Monday, December 22, 2008
Governor releases proposed 2-year budget
By Gov. Linda Lingle @ 8:02 PM :: 4020 Views
HONOLULU—Governor Linda Lingle submitted today to the State Legislature a biennium operating budget for fiscal years 2010 and 2011 (FY10 and FY11) of $22.42 billion, $11.1 billion in FY10 and $11.3 billion in FY11. She is proposing a capital improvement budget of $2.95 billion.
Along with the biennium budget, the Governor also submitted a six-year balanced financial plan that demonstrates how the State will live within its means while meeting its priority obligations to the public.
The biennium budget and financial plan reflect the realities of the unprecedented weakened economic, financial and fiscal environment facing the state, nation and the world, Governor Lingle said.
“In this current economic environment, we cannot operate in a business-as-usual fashion,” Governor Lingle said in her budget message to the Legislature. “Difficult but necessary decisions have been made to reduce overall spending. I am satisfied that this biennium budget being proposed to you reflects the kind of fiscal prudence and discipline the people of Hawai‘i expect during these challenging times.
“Our main goal in developing the budget was to preserve current essential services to the greatest extent possible, while at the same time focusing our available resources in areas of long-term importance to the state.”
Six months prior to developing the biennium budget, as the Council on Revenues lowered its revenue projections for FY09, the Administration took immediate steps to control spending, reduce expenses and economize general funds.
Specifically, the Administration implemented a 4 percent restriction on discretionary general fund expenses; established a general hiring freeze except in areas that impact public health and safety; restricted allotments for most off-budget, specific appropriations; restructured debt on general obligation bonds; adjusted the bond issuance plan; and restricted and converted cash capital improvement project (CIP) funds to bond financing for the Department of Education and the University of Hawai‘i.
These actions produced $221 million in general fund savings. But, in light of subsequently lowered FY09 revenue projections, the Administration anticipates the need to transfer $40 million from the Emergency and Budget Reserve Fund (rainy day fund) to ensure a positive General Fund balance at the end of FY09.
In order to meet the constitutional requirement for a balanced 2010-11 biennium budget, all state departments were instructed to conduct a review and assessment of their core functions and essential services.
The review resulted in a reduction in general fund operating costs of $395 million ($209 million in FY10 and $186 million in FY11).
The executive budget proposals were developed to meet the following objectives:
- Align program requirements with appropriate means of financing. The Administration identified programs and activities that should be funded with revenue sources other than general funds. As a result, 64 existing positions and related programs are proposed to be funded from federal, special, revolving or trust funds. This will save $20 million in general funds each year.
- Continue to restructure and refinance general obligation bonds. The Administration will continue to restructure the state’s debt to reduce debt service costs. The reduction in debt service costs as a result of refinancing and restructuring current general obligation bond debt is estimated to be $205.2 million in the biennium.
- Reduce operating costs to meet mandatory budget cuts while preserving essential services of State government. Through across-the-board reductions and consolidating operations, eliminating non-essential or recently added services, eliminating programs of low priority, and modifying levels of benefits and services, general fund spending will be reduced by 14 percent of discretionary costs.
- Minimize cuts in areas of strategic importance in Hawai‘i. Critical investments in clean energy and education were maintained. In response to the need for budget reductions in the Department of Education, the Administration did not further reduce those proposed by the Superintendent and approved by the Board of Education—a general fund reduction of $40 million each year and a decrease of 240 positions (148 permanent and 92 temporary). Classroom teacher positions were not affected.
General fund reductions for the University of Hawai‘i are limited to the $13.5 million a year as approved by the Board of Regents. The Administration is also proposing funds for the University to develop and implement science, technology, engineering and math (STEM) programs to promote innovation and analytical skills in education.
To advance the State’s goal of energy independence, the Administration is proposing investments in the development of clean, renewable energy sources. This includes an internal reallocation of resources within the Department of Business, Economic Development and Tourism for 30 positions and $3.3 million each year.
- Minimize the impact on state’s workforce. The Administration is committed to the goal of avoiding layoffs of State employees and this is reflected in the biennium budget. At the same time, the Administration will not propose pay increases in the current collective bargaining negotiations. The Governor also will introduce legislation to recommend deferral of pay raises for FY10 and FY11 for officers of the Executive Branch, Judiciary and Legislature, saving $4.1 million during this biennium period. Additionally Governor Lingle is asking the Legislature to defer a 36 percent pay raise that would take effect on January 1, 2009.
The budget also reflects the Administration’s commitment to investing in the continuing improvement and modernization of state infrastructure, which will help stimulate the economy and create jobs.
It includes $2.953 billion from all funds in the biennium for capital improvements, of which $955 million will be financed from general obligation bonds.
Priority projects concentrate on major repair and maintenance, completion of ongoing projects, highway fund projects, renewable energy development and efficiency, affordable housing, extensive upgrades to recreational and boating facilities, and continuation of the airports and harbors modernization initiatives. Major budget requests include:
- $200 million for school projects to be prioritized by the DOE
- $243 million for modernization and construction of UH facilities
- $45 million for energy conservation and design improvements at state facilities
- $100 million for the Dwelling Unit Revolving Fund and Rental Housing Trust Fund to construct affordable housing and rental units
- $60 million for the biennium settlement payment to the Hawaiian Home Lands Trust Fund
- $108 million for modernization projects at State parks, small boat harbors and other public recreational facilities
- $696 million in airport revenue bonds to continue modernization plans for airports statewide
- $329 million in harbor revenue bonds to continue modernization plans for harbors statewide
- $463 million for statewide highway improvements
The Administration is also proposing the following actions to provide the State with additional general fund revenues:
- Transfer from the Emergency and Budget Reserve Fund (EBRF). The rainy day fund’s current balance is $74 million. In addition to the recommendation to transfer $40 million to the general fund for FY09, the Administration recommends an additional transfer of $35 million for FY10. The EBRF will continue to accumulate additional reserves from annual deposits from the Tobacco Settlement Fund. The fund balance at the end of FY11 is projected to be $15.7 million.
- Transfer excess balances from special funds. As a short-term, one-time remedy, the Administration proposes transferring excess balances from two special funds into the general fund. The amounts will be $36 million from the Deposit Beverage Container Special Fund and $9 million from the Wireless Enhanced 911 Special Fund in FY 2010.
- Tax proposals. The Administration will introduce legislation to tighten up tax laws, improve tax collection and administration and reduce excessive tax credits. These include proposals to conform to the federal Internal Revenue Code for accuracy-related penalties, establish a special enforcement section to monitor the cash economy, and tighten Act 221 investment tax credits to conform to the federal tax code. These efforts are expected to add $122 million to the state’s tax collection in the upcoming biennium.
As in the prior two years, the Legislature will need to consider legislation in the 2009 session to comply with a constitutionally mandated tax refund or credit to the taxpayers of Hawai‘i. The State Constitution requires that the Legislature provide a tax refund or credit to taxpayers when the general fund balance exceeds general fund revenues by more than 5 percent for two consecutive fiscal years. For FY07 and FY08, the ratios were 9.6 percent and 6.3 percent, respectively, and thus met the constitutional requirement.
Under Hawai‘i’s biennial budget system, each budget period covers two fiscal years. This proposed budget covers the period that begins on July 1, 2009 and ends on June 30, 2011. As required by law, the Governor’s proposed budget must be accompanied by a balanced, general fund financial plan for the six-year period of FY10 through FY15. The financial plan shows a positive ending balance for each year of the six-year period.
The Financial Plan and Executive Budget as well as the Budget in Brief can be found on the Department of Budget and Finance website at: www.hawaii.gov/budget.