Dealing with the Budget Crunch

by Rep. Kirk Caldwell - Majority Leader

The following was written by Rep. Caldwell for his upcoming Neighborhood Board meeting:

Dear Neighborhood Board and Community Members,

It's always been my policy to give you the bad news along with the good. In keeping with that policy, this letter to you carries some very tough truth.

As you may have heard, on Thursday the State Council on Revenues once again lowered the estimate of projected revenues for the current fiscal year and chopped it even further for next year.

Let me give you some perspective. In September of 2007 the growth estimate was 5.7%. It is now down to 3.3% which is a negative dip of about 42% in a nine month period. By the way, two of the five members of the Council actually wanted to drop the projection even lower, based on what is happening within the national and state economy.

The projections for the next fiscal year drop to 2.0% revenue growth, down from 4.1% in March. Combined, this means that the state is projected to receive $136.8 million less over a two year period; $14.4 million less in fiscal year 2008 (July 2007-June 2008) and $122.4 million less in fiscal year 2009 (July 2008-June 2009).

For some time now, the House of Representatives has developed a reputation for being tight with the checkbook. Indeed, there was a lot of criticism directed at the House during and immediately following the 2008 session for our restraint in spending taxpayer money. Most of the criticism came from the Governor and the state administration. The House Finance Committee, led by Representative Marcus Oshiro, made hard yet prudent decisions.

Yes it was a tough balance. We know very well that budget restraints affect programs and hurt people. We don't take it lightly. We also knew that what we were doing was necessary. We could see that the economy was slipping and that spending needed to be managed more tightly. The news from the Council on Revenues bears this out.

Because the legislature judiciously lowered revenue projections in calculating the budget, the state can effectively manage this fiscal year, with appropriate spending restraint by the executive branch.

When you take these losses in future years and compare them to our state's assumed financial needs, we face very stiff shortfalls in the future. 2009 will be what we call a biennium budget year. That's a year when we have to put together a budget for the following 2 years – fiscal years 2010 and 2011.

At this point in time, we anticipate a $242.5 million potential shortfall by June 30, 2010, ballooning into a $366.0 million shortfall by June 30, 2011. These are big numbers, which can change somewhat for the better if the economy improves. However, we cannot sit idly by and assume that will happen.

Managing our money ever more effectively and striving for policies that support a more resilient economy will be critical priorities in the near term and in the next legislative session.


Sincerely,

House Majority Leader Kirk Caldwell
District 24
Manoa, Punahou, Moiliili & University