Monday, January 25, 1999


Gov. Benjamin J. Cayetano

State of the State Address

Before the Joint Session
of the 20th Hawaii Legislature

Jan. 25, 1999


Mr. President, Mr. Speaker, Lt. Gov. Hirono, Chief Justice Moon, Mayor Kusaka, Mayor Yamashiro, distinguished members of the consular corps, distinguished guests, my fellow citizens.

We are blessed with the duty and honor of leading our state into the next century.

For this, I thank the people of Hawaii for giving me the privilege of public service for the past 25 years.

I thank my wife, Vicky, our First Lady, our children -- and all who made it possible for this Kalihi Boy to stand before you as Hawaii's governor.

This morning it is a privilege to make my fifth report to you on the state of our state.


We all know that the past four years have not been easy. When I took office in December, 1994, the state government found itself facing the biggest fiscal crisis in Hawaii's history.

Since then, we've dealt with a projected revenue shortfall of $612 million and turned it into a $154 million surplus. We've reduced government spending to pre-1995 levels.

Today, the state government is better off than it was in 1994. A few months ago, our state's bond rating was upgraded from A+ to AA. Last year, the CATO Institute gave us a B+ for good fiscal management.

In 1994, we pledged to make education our highest priority, and we kept our word.

Through our accelerated $1 billion capital improvement program, we built a record 11 new schools and 900 new classrooms, as well as gyms, libraries and other facilities.

We pledged to increase teachers' salaries and we did.

And we accomplished something the Board of Education had been working to achieve for more than 20 years -- we got our teachers to agree to extend the school year by seven days.

We gave the UH autonomy, increased faculty salaries and negotiated a permanent home for UH-West Oahu in the hills of Kapolei.

We passed a mandatory approval law to make the state government more time-sensitive to applications for permits ans licenses. We reduced the number of business forms for new businesses to a single unified form.

We've pursued and successfully attracted world-class high tech and telecommunications companies like Square USA, Uniden, ESS Technology and "Avant!"

We gave the tourist industry the biggest boost in our state's history. A record $60 million for marketing. We waived the airline landing fees to encourage more flights to Hawaii.

And we opened our world-class Hawaii Convention Center with bookings right now that will bring in $1.6 billion of new direct spending.

And, while we have vigorously pursued economic development -- we have not done it at the expense of our beautiful environment, as we demonstrated in our actions on Ka Iwi and the Hanalei River.

Together -- and it has been a joint effort -- we've done a lot over the past four years.

The results of our efforts seem mixed. Job counts are down -- but overall employment is up. Real estate sales are up.

Some businessess continue to fail -- but according to Dun & Bradstreet, new business starts are up by 15% over the last year -- mainly in retailing, telecommunications, high tech, insurance and healthcare.

Tax revenues have grown over the past ten months, confounding our economic experts who predicted they wouldn't -- and who seem unable to tell us where the increased revenue is coming from.

Clearly, Hawaii would be doing better if the Asian economy recovered -- but we cannot control Asia any more than we can control our weather.

So let us focus on those matters over which we have some control.

Like those who see the glass as being half-full -- I believe that Hawaii's economy has bottomed out, and we are beginning to see a modest recovery.

But we all know that more needs to be done -- not just by the state, but by all of us.

And let me say to our critics in the business community -- we in state government can help improve the business climat -- but in the end, business -- big and small -- must take responsibility for their own success or failure.

In the next four years, my administration's focus will be in the following areas.

First, we will continue our efforts to make state government more efficient and productive;

Second, we will continue to make education our highest priority -- and maximize our resources to build a well-educated workforce with skills to compete in the 21st century;

Third, we will continue our efforts to reduce our citizen's tax burden;

Fourth, we will improve the business climate and pursue economic diversification to reduce our state's reliance on tourism;

And, we will do so by building on our strengths -- our unique location, our diverse culture, our natural environment -- and most of all, our people, as our "competitive business advantages."

The solutions we shape, the programs we propose -- will be created within the framework of the alues which make Hawaii a special place.

Economic prosperity is meaningless if it comes at the expense of Hawaii's precious environment, our culture, our quality of life -- our soul.

NOW let me share with you in greater detail what my administration will do over the next four years.


Making the state government
more efficient and productive

I am very proud of our state employees.

This morning, I want to introduce someone who epitomizes the best of our state workforce. She worked for the state for 42 years before retiring a few weeks ago. During those 42 years, not only was she an exemplary employee -- but she never took one day of sick leave. In fact, I am told she left early one Friday to give birth to her son -- and was back in the office to work on Monday!

Ladies and gentlemen, I want you to meet an extraordinary worker, Florence Yamada!

It's because of remarkable workers like Florence that some of our state departments have excelled in providing public service in the face of budget cuts.

For example, for the past three consecutive years, the federal government ranked DHS first and second in the nation for efficiency and accuracy in the administration of the food stamp and welfare program.

Last year, the federal government recognized the department for its innovative welfare-to-work programs -- which put more welfare recipients back in full-or-part-time jobs per capita than any western state -- an extraordinary achievement, given our state's poor economy.

There are many state workers like Florence Yamada. And, in every state department from te Department of Business and Economic Development and Tourism to the Department of Defense -- there are success stories of innovation and efficiency.

But these successes have come in spite of the current civil service system rather than because of it.

The past four years have led me to conclude that Hawaii's 60-year-old Civil Service System is obsolete. With nearly 1,700 job classifications, the system is rigid, inflexible -- unable to make timely responses to public needs.

The system stifles employees who are innovative, hardworking and who want to do a good job.

For Hawaii to prosper in the New Millennium, state government must be flexible, state employees must be empowered to make timely and responsible decisions.

Therefore, it is absolutely critical that we develop and build a new Civil Service System which encourages innovation, rewards hard work, and is empowered to adapt to constant change.

This morning, I am calling on you to join us in rebuilding our state's Civil Service System.

To this end, I have asked my director of Human Resources Development to develop a plan to modernize the system -- to meet the needs and challenges of our global society.

By the next legislative session -- one year from now -- we will present our proposed reforms for your consideration and approval.

This is not about layoffs -- it's about change, it's empowering state employees and trusting them to do what's right.

As a start, I will propose a bill which will repeal the current system by June 30, 2000. By clearing the deck, we demonstrate to the public that we are earnest in our desire to reform Civil Service. By clearing the decks we will be held accountable for assuring that Civil Service will be reborn in Hawaii.

I propose no task force, no blue ribbon committee. But I assure you we will invite all stakeholders -- state workers, labor unions, business and the public -- to join us in this effort.

The time may seem short but for years now we have all known what has to be done. Now is the time we must do it!


Rules and regulations

Three years ago, you empowered a task force of small business people to reform the state rules and regulations. After two years of work, little changed.

The result was not surprising. Reforming state rules and regulations is a complicated and difficult process. Most rules and regulations can be justified. But finding out which ones are obsolete or no longer needed can be best done by working with state employees -- many of whom themselves are frustrated by these rules and regulations.

The state has more than 20,000 pages of rules and regulations. Today, we have rules which are clearly obsolete. Rules covering mangers and livery stables. Rules covering a fund to deal with the bubonic plague.

And even where justified, we have rules which are too complex, too difficult for the common person to understand. For example, there are 22 pages of rules covering frozen desserts alone!

Obsolete or unnecessary rules make it difficult for state employees to do their jobs. And these rules can impose a heavy cost to our businesses and discourage investment in Hawaii.

Therefore, as part of our campaign to reform civil service -- we will make streamlining our rules and regulations a very high priority.

To this end, I have asked Lt. Governor Hirono to head the equivalent of a rule-cutting SWAT team to reduce state rules and regulations by 40 percent over the next four years. Our goal is ambitious -- but we believe it can be done.


Micromanaging state government

State government cannot become more efficient and productive if it is micromanaged by the Legislature. Just as it is with private business, state government must have the flexibility to respond in a timely and appropriate fashion to public demand for services.

The Department of Commerce and Consumer Affairs is a good example of how a state agency can become more innovative, more responsive and more self-supporting if it has greater flexibility.

Given greater discretion over the setting of user fees and licenses, today DCCA is 93 percent self-sufficient. I ask you to approve legislation which will give the same discretion to all other state departments as well.

If you want state government to improve, you must learn to trust and let go!


Tobacco settlement

The recent tobacco settlement will allow our state to recover a portion of the enormous health care costs smoking and tobacco use have resulted in.

I commend Attorney General Margery Bronster and her office for the fine work they have done.

Under the $1.13 billion settlement, payments are expected to begin in the year 2000 for a period of approximately 25 years. But first, a final judgment must be obtained.

In anticipation of the final judgment, I propose dividing the settlement equally between two trust funds: 1) a Tobacco Settlement Trust Fund to support anti-smoking initiatives, education and expanded children's health programs, and; 2) a Rainy Day Trust Fund for use in economic emergencies.

The Tobacco Settlement Trust Fund will be used to educate the public in the hazards of smoking and it will be a symbol of our commitment to promoting good health for the people of Hawaii.

The Rainy Day Fund will accomplish two goals: First, it will obviate the need for us to have a carryover fund balance for budgeting purposes -- but more important -- it will be our legacy of fiscal prudence for generations to come.



Nothing is more important that the education of our children.

Over the past four years, we gave education our highest priority, increasing teachers salaries, extending the school year by seven days and building a record number of new schools, classrooms and other facilities.

This year, I added $20 million a year to our CIP budget to upgrade, where needed, the power capacity of all public schools to accommodate more computers or install air conditioning.

Over the years, the state has focused mainly on providing greater funding for our public schools as a means of improving the schools.

But surveys reveal that the only states which have experienced significant increases in student achievement -- are those which hold their schools and educators accountable for performance.

Contrary to the cries of our critics, Hawaii's public schools are not the worst in the nation. We are not the best either -- and I take no comfort in the fact that our schools are average. Like you -- I want our public schools to be the best that they can be.

Therefore, while my administration will continue to support the funding requirements for public education -- over the next four years, we will look to developing ways to measure and improve student and teacher performance.

Today, we start by joining President Clinton in getting schools to become more accountable. Hawaii is lucky to have a nationally recognized scholar in school accountability and assessment. Ladies and Gentlemen, join me in welcoming Dr. Paul LeMahieu, our new School Superintendent.

With Dr. LeMahieu's guidance, we propose a system of performance measures which is fair, simple and based on common sense.

We propose that each school set achievement goals which measure performance against its past history -- rather than against other schools.

This would include performance indices such as student test scores, school attendance, student dropout rates, and parental involvement.

Each school would set up goals to improve on its past performance -- perhaps the average score of the past three years. To motivate parental involvement, we must urge parents to get involved in setting these goals for their children.

Each year, every school would submit a final report to the superintendent. Any school which did not achieve its goals would be evaluated by the superintendent who, if appropriate, will make recommendations or changes in personnel.

This is a simple, inexpensive and common sense way to determine how a school is progressing overall and to determine which schools need assistance. It can be implemented in the begnning of the next school year -- and should be used as a complement to the more sophisticated, expensive performance measures now being developed.

Simply throwing money at our schools will not improve them. We could provide a computer for every child, teach the child how to become computer literate -- but if we don't teach the child how to think, how to solve problems -- then we would have failed.

These skills, the skills of critical thinking, are taught best in an environment of academic freedom -- where schools cn experiment, innovate, and try new ideas without fear of failure.

To this end, I propose -- on a pilot basis -- that we establish "Schools for the New Century."

These "New Century Schools" will be given the following freedoms: freedom to negotiate their own collective bargaining contract or not to have collective bargaining at all; freedom from the constraints of our state procurement code; freedom to control and create their own curriculum; freedom to engage in true lump sum budgeting without interference from the Department of Education and the Board of Education; freedom to select their principals and faculty without constraints from existing contracts.

The schools would be administered by a principal answerable to a school committee comprised of faculty, parents and community leaders.

At the end of each school year, the schools would be audited by the DOE to measure performance.

The two schools I have in mind to be the first are the Kapolei Middle School and the Kapolei High School. These schools present a rare opportunity. They have not yet been built. Moreover, they are located in an area where parental and community interest is high in education. Tomorrow, I will submit legislation for your consideration.

Let me now turn to reducing class size -- something all of us would like to do. But the costs to do it on a meaningful scale is prohibitive.

However, there are less costly alternatives which will help our teachers in the classrooms.

First, our teachers spend too much time disciplining unruly students. Therefore, I propose a review of the rules on school discipline. A review of Chapter 19 is long overdue. Recent U.S. Supreme Court decisions make it possible to give school administrators greater authority and flexibility in disciplining unruly students. Chapter 19 should be amended accordingly.

Second, I propose the DOE establish alternative schools to accommodate students expelled from regular school. This is an area which could be privatized. Funding would come as the allotted state cost per student would follow the student to the alternative school.

The many years of focusing on college prep curriculum has made technical education a stepchild in our public schools. And yet studies show less than half of our high school students go to college.

To provide greater access to quality technical education, I propose that high school students be allowed to take technical courses at the community colleges -- and have those courses count toward their graduation.

This would require greater cooperation and articulation between the DOE and UH. We will take the lead in bringing the University of Hawaii and DOE together on this issue.

Finally, we need to build a new millenium work force. In this regard, I will propose a millenium workforce training program focusing in the areas of healthcare, biotechnology, high tech, telecommunications and environmental sciences. These are economic niches which have great potential for Hawaii. But we cannot exploit them without a skilled work force.


University of Hawaii

Last year, we gave the University of Hawaii autonomy -- the single most important tool for its growth and development.

The UH is critical to Hawaii's economic development.

Therefore, over the next four years, we will continue to support the UH.

Planning and building the education centers for Kona and Molokai will be given high priority.

Planning for the new UH-West Oahu campus in Kapolei gives us the rare opportunity to design and build a 21st Century University from the ground up. We reaffirm our support for UH-West Oahu and we will work with the Board of Regents to speed up its development.

The School of Astronomy rightfully belongs at UH-Hilo. Therefore, we will work with the Board of Regents to move the support staff from the University's Institute for Astronomy to the research park at UH-Hilo in two years.

This will provide the infrastructure for high technology developments on the Big Island and demonstrate that Hilo can become the world leader in land-based astronomy.

A better medical school is crucial to our vision for Hawaii as a health care center. Therefore, we affirm our support for the UH Medical School and will work with the UH Regents to enhance its quality.

To stimulate development in high tech and biotechnology, we will invite the UH to become a partner in developing our proposed high tech park in Kakaako.

Through a consortium of state, business and university interests, we hope to achieve the benefits experienced by such coalitins in North Carolina's Research Triangle and Stanford's Industrial Park.

Finally, we will convene a meeting of the leaders of all of our universities -- public and private -- to discuss and develop a commons trategy to market Hawaii as the Education Center of the Pacific.


Keeping the momentum on tax reform

Over the past four years, we've made the state government more efficient, we reset priorities and today state government is less of a burden on the overall economy. Last year, we approved Hawaii's biggest cut in state personal income taxes -- $750 million over four years.

This year we wish to keep this momentum going. Therefore, we will propose the following:

For business development:

1) A 50 percent reduction in corporate and franchise tax rates -- to tell the business world Hawaii's business climate has changed;

2) An exemption from general excise taxes for exported services -- to allow our professionals to compete on the global level;

3) A double deduction for employer costs for prepaid healthcare insurance -- to encourage business to hire full time workers;

4) A research and development income tax credit for selected new industries;

5) A five-year tax holiday for high tech companies in Kakaako High Tech Park, and

6) An extension of the hotel renovation tax credit to include new construction.

For individuals, we propose:

1) A reduction in the state personal income tax that would be triggered if revenues reach a certain level, and:

2) A long-term care tax deduction for individuals and family members.

This is not a wish list -- we believe we can afford these measures.



As stated earlier, we will not pursue economic development initiatives at the expense of Hawaii's pristine environment. Hawaii's environment is the magnet that draws visitors to our state. Therefore, I propose that a portion of the transient accomodation tax be earmarked to preserve, protect and sustain Hawaii's natural resources.


My vision

Over the past four years, you have heard me talk about my VISION for Hawaii's economic future. I have stated repeatedly that:

Hawaii will become the premier education center of the Pacific, where the people of the world can come to teach and learn at world-class educational institutions;

Hawaii will become the healthcare center of the Pacific, a place blending the healthcare knowledge of the East, West and the Pacific, and that;

Hawaii will become a center for commerce, employing a network of state-of-the-art technology touching every corner of the world.

For the past three years, I have kept you abreast of the excellent progress we have made in pursuing these intiatives. However, in the time remaining, I would like to focus on some new and exciting developments.

Bullet PBEC: Today I am pleased to announce that in March, 2000 the Pacific Basin Economic Council -- made up of over 1,100 international business organizations -- will hold its annual International General Meeting at the Hawaii Convention Center.

PBEC represents over 1,100 companies in 20 economies throughout Asia and North America and South America. Big names like Motorola, Toyota, Sony are members. These business organizations account for $4 trillion in global sales -- and employ more than 10 million people throughout the world.

This is no small gathering -- it is a major international meeting in which world leders in government and business routinely participate.

Historically, countries throughout the Asia-Pacifaic vie each year for the right to host this prestigious meeting. Consideration is now being given to make Hawaii the event's permanent home.

Ladies and Gentlemen, please join me in thanking PBEC's Secretary General Robert G. Lees for bringing this important business meeting to Hawaii.

For us, it is a major breakthrough in changing Hawaii's image and establishing our state as a true internatinal gathering place for business -- and it has made Hawaii a strong contender for the annual World Trade Organization meeting this year.

Bullet CALL CENTERS: In another breakthrough last week, the Southco Company -- a billion dollar high tech hardware company -- established Hawaii's first call center at Kapolei.

Southco's President and CEO Stephen Kelly told us he was amazed to discover that Hawaii may have the best telecommunications system in the world.

The City of Kapolei has put Hawaii on the map with its top quality telecommunications environment. Its satellite capabilities will become even greater when Loral Orion, an international satellite company, launches a new satellite later this year. Loral Orion selected Kapolei because of its uqnique access to both Asian and U.S. satellites.

Bullet TELEMEDICINE: Last year we announced the first statewide telemedicine network in the nation. Next week, for the first time in world history, telemedicine will be used to perform eye surgery ona 16-year-old Big Island girl.

Dr. Jorge Camara at the St. Francis Medical Center in Honolulu -- will guide via telemedicine -- a doctor at the North Hawaii Community Hospital on the Big Island, as she removes an eye tumor from her patient. I will be there personally to witness this amazing medical event.

Bullet MILLENIUM CELEBRATION: To usher in the new millenium, I will issue an executive order establishing The New Millenium Celebration Commission.

This commission will begin planning a year-long celebration of the year 2000 -- starting with a December 31, 1999 New Year's Eve Concert in the Diamond Head crater. The concert -- featuring local and mainland musicians -- will be televised statewide, on the mainland and in Japan.

The Commission -- which I have asked former Gov. John Waihee to chair, will plan a series of events, including multicultural celebrations and a campaign to bring home Hawaii residents from all over the world.

This celebration is designed to boost our tourist industry with an additional 500,000 visitors in the year 2000 -- a great way to showcase Hawaii in the first year of the New Century.


Other important issues

Though we have focused today primarily on economic issues, here are many other important matters facing our state. The fact that I haven't discussed them today does not mean they are not important. Nor have we abandoned them.

Earlier in my remarks, I said that my administration would shape solutions according to the values we hold as a community.

There are many pressing social issues, such as Native Hawaiian rights, death with dignity, domestic partnerships, child abuse, domestic violence and other I have not discussed. And we will present proposals in these areas to the legislature in the coming days.

While these social issues may draw controversy, we believe they are important and should be debated.

Let us follow the wisdom of our Queen Liliuokalani, who said, "never cease to act for fear that you may fail."



Let me close with these thoughts:

Hawaii's economy changed from sea trading, to big sugar and big pineapple -- and over the past 40 years -- to a strong reliance on tourism.

Throughout these changes, however, the spirit of aloha -- our host people's greatest gift to the world -- has remained constant.

It has endured because our forefathers -- in spite of their differences -- understood its central role to the unique greatness of Hawaii as a society.

It has endured because they lived it, strengthened it, nurtured it and passed it on, unchanged, from generation to generation.

The spirit of aloha is the glue which holds us together.

It is the heart and soul of the Hawaii we all love today -- the Hawaii we want to pass onto our children.

Today, I ask you to join me in pledging that all of us here will work together to assure that the spirit of aloha will be strengthened, preserved and passed on to the children of the New Millennium.

We owe this to our children -- as one day they too will owe it to theirs. In these times of frequent, rapid and sometimes unwanted change -- that will be our greatest gift to them of all.

Soon we will enter the 21st Century. We have been blessed as the generation which will take Hawaii into the New Millennium.

What we do over the next four years may set the direction for the next decade, perhaps longer.

Knowing this -- I am awed by the enormity of the responsibility -- grateful for the privilege of leadership -- and excited by the possibilities of making positive and meaningful changes to build a better Hawaii.

Let us work together!

Thank you and aloha.

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