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Wednesday, March 25, 2009
Governor's plan to balance budget without layoffs or tax increases
By News Release @ 10:19 PM :: 4641 Views :: Energy, Environment

GOVERNOR LINGLE PROPOSES FINANCIAL PLAN TO BALANCE STATE BUDGET, CLOSE REVENUE SHORTFALL
Plan addresses immediate fiscal challenges, without layoffs or tax increases, while focusing on the future

HONOLULU – Governor Linda Lingle today announced a balanced financial plan to close the latest $255 million revenue shortfall projected by the Council on Revenues for the remainder of the current fiscal year (FY09) and the biennium fiscal years 2010 through 2011. 

As was the case with the two previous financial plans the Governor submitted on December 22 and March 4, the Administration’s most current plan balances the budget without further burdening Hawai‘i residents and businesses with general tax increases, without adding to Hawai‘i’s unemployment with layoffs or furloughs of state employees, and without making further cuts to public services or programs.  In addition, the Governor’s plan does not take any money from the counties, such as the Transient Accommodations Tax (TAT) or Honolulu County’s general excise rail transit tax. 

The Governor’s proposed action steps include a combination of savings in labor costs that will be negotiated in the collective bargaining process, as well as the use of additional federal stimulus funds.  While the goal is to close the revenue shortfall, the Administration is also focused on ensuring a positive general fund balance of approximately $160 million at the end of FY11.

“Our goal is to continue delivering quality public services while moving forward on our priorities of: economic transformation, energy security, STEM education, Recreational Renaissance, affordable housing, and infrastructure modernization, without raising taxes or laying off employees,” said Governor Lingle.  “Our budget and financial plan is timely, practical and responsible.  It addresses the immediate fiscal challenges and long-term goals facing our state.

“It’s important for everyone to accept that because the state will have close to $2 billion less to spend than earlier planned, it simply can’t be business as usual.  The fiscally responsible approach my Administration is taking reflects the difficult decisions that state government needs to make, in much the same way families and businesses across Hawai‘i are managing their budgets and expenses,” the Governor added.

Labor Savings
The Administration will seek adjustments to employee wages and the current Employer-Union Health Benefit Trust Fund health plan through collective bargaining negotiations. 

State Fiscal Stabilization Funds (SFSF)
To help make up the shortfall, the state will use $157.2 million from the State Fiscal Stabilization Fund (SFSF), which is being made available to Hawai‘i under the American Recovery and Reinvestment Act of 2009.  Concurrently, the SFSF funds used in FY09 will require the Legislature to restore $30 million in cuts in both FY10 and FY11 the House took from the Department of Education and $35 million they took from the University of Hawai‘i.

The Department of Education will also receive more than $80 million in Title 1 funding, which is for students of low-income families, and for IDEA (Individuals with Disabilities Education Act) funding for special education programs and services to students with disabilities. 

An additional $35 million in federal stimulus dollars is available for the Governor to spend on any government program, and she is proposing to use it to develop a joint education plan that details a common vision of how best to invest these funds to strengthen Hawai‘i’s education system.  The plan will be used as a basis to secure other federal competitive grants for education.  

Federal Medicaid Assistance Percentage (FMAP) Funds
In this updated plan, the Governor is proposing to use a portion of the previously identified $315 million in Federal Medical Assistance Percentage (FMAP) to cover costs for Hawai‘i’s public hospitals and mental health services.

The Governor plans to use $14 million of the FMAP funds to help cover costs of the Hawai‘i Health Systems Corporation, which runs the state’s public hospitals.

The Administration will also use up to $10 million in FMAP funds for adult mental health services. Over the past six years, the amount the state spends on adult mental health services has more than doubled.  In 2003, the state served approximately 4,000 clients at a cost of $86 million.  Today, the state serves 16,000 adult mental health clients and spends $174 million.  

Ongoing Actions to Restore Fiscal Balance
This latest financial plan presents prudent and fiscally responsible solutions to Council on Revenues’ March 12 reduced revenue projections.  It is the third financial plan the Governor has given to the Legislature since she submitted the Administration’s FY10-FY11 biennium budget in December.

Prior to finalizing the biennium budget, as the Council on Revenues lowered its forecast, the Administration took immediate steps at the start of FY09 to control spending and reduce expenses. This included implementing a 4 percent restriction on discretionary spending, establishing a hiring freeze except in areas that impact health and safety, restricting and converting cash funds for Department of Education and University of Hawai‘i capital improvement projects to bond financing; and restructuring debt on general obligation bonds. These prudent actions resulted in $221 million in general fund savings.

In December, the Governor presented her Administration’s FY10-FY11 biennium budget and balanced six-year financial plan, which detailed proposals to make up for a $1.1 billion revenue shortfall projected by the Council on Revenues.  This included reducing expenditures by $731 million, as well as other actions to provide the state with an additional $242 million.

On January 9, 2009, the Council lowered its revenue projections further by an additional $650.4 million for FY09, FY10 and FY11.  The Governor subsequently submitted a plan to close an $81 million shortfall for FY09 through a combination of transferring funds from various special funds, including the rainy day fund, implementing additional restrictions on discretionary spending and utilizing additional federal reimbursements for Medicaid.

On March 4, the Governor proposed a financial plan to close the remaining $613.4 million revenue shortfall (FY09-FY11) that combined the use of federal stimulus funds, tobacco funds, interest from and charges to various special funds, adjustments to selected benefits for state employees, and further tightening Act 221 tax credits.

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