House approves budget: $500 million goes to Medicaid, $120 million in departmental cuts

HONOLULU—The State House of Representatives’ Committee on Finance yesterday approved unanimously its version of the State’s $10.98 billion overall State budget for next fiscal year.

To view House Bill 200, relating to the State budget, click here

The House version of the budget includes over $475 million over the biennium for Employer-Union Trust Fund (EUTF), Employees’ Retirement System (ERS) and debt services payments, as well as over $500 million to pay for growing Medicaid needs.

The current version of the bill also cut $120 million across departments the Committee deemed able to handle the cuts. The bill does not eliminate specific programs—it allows affected departments to adjust its priorities.

At $10.98 billion overall, the proposed budget is about seven percent larger than this year’s budget, but it cut $379 million from last month’s budget proposal by Gov. Neil Abercrombie, Associated Press reported.

In his State of the State Address on January 24, Abercrombie said: “What appears on paper as an $844 million fiscal deficit through the next biennium belies the fact that there is also a severe operational deficit in government. In other words, as difficult as it will be to balance the budget, that effort will merely be life support for what has become a battered, under resourced, and often dysfunctional democracy.”

In the bill’s committee report, the Finance Committee noted that the budget submitted to the 2011 Legislature was submitted in two parts. The first part, prepared by the outgoing Lingle Administration, increased expenditures by 13 percent, but provided no details on how to pay for them, the Committee said. The second part, created by the new Abercrombie Administration, anticipated growth of 2 percent, and provided details on how to pay for all expenditures.

Despite those details, Committee members rejected the Governor’s revenue enhancement and expenditure reduction proposals, which they found too controversial and not sufficient to pay for the State’s cost increases.

These major cost increases include:

· Replacing American Recovery and Reinvestment Act (ARRA) funds
· Medicaid needs
· Temporary Assistance for Needy Families (TANF)
· Fixed costs such as debt service payments, employee health benefit payments and retirement system payments
· Delayed ERS payments
· Furlough restoration as current supplemental contracts come to an end on June 30

The Committee said there was “a lack of adequate revenues to pay for all the services supported by the public and the new Administration.” The Committee also “saw a need to make further cuts to government expenditures despite slowly uncovering the truth about the impacts of furloughs and the reduction in force.”

The Committee, chaired by Democrats Rep. Marcus Oshiro and Rep. Marilyn Lee, pointed blame toward former-Gov. Linda Lingle and said their budget decisions were the result of several of the Republican administration’s policies:

· In 2010, the Lingle Administration moved the Compact of Free Association (COFA) population into a lesser health plan. On December 13, 2010, a federal court injunction found this to be wrongful and ordered the State to move them back to their original plan.

· Also in 2010 was the Lingle Administration’s “reckless spending of TANF reserve money and the predictably erroneous assumption that enhanced federal revenues would continue.”

· The Committee also said that the Lingle Administration’s payment strategies were ineffective in addressing budget shortfalls, which included delays in payment for the Medicaid program and the State’s pension system in 2009, and the income tax refund delay in 2010. Despite delaying these payments, the Lingle Administration spent the State general fund into the red for two years in a row.

“The can was kicked down the road too many times and the structural imbalances in the State’s financial plan cannot be ignored,” the Committee stated in its report.

The Department of Agriculture, for example, saw its resources reduced by 50 percent under the Lingle Administration. It is estimated that about 90 percent of invasive species coming in through Honolulu International Airport cannot be intercepted.

The reduction in force, furloughs, and hiring freeze during the Lingle Administration “greatly hindered the statewide workforce and stunted departments’ abilities to provide vital government services effectively and efficiently,” the Committee said. “The hardest hit were people who rely on services, particularly the needy and vulnerable, many of them barely able to make ends meet. The line between the ‘haves’ and ‘have-nots’ has grown starker.”

The Committee said it preserved funding for State offices most impacted by the Lingle Administration, such as the Department of Agriculture and the State Historic Preservation Division, and distributed the $120 million cut to other departments’ budgets.

House Bill 200 is scheduled to be heard by the Senate Ways and Means Committee.

To view the House Committee on Finance report, click here