Legislative Recap

The Hawai‘i State Legislature has completed its first week since reconvening session on Monday, May 11th. Here’s a breakdown of what has happened this week.

COVID-19 aka CARES relief funding:

The state directly received $1.25B from the federal government to respond to the coronavirus pandemic and this week legislators discussed how to best appropriate these funds. CARES funds must be spent by the the end of December 2020 and must be used for direct COVID-19 related expenses. The House Finance Committee just approved SB 75 which will now head to the House and Senate floor next week for final approval. Here is a breakdown of how that $1.25B will be allocated:

Funding directly to the Counties, based on population. It will be up to each Mayor and City Council to determine how best to use funding and relief funds for their respective county. It is important to note that Counties will need to pitch in for things like food, rent, and utilities relief, as the state is focused on providing unemployment insurance and did not appropriate state COVID-19 funding for these types of relief:

• $388M to the City and County of Honolulu

• $80M to Hawai‘i Island County

• $60M to Maui County

• $28M to Kaua‘i County

State funding. The remaining balance of CARES funding will be spent on:

• $40M to the Department of Defense for the purchase of personal protective equipment, quarantine enforcement, and other COVID-19 response efforts.

• $50M to the Department of Health, including $14M for contact tracing and testing and $36M for a thermal screening system at airports that will use cameras to scan passengers for fevers.

• ~$10M to the Department of Labor Relations for upgrading their IT system to better process unemployment and hire additional staff to process unemployment claims. Over 220,000 unemployment claims were filed since March and around 75,000 claimants are still pending unemployment services and relief.

• ~$2M to the Department of Human Services to expand SNAP (food stamps) eligibility and availability.

• No funding was given to the Governor’s Economic Recovery Navigator efforts. The $10M budget request was denied over concerns from legislators that $9M of that funding was for consulting services. Legislators are requesting the Department of Economic Development, Business, and Tourism apply for federal funding for the Recovery Navigator.

Overall, $635M of the $1.25B COVID-19 relief funding will go back into the state’s rainy day fund via SB 3139 and will be revisited in June when the legislators reconvene again.

• Legislators want to review the progress of how the COVID-19 funding is being implemented, see what additional funding for economic recovery is needed from state agencies, and see if additional Federal relief money will be given to Hawai‘i before appropriating the remaining lump sum of $635M.

• Legislators anticipate needing to use much of the remaining $635M for unemployment insurance and other health and social services needs. Hawai‘i’s existing unimployment insurance fund will be depleted by the end of June and unimployment insurance could cost the state $500M per month.

The State Budget bills:

The legislature has projected a $1B budgetary shortfall over the next fiscal year and this week made adjustments to the supplemental state budget bill (HB 2200), the supplemental judiciary budget bill (SB 3080), the Capital Improvement Projects budget bill (HB 2725), and also delayed executive and judicial salary pay raises (HB 117).

Thankfully, the legislature has created a plan to make up the $1B budget shortfall while avoiding major budget cuts to existing state programs and public employee salaries. To do this, the state will tap into the state’s rainy day fund, reduce all funding appropriated for vacant positions across state agencies, take unused funds from state agencies and excess monies from various special funds, and replace cash funding with bond funding from the Rental Housing Revolving Fund and the Aloha Stadium Fund. In the short term, this will fill the $1B hole in the state budget.

Later this month, the Council on Revenues will meet and release updated tax projections that will better inform the economic impact of COVID-19 on the state’s budget for the next year. It is safe to assume that more adjustments to the budget will be made again in June when the legislature plans to reconvene for a second time. We are anticipating another short session mid-June to adjourn before July 1st, when the fiscal year starts over. We still don’t know what other bills, besides the budget and COVID-19 relief, will be considered in June.

Nominations:

Several Senate Committees have been scheduling hearings to process over 250 nominations to various state boards and commissions. These nominees were submitted by the Governor and need to be confirmed by the State Senate. This week, the Sierra Club testified on the following nominations before the Senate Water and Land Committee, which will vote on Monday, May 18th on the following nominations:

• Support GM 670- Jonathan Scheuer’s nomination to the Land Use Commission.

• Oppose GM 583- Chris Yuen’s nomination to the Board of Land and Natural Resources.

Following Monday’s committee vote, these nominations will then head to the Senate Floor for a vote by all Senators.

Bills to focus on when session reconvenes

Update 5/7/20: Legislators will reconvene session on Monday, May 11th regarding budget bills and various state board and commission member confirmations. Session will last 6-10 business days. Only written testimony will be accepted and committee meetings and floor sessions will be livestreamed on Olelo. Read more here.

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The legislative session has been temporarily suspended since March due to the COVID-19 pandemic. Although legislators are in recess, we commend our elected leaders for staying active and engaged in COVID-19 relief efforts- responding to constituent needs and frequently communicating to the public via social media, email blasts, and live streaming Zoom town hall meetings and their weekly House and Senate COVID-19 committee meetings.

The focus of legislators has been COVID-19 relief and response (rightfully so), but we know that legislators need to reconvene and adjourn session at some point before July 1st, when the fiscal year starts over. While the format and content of legislative session is still TBD, here are some thoughts on what legislators will and should prioritize:

#1 Top Priority will be COVID-19 Relief-

Over 220,000 Hawai‘i residents have applied for unemployment insurance since the pandemic hit, representing about 30% of the state’s workforce. UHERO estimates that even with economic reopening efforts, over 100,000 workers will remain unemployed through the end of 2020. With additional CARES Federal funding up in the air, legislators will be facing critical budgetary decisions when they reconvene session. Here are the budget bills still alive that legislators are looking at:

• COVID-19 specific bills - HB1629 , SB75

  • We support our legislators providing essential health protections and economic relief directly to Hawai‘i’s people. Nurses and health workers need masks and protective equipment to survive on the front lines of this crisis and we will need to increase our testing and contact tracing abilities to contain the spread of the virus. Meanwhile, workers and families need further economic relief in the form of more generous housing assistance, unemployment insurance, food security aid, help with childcare, and measures to halt evictions, foreclosures, and utility shut-offs.

• Supplemental executive budget bills - HB2200 HD1 , HB2500

  • Technically, the legislature does not have to pass a supplemental executive budget bill, as appropriations for fiscal year 2021 were already passed last session. Ultimately Governor Ige has authority on budget cuts to state departments and programs, but legislators may want to inform his decision making (such as opposing a proposed 20% pay cut state workers) by passing a supplemental budget bill with updated economic projections in mind.

• Capital Improvement Projects (CIP) bill - HB2725

  • To stimulate our local economy, legislators are looking to this updated list of shovel-ready CIP to expedite construction of projects that have already been funded, as well as potentially funding other CIP this year. Sierra Club agrees that Hawai‘i’s infrastructure is in need of investment and repair, but we also know that we can protect our environment, and even strengthen it, by investing in infrastructure the right way, without weakening our bedrock environmental laws and implementing shortsighted tactics such as automatic permit approvals. We encourage legislators to prioritize CIP that will create good jobs and enhance climate change resiliency - such as energy efficiency, solar PV construction, local food production, and watershed protection.

• Use of Emergency Funds

  • Our state does have some reserves that can be used for COVID-19 relief, such as the $381M in the Emergency Budget Reserve or “rainy day fund”, $186M in the Hurricane Relief Fund, $569M in the Unemployment Insurance Trust, and $300M for Temporary Aid to Needy Families. More information about these funds can be found here.

Other Fiscal Bills:

If legislators consider passing other bills upon reconvening session, here are a few bills that are still alive that should be considered and could assist with balancing the budget.

• Taxing Real Estate Investment Trusts - SB2697

  • Last session the legislature passed a bill that would generate an estimated $65M in revenue from imposing a corporate income tax on Real Estate Investment Trusts, majority of whose shareholders are not residents of Hawai‘i. Disappointingly, Governor Ige vetoed this bill, but a similar bill is still alive and moving that if adopted this session would help address our budgetary shortfall and have REITs pay their fair share of taxes.

• Raising taxes on the wealthy - HB2385

  • This bill would increase taxes on high income earners in the state for taxable years beginning 2021, generating $60M in state revenue each year. This bill would raise the state income tax rates on earnings above $200,000 for joint filers, $150,000 for heads of households, and $100,000 for single filers. Hawai‘i’s lowest-income households are being hit hardest by COVID-19 and pay 15% of their income in state taxes, while top earners in the state pay only about 9%. This bill helps to address tax inequity and would provide beneficial tax revenue for Hawai‘i.

• Defending Hawai‘i’s solar tax credit:

  • With recent budget shortfall discussions, we know legislators are considering passing a bill that would eliminate Hawai‘i’s solar tax credit. The Sierra Club opposes such efforts. The solar tax credit supports over 4,000 solar jobs in an industry that is 70% locally owned and operated. While our tourism economy is severely struggling, the solar industry employs thousands of local installers, contractors, sales people, electricians, and many others in good paying, sustainable jobs that help to diversify our economy. The tax credit has also resulted in significant progress towards our state’s clean energy goals and has helped dropped the average electricity bill by 20% for all ratepayers, not just those who benefited from the solar tax credit. Furthermore, a study shows for each solar tax credit dollar spent, the State receives $1.97-$2.67 dollars in additional tax revenues, meaning that the state makes $137 million from a $70-million-a-year expenditure. We need to keep the solar tax credit.

Non-fiscal Bills:

Several good environmental bills could still be passed this session that have received little or no testimony in opposition, would require no state appropriation, and would address climate change impacts and boost our resiliency:

1. Sea level rise disclosure for real estate transactions- HB1878. Sea level rise disclosure is a common sense solution to help address the $19 billion that Hawai‘i faces in estimated private property loss from sea level rise and the 6,500 structures such as hotels, malls, and businesses that will be impacted. Seller disclosure is required for homes in flooding and tsunami zones and we have existing maps that show which properties will be impacted by sea level rise.

2. Updating Coastal Zone Management Laws- SB2060. Amends state coastal zone management laws to protect against impacts from sea level rise and coastal erosion. This bill provides important guidance to the counties to help to prevent seawalls and other shoreline hardening structures which destroys beaches, cultural resources, and coastal ecosystems.

3. Coal Free by 2023- SB2629 Proposed HD1. Hawaiʻi has one last coal plant on Oʻahu, whose contract is set to expire in two years. HECO and the PUC have testified that they have no intention to extend the coal contract beyond 2022. This bill aligns with the termination of the coal contract and would make Hawai‘i coal free starting 2023.

4. 100% Clean Ground transportation goals- HB2699. This bill aligns state goals with existing county commitments for clean ground transportation. Sets goals for state agencies on a staggered basis until achieving a 100% light-duty motor vehicle clean fleet by 2035, and for all light-duty motor vehicles in Hawai‘i by 2045.

As Hawai‘i’s people face the COVID-19 crisis, the critical decisions made in the coming weeks by state leaders will shape Hawai‘i’s ability to quickly respond and recover from this pandemic. The Sierra Club supports workers and vulnerable communities and will seek legislative solutions to rebuild our economy and infrastructure in a way that avoids the pitfalls that have created Hawai‘i’s over-reliance on tourism, massive wealth inequality, lack of food and energy self-sufficiency, and continued environmental degradation.

Civil Beat: Pandemic Is Scrambling State Budget Priorities

The COVID-19 calamity means the Hawaii Legislature’s grand plans for the 2020 session may be just pipe dreams.

By Chad Blair    / April 12, 2020

April at the Hawaii State Capitol is usually the busiest time of the year and a driver of news and developments.

The Senate and the House of Representatives were scheduled to vote last week on hundreds of bills to meet the Thursday deadline ahead of the Good Friday holiday.

Instead, both chambers of the Legislature have been in recess since March 17 because of the coronavirus. It was obvious that 76 lawmakers, their staffs and hundreds of other people (including me) who spend time at the Capitol could not gather with social distancing measures in place.

It’s not clear when the Legislature will reconvene this year, even to formally gavel out the session that was to have ended May 7. And that means the status of the $8.1 billion supplemental operating budget for the 2021 fiscal year that begins July 1 is in limbo.

Hawaii leaders showed rare agreement before the 2020 session began on issues such as cost of living, affordable housing and education. COVID-19 is testing that unity like never before.

The reason: Hawaii’s general fund is by all accounts expected to take a giant hit due to the near full collapse of the visitor industry, closing of businesses and furloughing of employees statewide.

General excise taxes and income taxes are the largest drivers of revenue into state coffers, and University of Hawaii economist Carl Bonham said earlier this month that tax collections could drop this year by at least 10% and as much as 25%.

If just a 1% drop works out to about $74 million in lost revenue, simple math suggests a 25% decline amounts to a possible shortfall of $1.85 billion. The state’s rainy day fund of about $400 million would cover maybe six weeks of government expenditures.

“We are worried — very worried — about the state’s funding in the short and long term,” said House Speaker Scott Saiki.

Sen. Donovan Dela Cruz, the chair of the Senate Ways and Means Committee, expressed similar concerns.

“It means that we are going to have to focus on basic needs, and that’s where we would have to have some hard discussions with the House and the governor to make sure we are all on the same page of what those needs are to get a balanced budget,” he said.

In the meantime, even though session is on hold, the Senate special committee on the state’s COVID-19 plans and procedures (of which Dela Cruz is a member) has been meeting several times a week to gather information and ask questions of officials and experts. Though closed to the public, the meetings are livestreamed.

The House’s select committee on COVID-19 has also convened several times. Saiki, who chairs the committee, said Monday’s meeting will consider what criteria must be met to reopen the state, even incrementally. The presenters will include health officials such as Bruce Anderson and economists, including Bonham and Sumner La Croix.

Where All The Money Goes

The Hawaii Constitution requires that the state operate under a two-year budget. That means lawmakers and the governor approved last year the $15.6 billion needed to run government for fiscal year 2020 (ending June 30) and a similar amount in 2021.

About half of that figure each year — roughly $8 billion — is for fixed costs like state employee pensions (currently $1.01 billion), health plans ($1.13 billion) and $862 million for debt service.

Essential services include $2 billion for public schools and libraries, $275 million for public safety and $150 million for the Hawaii Health Systems Corporation.

All of these together — $6.5 billion of the $8 billion in general funds — leave a balance of $1.5 billion for remaining state government programs such as public health monitoring, environmental regulation and regulation of agricultural food production — all of which are needed now during the COVID-19 crisis.

Half of the state’s annual budget is composed of non-general fund revenues, derived from special funds, federal funds, revolving funds and the transit accommodations tax levied on visitor lodging. These monies can’t be used for other purposes unless the Legislature changes the law.

The Ige administration’s budget proposal to the Legislature in December is modified by lawmakers, in no small part based on updated revenue projections. Because of COVID-19, revenues are forecast to drop severely.

Ige Administration

But that other $8 billion for 2021 — the general fund monies — make up the part of the budget that can be tweaked. This is the money that goes to fund the executive, legislative and judicial branches and the Office of Hawaiian Affairs as well as for capital improvement projects and a host of other appropriations.

This year’s $8.1 billion supplemental budget was passed by the House on Feb. 18. It was $300 million less than Ige had requested because some funding for homelessness, affordable housing and other issues were to be funded through separate bills.

Among the bigger-ticket items in House Bill 2200 were $7.7 million to repair Aloha Stadium, $2.3 million to control the coconut rhinoceros beetle and other pests, $2 million to renovate the King Kalakaua Building, $1.2 million for traffic signal maintenance on Hawaii island, $2.1 million for lifeguard services at state parks and $18 million for Maui Health Systems.

Sen. Donovan Dela Cruz at the January press conference when a joint package on cost-of-living issues was unveiled. The COVID-19 catastrophe underscores his argument that the state’s economy badly needs to diversify.

If House Bill 2200 is not passed, all that funding and much, much more will not be approved. The Senate Ways and Means Committee was to have held a public meeting on the measure March 17, the same day the session was halted.

Also on hold is House Bill 2725, for supplemental capital improvement projects totaling more than $4.9 billion. It passed the House March 5 and was set to be heard by WAM on March 17, too.

HB 2725 included $17 million for the modernization of the state finance system, $16 million for the Veterans Affairs Long-term Care Home, $21 million for improvements and replacement facilities for Mokapu Elementary School, $11 million for Kaanapali Beach Restoration and Berm Enhancement, $30 million for design of the Diamond Head concourse extension at the Daniel K. Inouye International Airport and $25 million for minor repairs at community colleges statewide.

Unless the Legislature reconvenes, those bills will not become reality. Same goes for some $160 million in pay raises for public sector unions, as those bills were also placed in limbo in mid-March when legislators went home.

It is not clear if the Legislature will regroup. As it is now in recess, it can resume when it chooses. It can also later call a special session, or the governor can order one.

But Saiki said COVID-19’s social distancing requirements, as long as they are in place, would make it challenging for lawmakers to convene.

“We would have to review the constitutional provisions,” said Saiki. “When Hawaii became a state in 1959, no one contemplated remote voting or attendance.”

Still, Dela Cruz said he hoped to work on the budget and capital improvement bills and the parts of the House-Senate joint package on cost-of-living issues that do not include large funding amounts.

“When we go back we may have to increase the amount of capital improvement projects to get the economy moving and to shore up government,” he said. “That includes infrastructure and maintenance.”

Ultimately, Dela Cruz makes a point that he has been making for years now but today has an urgent relevancy.

“I go back to how we are going to have to come up with new ways to generate revenue,” he said. “It cannot be taxes. So we will have to look at public-private partnerships or reducing liabilities or diversifying the economy with new industries.”

The Governor’s Authority

If the Legislature does not or cannot act, the governor has the authority to do many things. Under emergency powers, for example, he can move around or withhold monies that have already been appropriated for other purposes. He has already ordered departments to restrict spending.

Ige can also shift around funding allocated to major expenditures like education and Medicaid, or adjust the state’s unfunded liabilities for health and pensions. Such actions, though, would very likely be seen as unpalatable.

If the virus somehow dramatically subsides in the near term — say, in May — and the economy begins to return to life, the state could also choose to go with the supplemental budget that was already approved last year.

But the Constitution requires that Hawaii not spend more than it takes in, and so Ige — a former Ways and Means chair — would have to wield a mighty scalpel, likely in consultation with the Legislature.

What the governor cannot do is print money like the federal government, which can pass budgets with deficits and drive up the national debt. Congress and President Trump approved a $2.2 trillion coronavirus relief funding package late last month and $4.4 billion of it is expected to go to Hawaii, nearly $900 million of it to state and county governments in the response to COVID-19.

These estimates are also from the budget that the Ige administration submitted to the Legislature. Lawmakers are very worried that COVID-19 will decimate state revenues and thus the ability to fund government operations.

Last Wednesday Saiki and Senate President Ron Kouchi were part of a press conference on the Capitol’s fifth floor when Ige announced that former Hawaiian Electric executive Alan Oshima will lead state efforts to develop and implement a plan for “economic and community stabilization, recovery and resiliency.”

Because of social distancing, the leaders did not stand side-by-side when speaking to the media as they did in January when — in a rare move — they and other state officials and business leaders said they had agreed to the joint initiative to address Hawaii’s high cost-of-living.

That package of bills included ones allowing a modest increase to the minimum wage, more funds for affordable housing and expansion of affordable preschool programs.

Like the budget, capital improvement plan and pay-raise bills, of course, those initiatives are also up in the air and perhaps moot. Saiki said the minimum wage bill, for example, was very unlikely to become a reality this year when so many business are collapsing. Dela Cruz agreed.

And yet, the display of working together was real and suggested that Hawaii’s top leaders had found a new way to come together despite their many differences.

That same solidarity seemed evident on Wednesday when Ige said, “There is no time for personal agendas and self-interest — Hawaii is one community, one family. We need to work together. This is the only way we are going to survive.”