Expect Budget to Dominate Session — Again
This time last year, lawmakers and the Abercrombie administration were scrambling for ways to shore up a nearly $850 million deficit that eventually swelled to $1.3 billion.
The budget overshadowed the entire legislative session. Lawmakers approved raiding the state’s reserves and enacting $600 million in new taxes and painful budget restrictions to close the gap. With public labor contracts set to expire, the state built in 5 percent labor savings and an even 50-50 split for health premiums across its unionized workforce to save money.
This time around, even with general fund revenues and tax hikes in place, budget talks could still dominate the session.
Potential budget cuts: Gov. Neil Abercrombie‘s bigger budget plan for the upcoming year had projected significant surpluses going forward, but was based on a forecast that has since been downgraded.
Budget Director Kalbert Young has said the plan will still work for the year starting July 1, but outer years will have to be re-budgeted to make up potential deficits. He expects to present a new financial plan to lawmakers this month, but would not reveal what tightening measures could be implemented.
Young told lawmakers last week he couldn’t “say definitely no, or definitely yes” whether new taxes would be proposed in outer years.
Replenishing reserve funds: Part of Abercrombie’s budget included a plan to replenish the Hurricane Relief and Rainy Day funds that were tapped last summer. Lawmakers could decide to redirect some, or all, of those monies toward other operations.
Revisiting tax cut sunset dates: Legislators could be revisiting the sunset dates for tax hikes approved last session. One of those hikes included a of General Excise Tax exemptions for about two dozen business activities, scheduled to sunset June 30, 2013.
Stalling unemployment tax hike: They also may try again tinkering with the rate businesses pay to the state’s Unemployment Trust Fund. Some lawmakers are looking to stave off a scheduled increase in the state’s unemployment tax rate.
The trust fund, which pays out unemployment benefits, is intended , collecting more money when the economy is healthy, so that benefits can be paid out when the economy sours. Adjusting the rate has proved harmful in the past.
The fund following an unemployment insurance tax holiday lawmakers approved in 2007, when the fund’s reserves were at a record-high of more than a half-billion dollars. When the recession hit, Hawaii’s unemployment rate spiked, and the fund’s reserves dried up, triggering a tax increase for employers.
Pension/healthcare unfunded liabilities: Another potential added cost: Taxpayers could start to feel the impact of the state’s massive unfunded liabilities for pension and health benefits for public employees and retirees if lawmakers decide to begin addressing the problem. The Hawaii Employees’ Retirement System faces nearly $9 billion in unfunded liabilities, while the Hawaii Employer-Union Health Benefits Trust Fund is facing about $14.5 billion in unfunded liabilities.
The ERS wants the state and counties to foot the bill for employees who spike their pension benefits. They also will propose capping the amount of overtime that employees can have counted toward their benefits.
Construction projects to spur economy/jobs: Abercrombie has proposed adding $1.2 billion to the state’s capital improvements budget. That’s on top of the $1.01 billion already budgeted for fiscal 2013.
