State tax cuts create
budget woes

By Pat Omandam
Star-Bulletin

Tax cuts of more than $2 billion the state will dole out over the next six years mean more money for Hawaii residents and businesses.

But they are nothing but a major headache for state directors and budget planners.

That's because these tax cuts result in a decline in state revenue, which sinks the state's financial picture over the next five years.

Based on the latest budget figures released yesterday by the Gov. Ben Cayetano administration, the state is facing a general fund balance of $189 million this current fiscal year, but that balance drops to only $18.7 million in fiscal year 2002.

In fiscal year 2003, the general fund has a projected shortfall of $136.5 million, with the deficit increasing to $284.7 million by fiscal year 2005 if nothing is done about it.

The general fund shortfall is directly linked to tax reform measures passed in 1998 and 1999, including the income tax rate reduction passed during last year's session and the de-pyramiding of the general excise tax this past session, said interim Budget Director Neal Miyahira.

Miyahira, in budget presentations last week and again yesterday, said the carryover balance in the state general fund is enough to keep the state in the black for the next three years -- but only if there are no increases in public worker pay and no increases in departmental budgets.

"As you can see for the near term we are all right. We have a comfortable balance to take us into the 2000 and 2001 fiscal years," Miyahira told attendees at the Pathways to a New Millennium conference last week.

To cope with projected shortfalls, the state administration is taking a different approach this year on how it reviews programs for budget cuts. Instead of telling each department to cut its budget by a certain amount, as it has done in the past few years, the Cayetano administration has grouped the state agencies by subject areas and given each targeted budget cuts to work out within their program review groups.

Miyahira declined to say how much those cuts were, although state directors last week publicly said the proposed cuts won't be easy.

State Health Director Bruce Anderson said at last week's conference the department must be careful about how it spends its resources because it can no longer be all things to all people.

Anderson said the health and human services program review group faces a $30 million shortfall. He believes the department's main focus in light of the cuts must be to prevent illness and injuries.

Human Services Director Susan Chandler said it's clear these departments won't be getting more money. She believes the key is to do things differently. One way may be to keep only programs that are most effective while possibly eliminating those that aren't, she said.

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