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Abercrombie aims to build fiscal reserves

December 18, 2013 - 8:17am

HONOLULU — Gov. Neil Abercrombie on Monday proposed setting aside money for less prosperous times while Hawaii enjoys a record budget surplus.

The state had an $844 million surplus at the end of June, which is a record. Instead of starting new programs, however, the governor wants to focus on putting money toward financial reserves and filling shortfalls in state employee pension and retiree health care funding.

Abercrombie said he wants to build state reserves so they reach the equivalent of 10 percent of general fund revenue, he told a news conference.

He’s proposing that the Legislature transfer $50 million to a budget reserve fund and $50 million to a hurricane relief fund during the fiscal year beginning next July.

This would raise Hawaii’s total reserves to more than $370 million. That’s more than 5 percent of the state’s general fund revenue next fiscal year.

Doing this will build Hawaii’s financial strength, the administration said. Abercrombie noted credit ratings judge states on their ability to sustain reserves.

“The philosophy of this budget and the budgets to come reflects my desire to see that our fiscal turnaround is sustained,” Abercrombie said.

The governor said he doesn’t want to fund programs only to have to cut them in the future because of fiscal problems.

Abercrombie’s proposed budget for the fiscal year beginning in July also includes $117.4 million for state employee pension and retiree health care funds.

A change to accounting rules in 2008 exposed an enormous shortfall in state payments to these funds.

The governor aims to spend $4.5 million to support the establishment of preschool education and $4.2 million to help pay for home and community-based services for seniors.

The University of Hawaii would receive $14 million to restore faculty salaries and $19.5 million for faculty salary increases.

In all, the governor is proposing $6.12 billion in general fund spending. That is $183 million, or 3 percent, more than what the Legislature has already allocated as part of the state’s two-year budgetary process.

State Sen. David Ige, the chairman of the Senate Ways and Means Committee, said in a statement that the governor’s proposed budget “substantially increases” general fund spending. Ige said it was important to monitor tax revenue.

“We look forward to reviewing the governor’s supplemental budget request,” said Ige, who is challenging the governor in the upcoming Democratic primary election.

Ige said his first priority is to maintain the state’s fiscal health and budget reserves.

State Rep. Sylvia Luke, chairwoman of the House Finance Committee, said she agreed with the administration’s goal of building reserves.

“I think that’s a huge step forward,” Luke told reporters after the governor’s press conference. “It will continue our investment in the future, in lowering the debt, and making sure we have money in the future just in case we go into a deficit.”

People need to remember the state had a $700 million surplus in 2007, but that turned into a $2 billion deficit in 2009 when the economy soured, she said. This forced the state to furlough workers and raise fees and taxes, she recalled.

“What we need to do is learn from that,” she said.

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