Construction spending aims to boost sagging economy

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WAILUKU - Gov. Linda Lingle said Friday that she intends to deal with the state's $900 million projected revenue shortfall by slashing department budgets and pumping up capital improvement spending while lowering taxes and fees.

Despite the economic downturn, the revenue collected by the state is expected to grow by 1 percent through the 2010-2011 fiscal years. However, that is significantly less than the nearly 5 percent revenue upswing that was projected in January, Lingle said.

Figure in fixed costs to the state, such as employee benefits and pay increases, and the state has significantly less money to spend than anticipated, Lingle said. Over six years, the state will have $2.6 billion less than had been forecast earlier.

For the past several weeks, the Republican governor has been touting a five-pronged plan to deal with the sagging economy and state budgets and met Friday with newspaper reporters and editors to explain her effort.

"We want the public to understand that we are not going to just wait around for things to get better," Lingle said.

The $5.2 billion general fund budget is projected to fall about $163 million short this fiscal year. State agencies already have cut their spending.

The most apparent cuts were made public when the state Board of Education last month trimmed $9.2 million from the schools spending plan, including cuts to funds for Special Olympics. Protests citing the relationship to programs for special needs students prompted the board to reconsider the plan.

Additional proposals to pare another $45.6 million from the DOE budget for the 2010-11 biennium budget similarly drew strong criticism at a board meeting on Oahu.

Meanwhile, Lingle proposed moving quickly with more than $1 billion in construction to provide jobs - a move that state legislators have been urging.

State Sen. J. Kalani English said he spoke with Lingle earlier this week and suggested making use of funds already allocated for Kahului Harbor. The administration axed more than $100 million in proposed improvements to the west breakwater at Kahului Harbor after Norwegian Cruise Lines pulled two of its three ships out of interisland cruise service earlier this year. The west breakwater was proposed for redevelopment to accommodate passenger vessels, including the Hawaii Superferry and cruise ships.

English suggested that Lingle use money earmarked for Kahului Harbor to begin construction immediately on the expansion of the harbor's east side.

"If people have ideas about how to help us get out of this, now is the time to let us know," said English.

Lingle also said rather than raise taxes and fees - which will create further burdens to families and businesses, many of whom are already in crisis mode - the state Department of Taxation will become much more aggressive in pursuing outstanding taxes owed to the state.

Without getting into specifics, Lingle said Friday that she will propose to lower taxes and fees in tax bills she will present to lawmakers in January to have everybody paying their fair share.

"She sounds like (presidential candidate John) McCain, doesn't she," said Rep. Joe Souki, newly re-elected to his 8th District seat. "How can you do it all and lower taxes? Some of it does make sense, though. We do need to release more funds for capital improvements, and hopefully rail will pass on Honolulu. That will help."

Souki said that once the governor puts her budget on paper and presents it to lawmakers, the Legislature will have a serious discussion.

But a key state senator from Maui said that the Legislature also will be concerned about cutting programs that provide services for people and protect the environment.

"I'm not willing to go along with some of the governor's proposals if it means shredding some of the safety nets we have in place," said Sen. Roz Baker, chairwoman of the Senate Ways and Means Committee. "Take a look at the last session. She offered up tax breaks, but we couldn't figure out then where the money would come from. That was before the current economic crisis."

In her briefing, Lingle said she intends to follow the lead of California and ask the state Legislature to repeal a fee on freight shipped to Hawaii. That $1 fee per 20-foot container is estimated to raise $750,000 annually to fund inspectors who hunt for invasive species in incoming cargo. Lingle threatened to veto the measure last session.

"All of that is going to cost money, and right now I don't know how to do away with this particular fee," Baker said. "We're willing to take a look and see if we overreached, but I'm not amenable to getting rid of it altogether."

Each state department was to present the Governor's Office with plans for budget cuts by Friday, Lingle said. She has also instituted a spending freeze, barred new hiring and ordered state agencies to reduce travel.

"We whittle away at this constantly," she said.

In mid-December, she will complete a proposed two-year budget and all the cuts and reorganizing will become public, she said.

"In the meantime, there will be no impact whatsoever on our existing capital improvement program," she said.

The state will use funds from bonds already sold to move forward with state construction projects before going back into the bond market, Lingle said. She noted that the number of construction jobs in Hawaii increased 2.5 percent in August, but in the same month, the number of private building permits was down by about 9 percent.

The $1 billion in fast-tracked capital improvement projects would come from about $3 billion in previously floated bonds, Lingle said. The state will delay the sale of more than $600 million in additional bonds.

"She's finally sort of echoing what the Legislature has been saying for some time," said Baker. "One of the few things that government can do is push forward with capital improvement projects that have been just waiting to go."

Lingle put together a task force to fast track capital improvement projects, such as Kahului Harbor, airport improvements and the Lahaina bypass highway. But some projects can't really go any faster and comply with state and federal laws, she said.

Baker said that Lingle often holds back on capital spending. But she also suggested that lawmakers can look at ways to revamp the procurement processes and eliminate extra layers of bureaucracy.

On Friday, Lingle said she interceded on behalf of Maui Land & Pineapple Co. in support of its Kapalua Bay redevelopment program, facing a shortfall in financing when Lehman Brothers filed for bankruptcy last month.

ML&P Chairman and CEO David Cole called Lingle and she contacted the developers, Marriott.

The project is 80 percent complete, and ML&P and its partners used cash and lines of credit to advance payments for construction contracts.

"It worked out in the short-term, but this is still a pending issue for us, that project on Maui," Lingle said. "So again, it means me and the government being more intimately involved in these projects going forward."

She said that the state and county governments need to do what they can to make sure that private construction doesn't collapse from the financial crisis.

The government also should be doing whatever it can to attract outside investment for alternative energy development, Lingle said.

Rep. Mele Carroll, whose 13th District includes the rural areas of East Maui, Molokai and Lanai, said this is an excellent time for the state to develop bold initiatives to make Hawaii sustainable with renewable energy and farming.

"I think we need to be inventive and get results now," said Carroll, who also suggested further collaboration with the federal government.

* The Associated Press contributed to this report. Chris Hamilton can be reached at chamilton@mauinews.com.