While the state and the Hawaii Government Employees Association are arguing about a new labor contract before a panel of three arbitrators, sensitive talks are going on behind the scenes to end the labor dispute this month.

Although the state and the HGEA have been plowing through arbitration in a closed-door session, a source familiar with the talks says Gov. Linda Lingle has a meeting scheduled tomorrow with Randy Perreira, HGEA executive director, and they are close to agreement on a contract.

Neither the HGEA nor state negotiator commented on the report.

Reportedly at issue is how many days of furlough the union will have to take to help balance the state budget. The administration says the state is still showing a $900 million shortfall despite rounds of budget cuts and program reductions.

Already Lingle is planning to start three-days-a-month furloughs for non-union state workers Wednesday.

In a statement e-mailed to HGEA workers on Aug. 31, Perreira said the union wants furloughs as opposed to layoffs. Also, the HGEA would prefer to strike a deal with Lingle instead of relying on the binding arbitration process now under way.

“;Our preference continues to be a voluntary settlement with the employer,”; Perreira said.

“;HGEA and its negotiating teams recognize that the members prefer furloughs to across-the board pay cuts and to that end have proposed furloughs effective in October,”; Perreira said on the Internet.

Lingle has said if there is no settlement with the HGEA and other public worker unions, she will lay off 1,100 state workers. Last week, she announced that, failing a union agreement, a second round of layoffs was likely.

Meanwhile, the three-person arbitration panel has finished taking testimony from state witnesses, including Linda Smith, Lingle's senior policy adviser; Georgina Kawamura, budget director; Marsha Weinert, tourism liaison; Pat Hamamoto, schools superintendent; Pearl Imada Iboshi, state economist; and Lowell Kalapa, executive director and president of Tax Foundation of Hawaii.

The HGEA is now calling witnesses, including Byron Gangnes of the University of Hawaii Economic Research Organization and Ken Nakamatsu, city human resources director.

Yesterday, Kalapa said he was asked by the state “;to talk about the uniqueness of the general excise tax and what I thought of the tax increases they passed this last session.”;

Lingle is arguing that although the Legislature passed a series of increases for real estate, hotel and state income taxes, they have not generated the amount of taxes first expected.

Kalapa, a former member of the state Council on Revenues, has said that he thinks the current council is overestimating the amount of money the state will collect in taxes.