Budget chief
warns legislators

A Cayetano aide says tax credits
and more spending do not mix

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By Pat Omandam
pomandam@starbulletin.com

The Cayetano administration is urging legislative leaders to "rethink" their spending plan in the proposed state budget or face larger budget cuts as early as 2004.

State Budget Director Neal Miyahira told House Finance Chairman Dwight Takamine (D, Hilo) in a letter Wednesday that he is worried about the budget picture developing in the Legislature, specifically the loss of revenues through tax cuts and increased spending in various bills.

The state faces a $300 million-plus revenue shortfall next year, and legislators are proposing a combination of added revenue and budget cuts to offset the loss.

Increased state fees and taxes, raids of state special and revolving funds and tapping into the Hawaii Hurricane Relief Fund are how legislators want to raise revenue.

Across-the-board budget cuts of between 2 percent and 5 percent are among ways to cut spending.

"We feel that the Legislature must exercise extreme caution at this time because, based on our financial projections, we cannot afford all the proposals that are being considered," Miyahira said.

"In summary, it is critical that the Legislature rethink their spending proposals, which increase expenditures, and tax credit proposals, which reduce revenues. While the proposals are well intentioned, they are not affordable," he said.

For example, the Cayetano administration pointed to lost revenue through proposed tax credits for construction, film production, Ko Olina development and renewable-energy technology systems.

And officials question the nearly 60 nonadministration bills that require some sort of appropriation or funding this session. Two of those include money to restart the successful but temporary state emergency environmental work force and for a commission to study long-term care financing.

Yesterday, Gov. Ben Cayetano met with legislative leaders to discuss the budget, which must be finalized by next Friday or the session may have to be extended, an unpopular move in a crucial election year.

In a separate letter Wednesday to Takamine, Miyahira criticized a Senate plan to use $16 million of encumbered state funds to help raise revenue.

Miyahira explained that when a state agency issues a purchase order or enters into a contract, it is required to set aside or "encumber" the money to cover the entire cost of the purchase order or contract. As a general practice, once all goods and services have been delivered, all balances from the encumbrances are lapsed into the general fund, he said.

"This encumbrance represents a valid commitment of the state agency, and an assurance to the vendor that the required moneys will be available for future payments when the services or goods are delivered," Miyahira said.

Takamine agreed with the administration's assessment of these encumbered funds.

"We have to deal with the reality," Takamine said.

Sen. Fred Hemmings (R, Waimanalo) suggested on the Senate floor yesterday the Legislature eliminate some 5,000 vacant positions in state government so departments would stop using money from these unfilled posts as a slush fund.

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