by Governor Linda Lingle

The most important issue facing you and your colleagues this legislative session is adopting a two-year, balanced budget that best addresses our state’s immediate needs without damaging our chances for economic recovery at the earliest possible time.

Your choices are not easy or pleasant, and they will not be popular, but they are yours to make.
Since last December when I presented you with a balanced budget and six-year financial plan, my team and I have worked hard to present you with what we believed were the very best alternatives to address our historically large and still growing budget gap.

At that time we proposed $242 million in revenue enhancements and $731 million in reduced expenditures.

This was on top of the $221 million reduction in spending we proposed in November to cover a FY 09 projected decline in revenues.

When the Council on Revenues reduced its projection on January 9 by another $650 million, we submitted a new financial plan to you on March 4.

It was in this March 4 submittal that for the first time we included a general reduction in labor costs. We suggested that you reduce labor costs by $104 million over the biennium.

When the Council on Revenues further reduced its projection one week later by $255 million, we recommended using federal stimulus funds even though they were likely not reoccurring.

While we would have preferred avoiding the use of one-time sources of revenue, the short time between the March 12 projection and the end of FY09 as well as the continuing decline projected in the out years left us little choice but to use several of these sources to enable retention of the employees, programs and services that are critical to our state.

We also needed to realize $278 million in total labor savings or about $140 million in each year of the biennium.

Because our annual labor costs are about $3.6 billion, the savings we are seeking amounts to approximately 4% a year. If we are able to realize this savings, we avoid having to undertake mass layoffs or tax increases.

Achieving both of these results, in my opinion, are vital to stabilizing our economy and setting the stage for our recovery.

Mass layoffs of our state employees now, or of county employees next year, when the full force of property value declines will result in dramatically reduced property tax collections, will add to our currently higher than usual unemployment as well as increase substantially the personal, family and community tragedy that accompanies such job losses.

Any general excise tax increase at this time will also damage the economy and prolong the time it takes to recover. Higher taxes will be the straw that breaks the back of many local businesses, and their demise will drive unemployment even higher.

Those who want to raise income taxes on those they consider “rich” are again going after the very people in many cases who own or are investing in small businesses. In other words, you are punishing the very people who are in the best position to create new jobs.

You have a choice to make—either work with me to adopt a version of the budget we have proposed, including $278 million in labor cost savings over the next two years, or resort to massive layoffs and tax increases.

We have done our best to present you with alternatives that will enable us to get through the tough couple of years ahead and just as important end with a healthy fund balance at the end of that time to assure a viable financial plan for the next six years.

We have proposed a balanced set of alternatives that also enable us to pursue our priorities of economic transformation, energy security, STEM education, Recreational Renaissance, affordable housing and infrastructure modernization. These are programs essential for our economic recovery and the revitalization of our state.

Also, in our proposed budget, there are no further cuts to DOE or UH or reduction in TAT revenue to the counties.

Some have tried to make an issue of the fact that none of the four mayors are supporting my plan for labor savings.

That is correct because we are not at the point in the process when I need one of them to agree. And while I have spoken by phone with all of the mayors about the broad outline of my proposal to realize labor savings, they have not seen the specific proposals yet so there is nothing for them to agree or disagree about.

One point I did make clear to the mayors as well as the union leaders is that I will also propose reductions in the pay of all appointed and excluded positions under my control, and that includes the pay of the governor, lieutenant governor and the cabinet and deputies.

This is a time of shared sacrifice, and I am confident that when all of the alternatives are closely examined, the ones we have presented to you will be seen as the most prudent, reasonable and fair.
I am also confident that if we start truly collaborating that we can finish the budget and the session on time. The tough decisions that have to be made will not get easier over time. These are choices we must make now.

We can keep offering comments about each others’ plans, or we can begin seriously working together to reach meaningful decisions because at the end of the day, we still have to reduce our spending by $2 billion.

My staff stands ready to work with you and your staff until we meet our responsibility to the people of Hawai‘i to adopt a budget and financial plan that not only satisfies our fiscal obligation over the next two years but which responsibly addresses our long-term economic goals as well.