Ige Hopeful COVID-19 Aid Will Stem, Postpone State Furloughs

The state of Hawai‘i will operate on a significantly slimmer budget over the next two fiscal years at least, though Governor David Ige expressed hope Monday that a pending COVID-19 relief package making its way out of Washington DC will allow for fewer employee furloughs, or potentially the postponement of any layoffs until July.

Ige on Monday released his proposed Fiscal Biennium Budget 2021-23. The proposal, which is subject to change following the passage of an approximately $900 billion aid package by Congress Monday night, includes reductions in both the operating and capital improvements program (CIP) budgets over the next two fiscal years. The state is anticipating a $1.4 billion shortfall each year of the two-year period.

“This budget represents sudden, sharp reductions to revenues because of the pandemic’s impact on the state’s economy and the tax revenue that funds government services and programs,” Ige said. “I’m hopeful that federal aid will allow us to refrain from imposing furloughs until later.”

Initially, the state’s goal was to identify $600 million in annual program budget cuts. Instead, the governor was able to identify $350 million in cuts to such programs while still keeping the government functioning, he said.

More money could potentially be saved, as Ige noted more than $380 million in the current budget proposal to protect increased coronavirus testing, the continuation of contact tracing programs, COVID-19 vaccine distribution and cold storage, the maintenance and creation of necessary isolation facilities, hospital surge staffing, and the continuation of the state’s Safe Travels Program.

Changes to the proposal will be made once it becomes clear precisely how much federal aid is on its way to Hawai‘i and what stipulations will be included as to how that money may be spent. The bill does not include direct aid to the counties, which means less relief overall.

The governor’s current budget proposal converts 255 state employee positions from the General Fund (GF) into non-GF programs, specially funded positions, or federally funded positions. A total of 550 currently unfunded positions will be eliminated as part of the budget proposal. Also based on the current proposal, 149 positions that are now filled could be involved in a force reduction. Some maneuvering may be possible to save some of those positions, though the governor did not provide detailed specifics as to what those positions are and precisely how they might be salvaged.

Ige said tax increases may also be a part of the overall financial plan for the state, though those won’t be announced until the Legislative sessions begins next month.

BIENNIUM BUDGET OVERVIEW:

OPERATING: The total Operating budget from all methods of financing includes $15.417 billion in fiscal year (FY) 22, and $15.521 billion in FY 23. This represents net decreases below the current level appropriated for FY 21 of 1.8% ($276.4 million) and 1.1% ($171.8 million), respectively.

GENERAL FUNDS: The request is $7.686 billion in FY 22, and $7.798 billion in FY 23. This represents net decreases below the current level appropriated for FY 21 of 4.5% ($361.9 million) and 3.1% ($249.6 million), respectively.

CAPITAL IMPROVEMENTS: The Capital Improvements Program budget includes $1.236 billion in FY 22 and $1.116 billion in FY 23. Of these amounts, the request for General Obligation (G.O.) bond funds total: $679.4 million and $512.1 million, respectively. This is nearly $800 million in G.O. bonds less in FY 22 and FY 23 than in the previous biennium.

SIGNIFICANT BUDGET PROVISIONS

The Operating Budget includes the following significant requests:

• Adds debt-service payments of $398.6 million over the two fiscal years for the Dept. of Education, University of Hawaiʻi, and other state CIP projects
• Decreases health premium payments by $603.3 million over two fiscal years, primarily due to the suspension of OPEB (Other Post-Employment Benefits) prefunding.
• Decreases retirement benefits funding by $19.2 million over the two fiscal years.

Employment

• Adds $17 million in FY 22 and $19.4 million in FY 23 for interest payments for the $1 billion Unemployment Insurance loan the state took out to provide benefits to people whose employment dried up as a result of COVID-19.

Health

• Adds $4.3 million in both fiscal years for salaries at the new state hospital and $2.7 million in both fiscal years for operating expenses.
• Adds $6 million in FY 23 to increase the state match for Medicaid to accommodate new enrollments and increasing provider rates.
• Adds $35.9 million in both fiscal years for operational costs at the Hawaiʻi Healthcare Systems Corporation’s regional operations.

Social Services

• Increases Medicaid health care payments by $34.7 million in general funds and $216.3 million in federal funds in FY 22 and by $55.0 million in general funds and $148.5 million in federal funds in FY 23.
• Increases General Assistance payments by $5.4 million in FY 22 and FY 23 to meet projected enrollment increases.
• Increases the state’s Rent Supplemental Program by $500,000 in FY 22 for rent assistance services.

Education (Dept. of Education and University of Hawaiʻi)

Gov. Ige again noted that he’s hopeful that the federal relief bill will render some of the planned cuts and furloughs unnecessary.

“I have made education a priority because our public schools provide a path to prosperity and success for our students. However, I am unable to leave these programs untouched without decimating the rest of state government, especially when many of our health and social service programs are needed now more than ever. To fund programs that assist citizens in need of food, shelter and jobs, and to ensure public safety, the education budget must be trimmed,” said Gov. Ige.

The Dept. of Education is 21% of the of the FY 21 general fund budget, the second largest behind Budget and Finance, which includes fringe benefits and debt service for the state.

This budget includes:

• A reduction of about 70 positions and $165.6 million in both FY 22 and FY 23 for various DOE programs.
• At the university level, the budget includes reductions of over $70 million over the two fiscal years.

Public Safety

• Adds $12.1 million in FY 22 and FY 23 to restore funding for 237.5 positions that were defunded in the current budget.
• Moves funding from operating expenses to payroll to restore funding for 61 positions that were defunded in the current budget.
• Provides a cash infusion of $676,222 in FY 22 to the Crime Victim Compensation Special Fund to cover shortfalls for payroll and operating expenses.
• Reduces non-critical operating expenses of $1.8 million in FY 22 and $2.5 million in FY 23.

Capital Improvements Budget

The Capital Improvements Program Budget represents the investments the state will make in high-quality infrastructure projects that are essential to the economic vitality and quality of life in Hawaiʻi.

“These investments create jobs and sustain our construction industry. This year, we are prioritizing essential CIP projects to limit debt-service costs and preserve the state’s flexibility to handle future economic shocks,” said Gov. Ige.

Economic Development/Housing

“Before the pandemic, affordable housing was one of our greatest needs. The need is even greater now,” said Gov. Ige.

This budget adds $161 million in GO bond infusions for various housing projects:

• $20 million in FY 23 for the Dwelling Unit Revolving Fund;
• $25 million in FY 23 for the Rental Housing Revolving Fund;
• $38 million in both FY 22 and FY 23 to replace the Conveyance Tax distribution to the Rental Housing Revolving Fund due to the COVID-19 Emergency Proclamation.
• $40 million to the Hawaiʻi Public Housing Authority for the School Street senior project in Kalihi.

Transportation

• Using a mix of funding sources, the state will make needed improvements to airports, highways and harbors across the state.

Health

• $44 million over the two-year period for improvements and renovations to health system facilities on all islands including $12 million for Maui Health System.

Social Services/Housing

• $40 million over the two-year period for Department of Hawaiian Homelands (DHHL) lot development projects, statewide.
• $10 million for repairs to infrastructure to DHHL subdivisions over the two fiscal years.
• $10 million for public housing development, improvements and renovations, statewide.

Education (DOE and UH)

• $300M ($150M in FY 22 and $150M in FY 23) for public school facilities, from deferred maintenance to health and safety projects and compliance.
• $315M ($165M in FY22 & $150M in FY23) at the university level for modernization, maintenance, capital renewal/deferred maintenance, and technology renovations across the state.

Public Safety

• $35 million for a health care unit at Halawa Correctional Facility.
• Re-appropriating $12.9 million in FY 22 to provide additional funding for medium-security housing at Hawaiʻi and Maui Community Correctional Centers.
• $40 million over the two-year period to provide major repairs, upgrades and improvements to comply with ADA standards and complete deferred maintenance at public safety facilities, statewide.

ADDRESSING THE SHORTFALL – MEASURES ALREADY TAKEN

The Ige administration has already taken the following measures to address the $1.4 billion revenue shortfall:

• Pulled back $197 million of the executive’s FY 2021 supplemental budget request and legislation. the Legislature further reduced the FY 2021 base budget by $205 million.
• Temporarily suspended pre-funding of the other post-employment benefits (state retiree health benefits) liabilities saving $390 million.
• Restricted 10% of the discretionary portion of the FY21 budget that was approved by the Legislature.
• Instituted a hiring freeze on 3,000 non-critical position vacancies.
• To provide additional resources to the general fund, the Legislature authorized the transfer of $345 million of rainy-day fund reserves and $303 million from various other funds to the general fund budget.
• For the first time ever, the state recently issued $750 million of short-term bonds to cover current operating expenses.
• Going forward, the state will target cutting program budgets by $600 million every year starting in FY 2022.