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Lawmakers pummel Ige’s budget proposal

By Kevin Dayton; Star Advertiser; January 6, 2017
Lawmakers pummel Ige’s budget proposal

Wes Machida, State Director of Finance, and Governor Ige (Bruce Asato)

Star Advertiser

Gov. David Ige’s proposed budget came under attack Thursday during its first public vetting of the year, with House Finance Committee Chairwoman Sylvia Luke calling it “borderline schizophrenic.”

Luke blasted the governor’s plan because she says it proposes to increase spending over the next two years while the administration is publicly expressing alarm at unexpectedly low tax collections so far this year.

Luke suggested that Ige might want to pull back his spending plan and start over, while Senate Ways and Means Committee Chairwoman Jill Tokuda accused the Ige administration of “padding” the budget by providing tens of millions of dollars to state departments that didn’t ask for the money.

The icy comments by two of the most powerful members of the state Legislature signaled clear unhappiness with Ige’s proposed two-year, $28.5 billion budget, in part because the administration did not include money in its spending plan for at least two large anticipated expenses.

Tokuda noted Ige’s proposed budget does not include money for any raises for the public worker unions that are now negotiating for new contracts, and also does not include enough money to cover additional public worker pension fund contributions that will be required during the next two years.

“You’ve put the Legislature in a difficult position by not including some of the very real things that we’re going to be having to deal with, and then making us the bad guy” by forcing lawmakers to make cuts in departments’ proposed budgets to cover the looming expenses, said Tokuda (D, Kailua-Kaneohe).

“That’s not fair to the Legislature to put us in this kind of position,” Tokuda told state Director of Finance Wesley Machida. “Are you providing us with a real budget?”

Machida replied that he will meet with Ige next week to discuss whether the proposed budget needs to be amended. Money was not included in the budget for public worker raises because negotiations with the unions are ongoing, Machida said. However, he said, some money was included to help cover the additional pension fund payments.

Those extra pension payments could cost “in the neighborhood of a couple hundred million dollars,” Machida said.

Just as lawmakers were aware, the administration knew that tax collections were coming in lower than expected, but that wasn’t reflected in Ige’s proposed budget, Luke complained.

Tax collections have been sluggish for the first five months of the fiscal year despite record tourism arrivals and a booming construction industry, but economists and state tax officials say they don’t know why. A panel of experts tasked with predicting state tax collections Wednesday lowered its projection for the current fiscal year from 5.5 percent growth in tax collections to 3 percent growth.

The administration projects those lower-than-expected tax collections will result in a $300 million loss in state revenue next year, but Luke complained that “at the same time you are putting in for a $300 million increase in the operating budget” for next year.

If tax collections continue to lag, the loss to the state the following year will be $500 million, yet the administration is proposing another $500 million budget increase the following year, she said. Machida agreed.

“So, the point is, from yesterday when the Council on Revenues met, you would think you should come in here and say, ‘You know what? We submitted a bloated budget. Sorry about that. We put you folks in a tough position,’” Luke said.

Machida said the administration plans to study new tax data for December that should be released next week to see whether collections are picking up, and then “we need to take a look at this to assess if there’s things that need to be done.”

State Chief Economist Eugene X. Tian told lawmakers he believes state tax collections will sharply rebound in the months ahead and will finally end the year about 4 percent above last year’s collections. He based that prediction on his assessment of the labor market, income, tourism growth and other factors.

In the first five months of this fiscal year, tax collections have been running only about 0.7 percent ahead of last year, and Tian said he has never seen a year such as this one, in which tax collections were apparently not tracking the economic indicators.

“In the next seven months, I think there will be months of double-digit growth in the tax revenue,” he told lawmakers. That would allow tax collections to grow by 4 to 4.5 percent as Tian predicts.

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