Hawaii Lawmakers Return To Spend Federal Aid, Plug Budget Hole

Jun 22, 2020

State lawmakers return to the Capitol today for what is expected to be the final three weeks of this year’s legislative session. Their main focus will be allocation $618 million in federal pandemic assistance.

Legislators will be considering measures that fall into three broad categories, according to Speaker of the House Scott Saiki. Those are: budget bills, measures pertaining to emergency issues, and pandemic-related legislation.  

That is a significantly narrowed focus from the beginning of the legislative session in January, when lawmakers and the governor announced a major package of new spending and tax cuts, aimed at lowering Hawaii’s high cost of living. That package included a broad range of bills, including a hike in the state minimum wage and an expansion of early childhood education.

Six months and a global recession later, House Majority Leader Della Au Belatti, a champion of the earlier effort, says fiscal challenges confronting the state have put a pause on those reforms for now.

“Those are very unlikely to move because the situation has changed so dramatically,” Au Belatti said.

Instead, lawmakers will focus on distributing the remaining $618 million dollars in federal assistance that was given to Hawaii by Congress under the federal CARES Act. Millions more have already been spent in Hawaii on direct payments to residents and businesses through the Paycheck Protection Program and Economic Impact Payments.

How aid funding would be spent

Under a plan released Friday, the remaining funds will be used to pay for a wide range of aid programs that will run through December. The $600 weekly supplement to unemployment insurance paid by the federal government will be replaced by a $100 weekly payment from the state starting in August. Also, $100 million will be allocated for rent assistance payments, $90 million for airport health screenings and $15 million for the Department of Human Services to subsidize child care services.

Lawmakers will also send some funds to assist local businesses. About $100 million will be used to purchase protective equipment for distribution to essential service providers like care homes, nonprofits, and public schools. A further $15 million in grants will be set aside to help local manufacturers transition to the production of PPE.

Hawaii’s commercial fishing industry, which has been hit hard by the drop in demand associated with restaurant closures, will have access to a $3 million pot of assistance.

The Legislature will also have to patch a large budget hole of roughly $400 million dollars. That’s conjured fears of steep spending cuts and furloughs, as happened in the last recession. The drop in tax revenue stemming from the ongoing recession created a deficit initially estimated at more than $1 billion. 

Legislature weighs cutting or borrowing

Lawmakers were able to reallocate existing, unspent funds in May to cover the majority of that shortfall, but will now be forced to cut spending or borrow. The state Constitution mandates a balanced budget.  

Legislative leaders, including House Speaker Saiki and Senate President Ronald Kochi have expressed their preference for borrowing the money, rather than cutting pay of state workers. To that end, lawmakers authorized Gov. David Ige to borrow funds from the Federal Reserve and issue bonds back in May.

On Friday, House Finance Committee Chair Sylvia Luke said the governor had conveyed his intent to borrow between up to $950 million from the Fed’s Municipal Liquidity Facility. A spokesperson for the governor’s office said Ige was still reviewing options and had not yet committed to anything.

The stated preference for borrowing over furloughs and budget cuts has been encouraging to public labor leaders like Corey Rosenlee, president of the Hawaii State Teachers Association.

“We’ve learned from our past mistakes with Furlough Fridays,” Rosenlee said in an interview. “We know the devastating impact it’s had a decade later, it’s had a long term impact on the teacher shortage we have in Hawaii.”

Rosenlee added that the union was appreciative of lawmakers efforts thus far in avoiding furloughs. That was echoed by a spokesperson for the HGEA, the state’s largest public sector union, who noted that services ranging from invasive species control to homeless outreach would be impacted by any furloughs.

No guarantees against future reductions

However, cuts may still come. Additional aid from Congress in the form of the HEROES Act is expected later this summer, but not guaranteed. In addition, no one knows yet when tourism will resume, although it's widely expected to take several years to reach pre-recession levels.

That makes predicting future tax revenue extremely difficult. Senate Ways and Means Chair Donovan Dela Cruz recently noted that the state could get into trouble if it relies too heavily on borrowing funds and can’t cover future interest payments.

There will also be non-spending issues to tackle over the next three weeks. State Attorney General Claire Connors is supporting a measure that would give the state health director the power to declare public health emergencies in the future, based on his or her judgment of a health risk.

“At that point he or she can implement  the screening processes, we don’t have to set it all up,” Connors said at a recent Senate briefing. “It’s already going to be something that we can put into effect. And that’s what we’re triggering; the health screening processes, the isolation processes, the quarantine processes.”

A few non-pandemic bills may also get approval, in particular one that would increase transparency requirements for local police departments.

Lawmakers are expected to be in session until July 10th, when they will adjourn for the year.