Make schools, prisons, tax relief top budget priorities

HAWAII'S surging economy is resulting in a state budget surplus even larger than expected, setting the scene for a tug-of-war among competing interests in the next Legislature. Education and the prison system are most in need of increased funding, but the budget is large enough to accommodate significant tax relief.

The state projects a surplus of $632.6 million for 2006-07 after ending the previous fiscal year with $486 million, which itself was more than four times what had been projected. The state's tax collections are expected to continue growing at rates of 6 percent next year and 6.6 percent in 2007.

Governor Lingle proposed in August that the standard income tax deductions be raised from the current $1,500 to $2,500 for singles and from $1,900 to $5,000 for couples filing joint returns. She also proposed tax credits to offset excise taxes and other expenditures by lower-income families, who will be burdened by the approved increase in the general excise tax to support mass transit.

One form of tax relief that should be considered is earned income tax credits based on a percentage of federal credits begun by former President Ford in 1975 and expanded during the Reagan administration. The system, used by 17 states to provide relief to the working poor, consists of giving refunds to families in the amount that their credit exceeds their income tax liability.

Lingle says the surplus will allow tax relief as well as increased funding for the Department of Education and the University of Hawaii. The public recognizes that education should be the top priority for additional spending.

Pat Hamamoto, the state schools superintendent, said two weeks ago that her department's "fair share" of the budget surplus should amount to $453 million. Department of Education officials say most of that would be spent on school repairs, classroom renovations and construction of a new middle school in Ewa. The department's budget now is more than $2 billion a year.

The state has experienced a shortage of prison space for years and now pays for incarceration of more than 2,000 inmates in private mainland prisons. Ninety percent of inmates held in those facilities go on to commit more crimes, compared with a recidivism rate of 47 percent to 57 percent for those held in island prisons. The budget surplus provides an opportunity to fight crime by building new prisons in Hawaii.

Legislators beholden to public employee unions are expected to insist that most if not all of the extra money be spent on pay raises for state employees. However, the discarding of civil service reforms in 2001 led earlier this year to a binding arbitration award of 5 percent pay increases for 24,500 white-collar city and state employees for each of the next two years. That is enough.