House trims Lingle budget $17M

Changes are likely in the Senate following the state economic forecast on Tuesday

House lawmakers have completed work on their first draft of the two-year state budget, trimming about $17 million in general funds from the proposal submitted by Gov. Linda Lingle and shifting money to prioritize spending on education, the University of Hawaii and health care needs.

But the funding measure is likely to need changes almost as soon as it passes out of the House, which is expected tomorrow.

That's because the state Council on Revenues, the panel of economists that sets the fiscal forecast on which the budget based, is scheduled to make its latest prediction on Tuesday.

It will be up to the Senate to craft a version of the bill that more accurately reflects the state's revenue picture after the council makes its forecast.

Aside from further trimming state agency budgets and programs, a lower forecast could also affect any tax rebate that lawmakers consider passing. A tax rebate of some form is mandated by the state Constitution, based on the growth in revenues over the past two fiscal years.

Another unknown is ongoing contract negotiations with public employee unions, and how much their raises will impact state spending.

"I think there's going to be a will to try and provide the constitutionally mandated (tax) cut, but one that is directed toward those that need it the most," said House Majority Leader Kirk Caldwell (D, Manoa).

Lingle had pushed for a package of tax cuts to Hawaii residents worth $346 million over two years, including a one-time refund of $100 per person for families with household incomes up to $100,000. Those with higher incomes would get $25 per person.

Lawmakers had balked at the price tag previously, and are likely to be even less supportive if the council's forecast comes back lower than before. In December the council predicted general fund tax revenues of $4.7 billion in the current, 2007 fiscal year, which ends June 30. Revenues for the 2008 fiscal year were pegged at $4.98 billion. Those figures amount to an economic growth rate of 6 percent each year.

Growth is expected to drop to 4.1 percent in fiscal year 2009 before edging up to 4.6 percent in 2010, then 4.5 percent in 2011, 4.9 percent in 2012 and 5.6 percent in 2013.

Economists have attributed the deceleration to several factors, including a slowdown in construction and military spending, a leveling off of tourism and inflation.

The House's early version of the budget recognizes the slowdown in 2009.

For 2008, the Finance Committee provided $2.7 million more than Lingle requested, but in 2009 came back with $19.7 million less.

The House budget also shifted money around, placing more priority on what Oshiro called "human capital."

"Whatever spending we do make, we need to make sure it is investing in human capital," Oshiro said. "We have to be bullish about ourselves and our future.

"Let's focus upon the basics: housing, health care, education, transportation and energy."

Among the biggest difference in the financial plans was spending on education, where the House budget provided about $52.4 million more in operating funds to the Department of Education over the two-year period.

Agencies that saw the most general funds cut were the Department of Business, Economic Development and Tourism ($37.5 million less over two years) and the Department of Land and Natural Resources ($5.6 million less).

"Basically, some of the requests are not well supported, and we questioned some of their requests, like furniture, computers and some positions," Oshiro said.

Republicans say they are still studying the budget -- House Bill 500, House Draft 1 -- which passed out of the Finance Committee on Wednesday, and have reserved comment for now.

"At this stage, it's too early to tell," said House Minority Leader Lynn Finnegan (R, Mapunapuna-Foster Village). "We won't know where the commitment of our state money is going to go until we have a more accurate description of what we can spend through the Council on Revenues report.

"It's a work in progress, and I think the slate is blank right now."