Civil Beat: Legislative Deal In The Works Would Use Untapped Funds To Dodge Budget Cuts

A new financial plan taps into mostly unused funds while moving around money for affordable housing and Aloha Stadium.

By Blaze Lovell   

Read original article here.

Hawaii would avoid draconian budget cuts, reduced social services and public employee furloughs under a plan being worked out between House and Senate leadership.

The plan already has preliminary agreement between the chairs of the Legislature’s powerful money committees and will be presented publicly when the Legislature reconvenes on Monday for a shortened session.

Lawmakers are looking to plug a $1 billion hole in the budget caused by the coronavirus pandemic that has stalled the local economy and subsequently crashed state tax revenues.

The plan includes tapping into the state’s rainy day fund, taking excess revenues from state departments, removing vacant positions from the budget and raiding unused funds for mental health services.

It’s expected to be part of a package of six bills that aim to keep the state government afloat until at least June 30, 2021, the end of the next fiscal year. 

Sen. Donovan Dela Cruz and Rep. Sylvia Luke, chairs of the Legislature’s money committees, plan to tap unused funds to fill the state’s budget hole.

Sen. Donovan Dela Cruz and Rep. Sylvia Luke, who chair the Senate Ways and Means Committee and House Finance Committee, detailed the budget plan in a meeting with Civil Beat reporters Friday afternoon, just hours after their colleagues in the Legislature also got a first glimpse of what the cuts look like.

“What we did, instead of taking the governor’s budget, we started with the budget we had last year,” Dela Cruz said, referencing the state’s base budget. “That shrinks the puka we need to fill.” 

The lawmakers plan to use $395 million worth of rainy day funds Hawaii has stored over the last seven years. Luke has said that if there ever was a time to spend that money, this is it.

About $20 million would come from the Mental Health and Substance Abuse special fund. The fund was set up in the 1990s and is used for rehabilitation and treatment services. It’s the only special fund the lawmakers plan to reduce.

The mental health fund has about $51 million, but the Department of Health is only allowed to spend about $15 million of that each year, Luke said. Last year, DOH reported revenues to the fund of about $9 million with just $5 million in expenses. 

Health officials have asked the Legislature to use an additional $10 million from that fund to increase the number of stabilization beds at the Hawaii State Hospital and that request will still go forward, Luke said.

“In this time, it’s an important thing,” Luke said of the expanded access to mental health services. “That’s why we aren’t depleting the entire fund, and leaving the excess to do as planned.”

Additional beds for mental health services at the state hospital would still be funded.

The next biggest chunk, about $286 million, would come from unused funds from state departments, spending restrictions that have accrued over time, and vacant positions, Dela Cruz said.

Of that, the state Department of Education identified $150 million in savings that could be used to help avoid pay cuts for teachers. The DOE was hit particularly hard by budget cuts in 2009 with the infamous “Furlough Fridays” that resulted in teachers getting less pay and students spending less time in class. 

The lawmakers are also projecting savings of $71 million through vacant positions that go unfilled year after year.

About $250 million for the Rental Housing Revolving Fund and $20 million for the new Aloha Stadium would be financed with state bonds rather than general fund monies. The housing monies have gone to developers of affordable rentals as part of an effort to boost the state’s housing inventory.

On Monday, the committees will take public testimony on bills to balance the budget. And though the new budget has agreement between Dela Cruz and Luke, last minute changes could still be made. 

After clearing the Senate, the budget bill, House Bill 2200, needs to go back to the House for final approval. Luke said her committee could quickly make changes if needed.

Also during the coming week, the committees could consider allowing the governor to tap into federal bonds, passing a $2.1 billion capital improvements plan to stimulate the economy and eliminating pay raises for the Legislature, state judiciary and government executives, like Gov. David Ige, who in April proposed 20% pay cuts across the board as a means to shore up the budget.

That proposal is still being worked on by House Speaker Scott Saiki, Senate President Ron Kouchi, Chief Justice Mark Recktenwald and Ige, Dela Cruz said.

Lawmakers have other options, too. Luke said they’ve talked about halting some payments to the state’s health plan for retirement benefits, a move that could increase the time it takes to pay off Hawaii’s $26.5 billion in unfunded liabilities.

Public employees also will lose out on $100 million in pay raises that were on the table when the Legislature abruptly recessed in March. Other pay raises that were approved in the 2019 session will still go into effect, however.

Luke said Thursday legislative leaders want to avoid cuts to social services, reductions in work hours or furloughs.

Just how much the state budget will suffer as the economy continues to sputter is still unclear. Revenue projections now show the state could see a deficit as early as 2022 even if the 2021 budget is balanced.

Now, the preliminary budget cuts proposed for fiscal year 2021 are based on a 16% drop in state tax revenues projected by the University of Hawaii Research Organization. A new projection by the state Council on Revenues is not due until May 28, after the budget likely has been passed.

Dela Cruz said that the budget could be corrected in June, when the Legislature likely will need to meet again in a special session. 

Legislators also don’t know how much money they can count on from Congress. Another round of stimulus funding proposed by the U.S. House of Representatives could run into opposition in the U.S. Senate.

Hawaii already is set to receive $1.2 billion in COVID-19 federal relief through the so-called CARES Act. That money must be used on programs related to fighting COVID-19 and needs to be spent by December.

Of that money, the City and County of Honolulu will get $387 million, while the state can spend $862 million.

But Luke and Dela Cruz plan to send about $552 million of that stimulus money to the state rainy day fund in case Congress decides the money can be spent to cover shortfalls in the budget. 

A breakdown of how the Legislature wants federal relief funds spent.