State budget shortfall revised upward to $876M

The forecast for state revenues continues to worsen. The Council on Revenues’ latest prediction is that the state now faces a shortfall of $876 million. Previously, the state had estimated that it had a shortfall of $786 million.

Gov. Linda Lingle said in a news release, “Over the next few years, the state will have substantially less money to spend. Even with projected better forecasts in FY2011 and beyond, the state's general fund revenues will not return to FY2008 pre-recession levels until FY2012."

Although the new revenue estimates released yesterday show the economy will pick up in 2011, the state is still facing a crisis. Council on Revenues economists reduced the projected growth rate on tax collections in fiscal 2010, which ends June 30, to minus 1.5 percent from 0. Although they also slightly raised the growth rates for the following five years, they said the increase will be mostly due to inflation.

Both Lingle and legislative leaders said the drop in state tax collections means that the state and the public employee unions need to quickly reach agreement on a new contract that cuts costs. "To close the remaining budget shortfall, we will need to reduce the state's labor costs, which comprise 70 percent of our operating budget," Lingle said.

House Speaker Calvin Say called for the four public employee unions and Lingle to bear down on negotiations, which have been going on sporadically all summer. "Today's council projections hurt their side of the bargaining," Say said regarding the four public unions' position.

The University of Hawaii administration is negotiating with the faculty union to save $12 million this fiscal year through a delay in issuing paychecks. If the administration and the University of Hawaii Professional Assembly agree, unionized faculty members would see their June 30, 2010, paycheck pushed back to July 1, when the 2011 fiscal year begins. They will also likely see their paychecks pushed back a day for the next four pay periods.

In 1998, the Cayetano administration enacted a five-day paycheck delay -- called a “payroll lag” -- for three other public worker unions, for a one-time savings of about $51 million. The Legislature passed a bill authorizing the lag, but UHPA filed a lawsuit in federal court and blocked the practice for its members.

Talks between the state and public worker unions are failing, and at month’s end Gov. Linda Lingle was looking at a second round of state employee layoffs. She called the Hawaii Government Employees Association's offer to take 30 unpaid furlough days during the next two years "unacceptable and unrealistic."

The state had trimmed its wage cut demand of 72 unpaid furlough days to 48. But HGEA countered with 30 days and demanded the state continue to pay 60 percent of medical insurance costs, which have increased by more than 20 percent this year. The state has refused to pay any more, forcing public employees to pay for the increase.

On Aug. 28, Lingle told reporters she would spend the weekend in emergency meetings with the Cabinet to consider how to cut the budget and to identify more employees for layoffs.

The day before, she said while the state will continue to cut spending, the public needs to “reevaluate its expectations” of what services it can provide. She said the Council on Revenues’ latest forecast that the state will have $98 million less to spend between now and July 2011 "is another reminder that we simply cannot afford to operate state government at the current level of spending."

Layoffs and furloughs of state employees would help cover an estimated $800 million gap between expenses and tax revenue over the next two years. However, so far, the governor’s efforts to significantly cut the state workforce have been unsuccessful, with employee unions arguing that job cuts have to be negotiated.

She has already said she will furlough 900 non-union employees for 3 days a month starting Sept. 1, reiterated the need to cut the size of state government, and said tax revenues aren’t expected to return to pre-recession levels until 2011 at the earliest.

She also called on residents to expect less from government. “The public also needs to reevaluate its expectations of what services government can provide given the realities of our current budget situation,” she said.