GOVERNOR LINGLE UNVEILS BUDGET PLAN

For Immediate Release:  Monday, December 20, 2004

HONOLULU – Governor Linda Lingle submitted today to the State Legislature a six-year balanced financial plan, including detailed proposals for an $18 billion biennium budget for fiscal years 2006 and 2007 (FY06 and FY07).  It is the first budget that was created entirely by the Lingle-Aiona Administration.

“We are proud to offer the people of Hawai`i a budget that strikes a balance between being fiscally prudent, taking decisive action to address current community needs, and investing in the state’s future by targeting priorities,” said Governor Lingle.  “Among the areas we have focused on in the budget are early childhood education, higher education, affordable housing and homelessness, environmental protection, transportation, crime and drug control, and economic development and diversification.”

The budget was developed as the state is enjoying a robust economy and moderate revenue growth, while also facing rapidly rising fixed costs. 

The general fund operating budget is proposed to grow by $444 million (11 percent) in FY06 and $561 million (14.2 percent) in FY07.  Fixed costs will consume 78 percent of the new spending in FY06 and 84 percent of the new spending in FY07.  After covering the fixed costs, the increase in the budget is only 2.2 percent in FY06 and 2 percent in FY07.

Increasing expenditures that the state has little discretion over include collective bargaining pay increases for government employees; benefits for retired and active public workers; social assistance entitlements such as Medicaid, foster care and supplemental security income; and meeting court-mandated expenses for adult mental health and the Felix Consent Decree.  In addition, debt service on past borrowing is coming due and will increase by 47 percent in FY06 and 66 percent in FY07 from $348 million in FY05 to $513 million and $577 million in FY06 and FY07, respectively.

“Today’s strong economy and moderate revenue growth gives us the opportunity to address current problems such as homelessness, and make targeted investments in our future such as increased support for the University of Hawai`i,” said Governor Lingle.  “But this does not mean we should abandon fiscal discipline and open the spending floodgates.”

“Just as Hawai`i families cannot spend more than they have, likewise, the state must live within its means and not saddle future generations with large amounts of additional debt.  Our proposed budget was carefully crafted to reflect the public’s highest priorities both in the short-term and long-term, while ensuring that taxpayer dollars are used wisely and where they will provide the most benefit.”

Under Hawai`i’s biennial budget system, each budget period covers two fiscal years.  The proposed budget covers the fiscal biennium 2005-2007, which begins on July 1, 2005 and ends on June 30, 2007. 

As required by law, the Governor’s proposed budget must be accompanied by a balanced program and financial plan for the six-year period of 2005-2011.  The General Fund financial plan shows a positive ending balance for each year of the planning period.

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For more information, contact:
Georgina Kawamura  
Director, Budget & Finance  
Phone:  586-1518

Lenny Klompus
Senior Advisor – Communications
Phone: 586-7708 

Russell Pang
Chief of Media Relations
Phone: 586-0043

FACT SHEET
LINGLE-AIONA BALANCED BUDGET PLAN (FY06-FY07)
December 20, 2004

Governor’s Action – Two Year Budget, Six-Year Financial Plan

Today Governor Linda Lingle submitted to the State Legislature the Administration’s six-year, balanced budget, including detailed proposals for an $18 billion biennium budget for fiscal years 2006 and 2007 (FY06 and FY07).  It is the first budget that was created entirely by the Lingle-Aiona Administration.

The proposed budget strikes a responsible balance between being fiscally prudent, taking decisive action to address current community needs, and investing in the state’s future by targeting priorities.

The budget was developed as the state enjoys a robust economy and moderate revenue growth and faces rapidly rising fixed costs.  It includes targeted new initiatives that will produce real results.

Economy Strong

• Job creation is at an all time high (20,300 jobs added in the past year, November 2004 over November 2003).
• Unemployment is at record low levels (below 3.5 percent for the past seven months, May – November).
• Personal income is up (after inflation, expected to rise 2.5 percent in 2004 and 2.6 percent in 2005).
  

Moderate Revenue Growth

Tax revenue is projected to increase by 5.3 percent in FY06 and 5.7 percent in FY07, compared to 8.3 percent in FY04 and 8.8 percent in FY05.

Rapidly Rising Fixed Costs

• The general fund budget increase will increase by $444 million (11 percent) in FY06 and $561 million (14.2 percent) in FY07.
• Fixed costs will consume 78 percent of the new spending in FY06 and 84 percent of the new spending in FY07.
• After covering the fixed costs, the increase in the budget is only 2.2 percent in FY06 and 2 percent in FY07.

The fixed cost expenditures that the state has little discretion over include:

o Debt service on past borrowing will increase by 47 percent in FY06 and 66 percent in FY07 from $348 million in FY05 to $513 million and $577 million in FY06 and FY07, respectively.

o Collective bargaining pay increases for government employees.  The pay increases were included in only half of FY05’s budget.  In FY06, payments will be $62 million, and in FY07 payments will be $73 million.

o Fringe Benefits for retired and active public workers, including the Employees Retirement System, Social Security, Medicare, and health insurance premiums ($74 million in FY06 and $108 million in FY07).

o Mandated federal program such as Medicaid, foster care, and supplemental security income ($30 million in FY06 and $44 million in FY07).

o Court-mandated expenses for state hospitals, adult mental health, Makin lawsuit over developmental disabilities and Felix Consent Decree ($15 million in FY06 and $15.4 million in FY07).

Guiding Budget Principles

• Identify all spending in the budget. Exceptions include collective bargaining and emergency expenses.
• Eliminate the practice of paying wages with borrowed money from bond sales.  In the budget, 424 positions (DOT, HCDA, DLNR), which were previously paid for with money from bond sales were converted.
• Limit raids on special funds to balance the budget.  The Administration’s budget and financial plan does not include any raids to balance the budget.
• Present the budget in a clear and understandable format.  While the overall budget is in four volumes, the Department of Budget and Finance, developed a “Budget in Brief” that allows the public to easily see how their money is being spent.

Budget Priorities and New Initiatives

The budget sets aside funds for early childhood education, higher education, affordable housing/homelessness, environmental protection, transportation, crime and drugs, economic development and diversification.

o K-12.  $100 million per year for capital improvement projects (CIP).

o U.H. System. 
$50 million per year for CIP.
$20 million for scholarships.
$25 million for operations.
$1.5 million per year in the DBEDT budget for matching funds for a National Science Foundation Grant.

o Affordable Housing.
$2 million per year increase to the Rental Housing Trust Fund, which would result in 450 new affordable rental units per year.
$10 million per year to renovate existing public housing.
$10 million per year for Department of Hawaiian Home Lands to improve infrastructure.

o Homeless Programs
Increase shelter capacity by 1,260 people by developing intensified case management to enable people to transition out of homeless shelters in 18 months instead of 24 months, thus opening up more beds.
Increase outreach to 5,200 people.
Increase basic living expenses to more than 300 families.

o Transportation – All Islands
$40 million in general obligation bond funds in FY06 for interisland ferry terminal improvements statewide.

o  Environmental Projection.
$4 million per year to control invasive species.  This will enable the state to inspect 100 percent of flights from Guam to detect the brown tree snake, as well as increase efforts to control the coqui frog and other alien species.
$10 million per year to renovate state parks.
$10 million per year to renovate small boat harbors.

Total Budget Numbers

All Funds
Operating Budget:
$8.85 billion (FY06)
$9.1 billion (FY07)

Capital Improvement Projects:
$804 million (FY06)
$719 million (FY07)

General Funds
Operating Budget:
$4.4 billion (FY06)
$4.5 billion (FY07)

Capital Improvement Projects:
$343 million (FY06)
$274 million (FY07)

Background

Under Hawai`i’s biennial budget system, each budget period covers two fiscal years.  The proposed budget covers the fiscal biennium 2005-2007, which begins on July 1, 2005, and ends on June 30, 2007.

State law requires the Governor to submit a balanced, six-year budget program and financial plan (2005-2011).  The Lingle-Aiona Administration’s general fund financial plan shows a positive ending balance for each of year of the planning period.
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