Hawai‘i may have dodged the fiscal cliff, but there’s a bigger looming threat that state budget officials say they don’t know how to begin to prepare for: the economic vacuum created by the loss of Sen. Daniel K. Inouye.
“The Inouye Cliff is actually going to be a greater impact I believe than even the federal cliff,” said Kalbert Young, the state’s chief budget officer.
Hawai‘i receives $2 billion — nearly one-fifth of its annual budget — in federal funding each year for state programs. That covers everything from watershed protection and highways, to rail and University of Hawai‘i telescopes.
But how much of that came to Hawai‘i because of Inouye is impossible to tell, Young said.
“The stuff Inouye was able to do is far beyond quantifying,” he said. “It’s like trying to figure out which way the wind is going to blow tomorrow. It’s difficult.”
“We literally have to live through it and you’ll find out which organizations (are affected),” he said.
Inouye was indeed the self-described “king of pork” for the 50th state.
And even when earmarks dried up, Inouye still got his requests funded.
“Because of his close ties to the president, he was able to get a lot of his requests in the executive budget,” Young said.
It’s an open question whether Hawai‘i’s new team of Sens. Brian Schatz and Mazie Hirono will be able to wield the same influence. Schatz at least boasts some ties to the executive branch, having chaired President Barack Obama’s 2008 election campaign in Hawai‘i.
Legislators peppered Young with questions about how Hawai‘i will plan for fewer federal dollars during a joint committee hearing at the Capitol Thursday morning.
“What if we fall off all the fiscal cliffs? The federal one, the Inouye one … what are your top priorities if we fall short of revenues?” asked Rep. Gene Ward.
The budget Gov. Neil Abercrombie has put together shows major increases in spending — an 8 percent increase in fiscal year 2014 and 11 percent in 2015. Within that budget, Young has set aside $25 million in contingency funds in case of across-the-board sequestration cuts, although that action was sidestepped, at least for now, by this week’s passing of a budget deal. Young calculated that the state’s total losses from sequestration could have reached $45 million.
Given these looming uncertainties, lawmakers from both parties asked Young pointedly how the governor could be so optimistic that the state would have so much revenue to spend.
Young said that he anticipated the Council on Revenues, meeting the same morning as the legislative committee, to raise its tax revenue forecast — which it did.
The council increased the state’s forecast for fiscal year 2013 from 4.9 percent in September to 5.1 percent. The forecast for fiscal year 2014 is even rosier: 6.8 percent growth, up from 3.9 percent.
That translates into an additional $10.3 million for the current fiscal year ending June 30 and $162.3 million for fiscal year 2014.
Prompting the council’s positive forecast are a strong tourism performance, falling unemployment rates and improvement in other sectors such as construction.
“The budget proposal that we submitted to the Legislature is mindful of the revisions of the Council. The rate of revenue growth that they continue to forecast in the current year makes sense and is still very strong,” the governor said in a statement.
Citing the rebounding economy, Abercrombie has made it a priority to replenish the state’s Rainy Day and Hurricane Relief funds while also paying down Hawai‘i’s unfunded liabilities by $500 million a year.
But will a strong tourism recovery be enough to cushion Hawai‘i from the Inouye Cliff — and allow the governor to restore funding to many programs that were cut back during the recession? For now, it’s like reading tea leaves.
“If you ask me, am I worried about replacing $100 million or $300 million or $500 million? I don’t have any quantification on that,” Young said.
Losing 2 percent or 3 percent of Hawai‘i’s $2 billion in federal funds might not sound like a lot, but it is.
“In terms of raw dollar wise — even $45 million — it is very difficult for the state to find $45 million to support existing programs that it didn’t already have funds for,” Young said.
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