Governor Ige’s Biennium Budget 2021-23 Reflects “Sudden, Sharp Reductions”

Governor David Ige today unveiled his Fiscal Biennium Budget 2021-23 which includes reductions in both the operating and capital improvements program budgets in the next two fiscal years. The state anticipates a $1.4 billion shortfall each year of this two-year period. 

“This budget represents sudden, sharp reductions to revenues because of the pandemic’s impact on the state’s economy and the tax revenue that funds government services and programs.  Our economy will recover, and the state’s budget will normalize if we contain COVID-19, preserving the health of both residents and visitors,” said Gov. Ige in a press release announcement. “The key to this remains the 3W’s – wearing masks, washing hands and watching distances, as before; and we can now add the vaccine as it becomes available.”

The governor noted that anticipated Congressional action may have an impact on certain spending and said, “I’m hopeful that federal aid will allow us to refrain from imposing furloughs until later.”

Gov. Ige announced that he may be seeking emergency appropriations in separate legislation to support COVID-19 mitigation efforts such as vaccination implementation, hospital surge staffing and the Safe Travels program. Prior to receiving the new federal aid, these mitigation measures were expected to cost $205 million in FY 21 (beginning in January), and $182 million in FY 22.

The biennium buget overview as outlined by Gov. Ige is detailed below:

BIENNIUM BUDGET OVERVIEW:

OPERATING: The total Operating budget from all methods of financing includes $15.417 billion in FY 22, and $15.521 billion in FY 23. This represents net decreases below the current level appropriated for FY 21 of 1.8% ($276.4 million) and 1.1% ($171.8 million), respectively.

GENERAL FUNDS: The request is $7.686 billion in FY 22, and $7.798 billion in FY 23. This represents net decreases below the current level appropriated for FY 21 of 4.5% ($361.9 million) and 3.1% ($249.6 million), respectively.

CAPITAL IMPROVEMENTS: The Capital Improvements Program budget includes $1.236 billion in FY 22 and $1.116 billion in FY 23. Of these amounts, the request for General Obligation (G.O.) bond funds total: $679.4 million and $512.1 million, respectively. This is nearly $800 million in G.O. bonds less in FY 22 and FY 23 than in the previous biennium.  

SIGNIFICANT BUDGET PROVISIONS

The Operating Budget includes the following significant requests:

• Adds debt-service payments of $398.6 million over the two fiscal years for the Dept. of Education, University of Hawaiʻi, and other state CIP projects
• Decreases health premium payments by $603.3 million over two fiscal years, primarily due to the suspension of OPEB (Other Post-Employment Benefits) prefunding.
• Decreases retirement benefits funding by $19.2 million over the two fiscal years.  

Employment

• Adds $17.0 million in FY 22 and $19.4 million in FY 23 for interest payments for the $1 billion Unemployment Insurance loan the state took out to provide benefits to people whose employment dried up as a result of COVID-19.

Health

• Adds $4.3 million in both fiscal years for salaries at the new state hospital and $2.7 million in both fiscal years for operating expenses.
• Adds $6 million in FY 23 to increase the state match for Medicaid to accommodate new enrollments and increasing provider rates.
• Adds $35.9 million in both fiscal years for operational costs at the Hawaiʻi Healthcare Systems Corporation’s regional operations.

Social Services

• Increases Medicaid health care payments by $34.7 million in general funds and $216.3 million in federal funds in FY 22 and by $55.0 million in general funds and $148.5 million in federal funds in FY 23.

• Increases General Assistance payments by $5.4 million in FY 22 and FY 23 to meet projected enrollment increases.
• Increases the state’s Rent Supplemental Program by $500,000 in FY 22 for rent assistance services.

Education (Dept. of Education and University of Hawaiʻi)

Gov. Ige again noted that he’s hopeful that the federal relief bill will render some of the planned cuts and furloughs unnecessary.

“I have made education a priority because our public schools provide a path to prosperity and success for our students. However, I am unable to leave these programs untouched without decimating the rest of state government, especially when many of our health and social service programs are needed now more than ever. To fund programs that assist citizens in need of food, shelter and jobs, and to ensure public safety,  the education budget must be trimmed,” said Gov. Ige.

The Dept. of Education is 21% of the of the FY 21 general fund budget, the second largest behind Budget and Finance, which includes fringe benefits and debt service for the state.

This budget includes:

• A reduction of about 70 positions and $165.6 million in both FY 22 and FY 23 for various DOE programs.
• At the university level, the budget includes reductions of over $70 million over the two fiscal years. 

Public Safety 

• Adds $12.1 million in FY 22 and FY 23 to restore funding for 237.5 positions that were defunded in the current budget.
• Moves funding from operating expenses to payroll to restore funding for 61 positions that were defunded in the current budget.
• Provides a cash infusion of $676,222 in FY 22 to the Crime Victim Compensation Special Fund to cover shortfalls for payroll and operating expenses.
• Reduces non-critical operating expenses of $1.8 million in FY 22 and $2.5 million in FY 23.

The Capital Improvements Program Budget represents the investments the state will make in high-quality infrastructure projects that are essential to the economic vitality and quality of life in Hawaiʻi.

“These investments create jobs and sustain our construction industry. This year, we are prioritizing essential CIP projects to limit debt-service costs and preserve the state’s flexibility to handle future economic shocks,” said Gov. Ige.

Economic Development/Housing

“Before the pandemic, affordable housing was one of our greatest needs. The need is even greater now,” said Gov. Ige.

This budget adds $161 million in GO bond infusions for various housing projects:

• $20 million in FY 23 for the Dwelling Unit Revolving Fund;
• $25 million in FY 23 for the Rental Housing Revolving Fund;
• $38 million in both FY 22 and FY 23 to replace the Conveyance Tax distribution to the Rental Housing Revolving Fund due to the COVID-19 Emergency Proclamation.
• $40 million to the Hawaiʻi Public Housing Authority for the School Street senior project in Kalihi.

Transportation

• Using a mix of funding sources, the state will make needed improvements to airports, highways and harbors across the state.

Health

• $44 million over the two-year period for improvements and renovations to health system facilities on all islands including $12 million for Maui Health System.

Social Services/Housing

• $40 million over the two-year period for Department of Hawaiian Homelands (DHHL) lot development projects, statewide.
• $10 million for repairs to infrastructure to DHHL subdivisions over the two fiscal years.
• $10 million for public housing development, improvements and renovations, statewide.

Education (DOE and UH)

•        $300M ($150M in FY 22 and $150M in FY 23) for public school facilities, from deferred maintenance to health and safety projects and compliance.

•        $315M ($165M in FY22 & $150M in FY23) at the university level for modernization, maintenance, capital renewal/deferred maintenance, and technology renovations across the state.

Public Safety

•        $35 million for a health care unit at Halawa Correctional Facility.

•        Re-appropriating $12.9 million in FY 22 to provide additional funding for medium-security housing at Hawaiʻi and Maui Community Correctional Centers.

•        $40 million over the two-year period to provide major repairs, upgrades and improvements to comply with ADA standards and complete deferred maintenance at public safety facilities, statewide.

ADDRESSING THE SHORTFALL – MEASURES ALREADY TAKEN

The Ige administration has already taken the following measures to address the $1.4 billion revenue shortfall:

• Pulled back $197 million of the executive’s FY 2021 supplemental budget request and legislation. the Legislature further reduced the FY 2021 base budget by $205 million.
• Temporarily suspended pre-funding of the other post-employment benefits (state retiree health benefits) liabilities saving $390 million. 
• Restricted 10% of the discretionary portion of the FY21 budget that was approved by the Legislature.
• Instituted a hiring freeze on 3,000 non-critical position vacancies.  
• To provide additional resources to the general fund, the Legislature authorized the transfer of $345 million of rainy-day fund reserves and $303 million from various other funds to the general fund budget. 
• For the first time ever, the state recently issued $750 million of short-term bonds to cover current operating expenses. 
• Going forward, we are targeting cutting program budgets by $600 million every year starting in FY 2022. 
• This was our planning target. In operation, target is being addressed through program review budget reductions of $350M, fixed costs savings and various revenue/tax measures.

RE-ENGINEERING GOVERNMENT

“Given the magnitude of the revenue shortfall, state government must re-engineer the way we provide services. The extent of the expected revenue loss means that permanent and ongoing changes must be made to state government. Understandably, these changes will be difficult,” said Gov. Ige. 

The governor noted that in total, over 955 general-funded positions are being reduced, of which 255 are conversions to non-general funds, 550 are elimination of defunded positions, and 149 positions involve possible reductions-in-force.

“Together, we can get through this. We have the unique opportunity to reshape Hawaiʻi for the future – to make it stronger and more resilient. There is no limit to what we can accomplish when we work toward a common goal. It will not be easy, but we are committed. Now more than ever, we must do the right thing, the right way, for the right reasons,” said Gov. Ige.