person, she has talked with them, she has showed them what our six-year financial plan meant.
I was very open with the people of Hawai‘i. This isn’t something we tried to hide in any way. I told you at a news conference, and we explained putting off paying the tax refunds very quickly.
We are within the law. There is no penalty or interest that the government has to pay because of this delay. It’s just that we have become so efficient at getting our refunds out so quickly. And Kurt (Kawafuchi), to you and your team at the Tax Department, I know we always prided ourselves. We improved from when we first came into office. We got better and better at it every year. So we were getting our tax refunds – all of us – we were getting them very, very quickly.
But under the law, we’ve always been allowed a certain amount of time. This year, we made a conscious decision to use that amount of time in order to balance our budget and our six-year financial plan. We were open and transparent about it because we wanted the public to know at the earliest possible date what it was we were going to do in order to meet the tremendous deficit that we faced. The alternative to this delay in paying the tax refund would have been additional massive cuts to education, for health and human services, or it would have meant a tremendous tax increase next year. But that wouldn’t have helped us now.
Remember the deficit we were trying to meet was between now and June 30th, plus the following year. So we had a very short period of time to cut that hole. That really meant we were left with one option: and that was additional massive cuts in public services. We made the decision not to do that and to push the refunds into the next fiscal year by a week or so, so that we would be able to meet our obligations without further cutting education – either K-12, UH – or health and human services. So we acted like any business or individual does. If you can put it off until you get your next paycheck and there’s no interest or penalty, you would push it out as long as you possibly could. We have pushed it enough to get us through this fiscal year.
Kurt’s people are geared up. We’re going to try to get refunds out as quickly as we can; but in order to meet our constitutional obligation for a balanced budget, we have made this delay. We did it in a way that was upfront, open and transparent. So if the head of the House committee wants to use my expression of “kicking the can down the road,” I think it’s very misplaced and just doesn’t fit. It’s not as if we were not being upfront. We certainly were.
Finally, I want to conclude by saying we have half a session left. We have plenty of time to get ourselves refocused on job creation and getting the economy back on track. We also have the opportunity to have honesty in state budgeting. I think that’s very important for the public – to know that the legislators are being truthful, transparent and upfront. Up to this point, the House has been none of those things. They have not been upfront in their budgeting. They have used shibai tactics to hide the fact that they can’t balance the budget with the approach that they’ve taken.
In fact, every time we’ve come in with a proposal to reduce the expenses of the government, their reaction is to hold public hearings, to bring in special interests who then say why we shouldn’t do that. The fact is, based on the Council on Revenues’ recent projection, we all know we’re chasing a larger deficit. That means the Legislature needs to begin to support us in our efforts to reduce government’s expenses on a consistent basis, on a sustainable basis and yet provide better public service.
I think the best example, the most recent example of that is our Department of Human Services’ attempt to improve service to those most in need and save $8 million a year on a consistent basis going forward. Nobody likes the idea of anyone losing a job; but our obligation is to the general public over the long-term. Not just right now, not just this budget year but over the long-term. That’s what Lillian (Koller) is doing in Human Services and all of our departments are doing to make certain our budget doesn’t just balance on paper right now; but that it’s a sustainable spending plan based on what we project the revenues to be over the long-term.
I look forward to working with these legislators to get re-focused on job creation and economic growth because that is the only way we will be able to address all the other issues that everyone wants to address, such as education, health and human services, environmental protection, energy independence and STEM (science, technology, engineering and math) education.
So thanks for coming today at this half-way point, and I’m happy to answer any questions that you might have.
There was a call this morning from (Save Our Schools) this morning, requesting you to take some action on furloughs. What’s your response?
Well, I am the one who has made specific proposals going back to November 15th. I’ve made three separate proposals, all of them have been fair and, perhaps even generous under the circumstances so we could get students back in the classroom. I think the union needs to respond to the children and the community at large.
My team continues to meet on this issue. We’ve been meeting with legislators to talk about a new format for a proposal that we’d like to make. I think we got a pretty good reaction from them; but I want these issues tied with a restructuring of the Department of Education. We really need to have the bills move forward that would do away with the elected school board and let the next governor appoint the superintendent of education. Without that, just dealing with the immediate furlough doesn’t get to the issue of a lack of accountability in the system. That’s what we need to address over the long-term. Who is going to be held responsible for the lack of results from the Department of Education? Because more money alone will not produce better results. We already know that because we spend more every year and the results have not gotten better.
In doing that, Governor, by tying it to a restructuring of the DOE, are you moving the goal posts on the issue of the furlough? Are you taking it in a different direction?
For me, they’ve always been tied together. In other words, I don’t think it’s responsible to spend more taxpayers’ money under the current structure, knowing that things won’t get any better. It’s just not fair to taxpayers.
Is any of the urgency to get it fixed on either side actually lessening the longer people get used to it? (rest of question inaudible)
I don’t sense any urgency on the part of the teachers or the union at all. I just don’t feel it. I don’t hear from them in that kind of an urgent way. I think legislators would like to get this resolved. That’s our impression in talking with them. Our side certainly wants to get it resolved.
The bill that is moving from House to Senate would adjust the tax refund date to be 30 days after [inaudible], thereby eliminating the ability to pay later… is that something you think is going to be a bad idea?
Whatever action legislators take, they’re going to need to be able to pay for, so if they’re going to restrict our ability to pay within the allotted time that we currently have under the law, if they want to change the rules now in the middle of the budget year, they’re going to have to make that up by cutting education or cutting health and human services.
I think when these kinds of proposals come up – when they talk about things like, “Well, you’re kicking the can down the road” – my reaction is, “Where would you get the $275 million?” Or if they change as you just described it and say, “Well you only have 30 days,” where would you get the extra $100 million for this year? Where would the money come from and what would you cut in order to get the money?
I think every idea that comes up, as a reporter you need to be asking them, “How do you pay for that?” That would be my question for the legislators. So I would wait to see it and what they’ve identified to cut in order to meet that 30-day requirement on the refunds.
When we asked how they would pay for it, they said, “Well, that’s why we have another year and we don’t make it effective for another year. We have until 2011.” It’s almost impossible to make up $275 plus $275 in one fiscal year. How long do you think it would take to work this kink back out of the system?
Well, of course, it depends on the expansion of the economy. If they take some of the job creation measures that we’ve recommended to them, it will be that much faster. If they continue on this current path of dealing with foie gras and pot stores and these kinds of issues, if they come up with job-killing measures like more taxes and fees, it’s going to take a very, very long time. I can promise you that.
But if they get refocused and look at those proposals that actually create jobs that make it easier for businesses, then the amount of time it will take to get back on a regular schedule with the refunds would be short.
Governor, come April, when the Legislature continues down its track and does pass this series of tax increases and fee increases, you veto that, and they come in and override it to pass their version of the budget – is that what’s likely to happen right now?
Any year is the same. They have the final say-so on the budget and the rest of us in Hawai‘i have to live with that. So they will have to be able to explain and defend whatever actions they take. Remember, we gave them a balanced budget. We gave them a balanced six-year financial plan. As things change and the Council on Revenues makes adjustments, we stand ready to work with them on any proposal that they’d like to look at. We can make additional suggestions to them as well.
The Council on Revenues, moments before deciding on the negative 2.5 talked internally that they think it actually may end better as far as up to negative .7 or event flat. Do you think it’s going to outpace the negative 2.5?
I think it’s a possibility but it’s a little early to say that at this time. Again, from my perspective, a lot depends on the signals sent by the Legislature. If the Legislature, for instance, were to say, “You know what, we’re going to start look at the unemployment insurance issue in the out years. We’ve addressed it a little bit in the short term; but it’s going to take a couple years.” I think any positive signals from the legislature that they’re going to bring down the cost of doing business, bring down the cost of hiring more people; I think that would send a very positive signal to the community and you’d see businesses willing to invest more. I think there are also some issues that legislators are look at as it relates to how they can write off losses, capital goods taxes, these kinds of things. I think those are things, also, that could send a very positive signal. I think, sometimes legislators, because they’re in the Capitol and they’re hunkered down here over a period of months, they don’t recognize that what they do in a negative way can negatively impact the economy. But likewise, when they take positive steps, it can make a big difference for the businessperson watching this. This is true for the federal level and it’s true on our level as well.
What kind of deficit would be starting in the fiscal year with with the deferred checks and the unemployment insurance – what kind of deficit would we be getting into in the fiscal year?
The unemployment insurance is a separate issue from the general fund. That’s a separate, discreet unemployment insurance trust fund. That’s a separate issue from when we talk about our deficit. When we submitted the six-year financial plan in late-December, it dealt with the deficit, both for this year and for the next fiscal year. The only change we have proposed as far as the deficit, if they would accept our plan, would be this $65 million recently identified by the Council on Revenues.
End of news conference.