State layoffs
and cuts possible

An executive memo from the
governor says the state's spending
is outpacing revenue and
decisions must be made

By Mike Yuen
Star-Bulletin

Layoffs, closing the University Laboratory School and eliminating or consolidating other programs may occur as state spending is outpacing revenues, government officials say.

"Unless we make fundamental and sweeping changes in state government and our operations, and bring expenditures in line with revenues, we will be hard pressed to afford even the most basic state responsibilities deemed crucial to us," Gov. Ben Cayetano warned in an executive memorandum that he sent to all department heads July 6.

And the public must be willing to accept reduced government services, Cayetano told the Star-Bulletin yesterday.

"They wanted tax cuts; we gave it to them -- income tax, general excise tax and many other kinds of tax cuts," Cayetano said. "But it is going to cost us in government services and they have got to be prepared for that."

The administration estimates that by fiscal 2005, the tax breaks will amount to $1.8 billion in lost revenue.

Government workers, meanwhile, need to be prepared for layoffs. "It's likely," said interim Budget Director Neal Miyahira. "We don't know the extent."

The Star-Bulletin has obtained a copy of the administration's latest financial projections. The 12-page document shows the state confronting a deficit of $124.1 million on June 30, 2003, the end of fiscal 2003, unless corrective action is taken.

All programs under review

In the memo to department heads, the governor ordered a review of all state programs. There is now "an even greater sense of urgency" to downsize state government, Cayetano stated in the memo, a copy of which was also obtained by the Star-Bulletin.

Cayetano and House Speaker Calvin Say (D, Palolo) fear that it is the next fiscal biennium -- 2002 and 2003 -- that could toss state finances into turmoil if nothing is done. Expenditures are projected to outpace revenues by $111.3 million in 2002 and by $155.2 million in 2003.

"We're going to have a major challenge," Miyahira said.

And while the state is projected to end the current and next fiscal years with a generally healthy general fund balance -- $178.1 million and $142.4 million, respectively -- Cayetano will not tolerate annual expenditures exceeding annual revenues.

As a result, he has told his department heads that he wants $30 million cut from this year's budget and $60 million from next year's.

That doesn't seem like much, considering that general fund expenditures are about $3.2 billion annually.

But those cuts will be painful because so-called discretionary expenditures -- nonfixed costs -- amount to only about $600 million, Say said. Fixed costs, such as debt service and public workers' retirement and health benefits, all of which are soaring, can't be trimmed, Say added.

Therefore, Cayetano is essentially advocating budget cuts of 5 percent in the current fiscal year and 10 percent in the next, said Say, who shares Cayetano's sense of urgency to begin downsizing government and make it more efficient.

"The wolf is at the door, and members (of the Legislature) and the public have got to be aware of it," Say said.

In preparation for next year's legislative session, Say has established teams of House members to study key issues pertaining to government cost containment and efficiency. Targeted are areas such as civil service reform and the cost of the public workers health fund, which is projected to skyrocket from $214.3 million this year to $347.2 million in fiscal 2005.

Asked for her reaction yesterday, Sen. Carol Fukunaga (D, Makiki), the senior co-chair of the Senate's money committee, said she was too busy and had no immediate comment.

Miyahira said he has briefed the House and Senate leadership and the heads of each chamber's money panel on the administration's budget projections and assumptions.

"I think there was general agreement in terms of what the situation is," Miyahira said.

Rainy-day fund possible

In briefing Fukunaga and Senate Ways and Means Co-chairman Andrew Levin (D, Volcano), Miyahira said it appeared that they were looking at using the state's newly established rainy-day fund -- funded by 40 percent of the $1.38 billion tobacco settlement the state is expected to receive over the next 25-years beginning in 2001.

But in his memo to department heads, Cayetano wrote: "We must address the underlying philosophy of government services and their costs in more deliberate ways -- through major policy changes in existing programs -- or by eliminating altogether certain programs. Departments must go beyond the current issues and short-term crises, and focus on making hard decisions as to which programs should continue, and, if so, in a form that is fiscally responsible given our resources."

In previous statements, Cayetano has said a financial crisis may force lawmakers to downsize government, something they have been reluctant to do.

A couple of years ago, Cayetano proposed eliminating 17 programs, including the University Lab School. The Legislature kept all of the programs alive.

In a recent letter to University of Hawaii President Kenneth Mortimer and Board of Regents Chairman Donald Kim asking them to come up with target reductions, Cayetano wrote: "At a minimum, the UH should review curriculum (i.e., determine whether a particular curriculum is necessary for core competency or for workforce skills training), faculty workload and the University Lab School."

Cuts will spark debate

Miyahira said everyone agrees that state government is too big. But once you start talking about what specifically should be cut, disputes arise because special-interest groups and constituencies want particular programs spared, he added.

Unlike previous program reviews, the current examination doesn't focus on departmental cuts, Miyahira said. Instead, it looks more at how services are delivered as all programs are assigned to a "program review group."

For instance, the Education and Health departments and the attorney general's office are reviewing school and mental health services, which this year required an emergency appropriation of nearly $42.5 million because of federal mandates.

"This way, you're looking at programs and related programs and how they interact," Miyahira said. "You don't want to pull back in one area and cause a major impact on somebody else."

Also, just because a service, such as public-school classroom instruction, is deemed to be a core government function, that will not free it from demands to use funds more efficiently, Miyahira said.

"One example is having the (Department of Education) making sure that the lights are turned off in classrooms when they're not in use. Things like that are little things, but they add up," Miyahira said.