The Budget Crisis
Price of Paradise · Hawaii Public Radio · aired 1995-12-31
Guests: Calvin Say (Chairman, House Finance Committee); Jack Suyderhoud (Professor of Business Economics, University of Hawaii)
Duration: 1:08:05

[00:00:00] Randall Roth: Morning this. We're broadcast live each Sunday morning at 8:00 on KHPR 88.1 FM and KKUA 90.7 FM and then rebroadcast each Sunday evening at 8:00 on KIFO 1380 AM. This show grew out of two bestselling books called The Price of Paradise. Everyone who contributed to those books and who worked to bring you this radio show are volunteers. All of us believe in the importance of lively and informed public dialogue. Our airtime is paid for by the Hawaii Community Foundation, an organization that supports grassroots efforts to build a sense of community, and that manages charitable funds with efficiency and compassion. Well, there's an old joke about what you look for in real estate, and it's location, location, location. And when we started talking to people about the top stories from 1995, we kept hearing the budget crisis, the budget crisis, the budget crisis.

[00:00:57] Randall Roth: So we decided to to talk about the budget crisis, not just what it was all about during 1995, but what it portends for 1996 and beyond. Specifically, we're kind of interested in things like what caused this thing that we call the budget crisis. Is it temporary? Have the governor and the legislature done a good job of dealing with it? What remedies are in order, those sorts of things. With me in the studio this morning to discuss our topic are Representative Calvin Say and Professor Jack Syderhoud. Calvin Say currently is chairman of the House Finance Committee. He was first elected to the House in 1976 and has chaired committees on Culture and the Arts, Tourism, Water, Land Use, Development, and Hawaiian Affairs. He has, he went to high school at St. Louis High School and a degree from the University of Hawaii. He's very active in a number of community organizations, including the Palolo Little League, the Palolo Pop Warner organization and the Hawaii Youth Symphony.

[00:01:59] Randall Roth: Jack Suyderhoud currently is a professor of business economics at the University of Hawaii, Manoa. Formerly up until mid 1995, he was a member of the Council on Revenues, that's the statutory tax revenue forecasting authority here in Hawaii. His PhD is in economics from Purdue. He's the ex-director of the or the executive director of the Tax Review Commission from 1983 to 1984. He's won a variety of teaching and service awards at the University of Hawaii, and he, too, is active in a number of community organizations. Most of them revolve around his three kids, but also he is an enthusiastic master swimmer. Well, Calvin, good morning.

[00:02:43] Calvin Say: Good morning, Randy.

[00:02:44] Randall Roth: Jack is actually and I lied when I said he's in the studio. He's on his way. He'll be here in just a minute. So I'll welcome him in a couple of minutes when he slips in here. Calvin, first of all, I really appreciate you coming in today.

[00:02:56] Calvin Say: Thank you very much.

[00:02:57] Randall Roth: Secondly, you know that our our topic looking back at 95 and forward to to 96, has to do with the so-called budget crisis, and in this morning's advertiser on the editorial page, there's an article by Professor Suyderhoud Jack, who will be here in just a minute that says, what started budget mess and he attempts to very quickly describe the circumstances that led to the so-called budget crisis and shares his thoughts and and suggestions about what to do about it or at least what it is that that we're looking at and what we perhaps should look at in addition to that. And I'm wondering if you had a chance to to glance at that yet?

[00:03:37] Calvin Say: Yes, I have Randy and reading what Jack stated I believe that Jack is correct that the overall budget crisis started when the late 80 mid eighties began when we had a lot of Japan investments, construction was up, tourism was up, the four pillars of our economy were agriculture, public works construction, private works construction, tourism and military spending. What transpired from the mid eighties to the beginning of the early nineties, was a growth of double double digit in state government revenues. How we tried to address it, it was very difficult based on the number of priorities, but a great deal of funding went to the Department of Education. For the general public at large, you realize that we always have to give you a tax rebate. And in 1988 or 89, we gave the people of the state of Hawaii a $145 rebate per person. The following year it was about 25, 25 and the past three four years now, it's been a dollar a year, which the public questions.

[00:04:46] Randall Roth: Well, what I hear you saying is that the economy was booming in the 80s, which is what Jack Suyderhoud was saying. Um, but Jack, I think was suggesting that that government simply got too big and when revenues fell off, rather than shrinking, it spent the so-called savings, the surplus that had built up. And and I hear you saying something similar, um, but a little bit different. Um, but here we are and something has to give. Either the government has to do something to get more revenues, or it has to cut back on spending. Um, what do you see in that crystal ball for 1996?

[00:05:27] Calvin Say: I'm happy you, you know, posed the question to me this morning for the past eight weeks, the committee on finance have been going out to the neighbor islands and conducting hearings on gaming. And during the past five weeks, I've been meeting with the members of the majority caucus and coming up with ideas in trying to propose how we can budget our general fund revenues in matching our expenditures. I can say this honestly and sincerely that presently right now for the past four years, we have, yes, been spending more than what has been coming in. Expenditures far exceed our revenue projections and it is very scary. My discussions with the members of the majority caucus has been very interesting because what I try to do is to propose ideas and concepts that are presently in the Hawaii revised statutes, our laws, in trying to bring down or decrease public government expenditures.

[00:06:25] Calvin Say: A very good example was the issue I brought up in regards to the tax credits this past session, tax exemptions that are all presently on the books. We are now looking at which some of our state employees are very much concerned, the health fund.

[00:06:39] Randall Roth: Mhm. Well, let me let me stop you and and and pick up on a couple of the things that you've mentioned. Uh, one when you talk about tax credits and and exemptions, I guess what you're saying is is there's the possibility that that tax revenues can be increased, not by increasing rates, but by doing away with existing credits and exemptions and that sort of thing.

[00:07:00] Calvin Say: Wait wait. Now, it's not increasing tax revenues, it's decreasing tax expenditure. It's the expenditure that we are trying to decrease. Okay. Not revenues. We're not increasing right.

[00:07:12] Randall Roth: Okay, well I won't I won't with you about that. Something else that you mentioned was uh was gaming. And um and I have to share with you when we did our our radio program, I came to the um, uh and this is very simplistic, but I came to the conclusion that people who are in support of legalized gambling, call it gaming, and those people who oppose it, call it gambling. And I noticed that you called it gaming and I noticed it was the first thing that you mentioned when we talked about solutions to the budget crisis. Are you a supporter of of legalized gambling or gambling, gaming, whatever we call it, and how would that address our budget crisis? Because it seems to me that would simply put in motion something that that might bring in government revenues sometime down the road, but certainly not for the the next year or two.

[00:08:01] Calvin Say: During the past years of my tenure, I have been a supporter of some form of gaming, primarily lottery. And uh during the past five public hearings that we went out throughout the state of Hawaii, it was interesting to note that for a lot of individuals who were in support, they looked at gaming or gambling as another form of an activity that could be tied into our tourist industry. There, you have the opponents, such as the church groups that were very well organized, that just said that it would be a moral decadence to our one society.

[00:08:33] Randall Roth: And when you say well organized, there have been hearings around the state and and overwhelmingly as I understand it, the people who showed up were opposed to legalized gambling, but there are a number of people, and I think you're included in this, this latter group who feel that that that wasn't necessarily uh a clear reflection of what the the whole community is thinking.

[00:08:54] Calvin Say: Yes, I would say that. And to give you a recap for the county of Hawaii, Hilo county was three to one in favor. Or two to one in favor, excuse me. But it was for cultural gaming. It was interesting. They wanted horse racing and cockfighting. Kona, it was three to one in opposition. The recent Molokinis, the recent individuals who who have been affected by gambling, they said they were opposed to it and the church groups. Maui I was very much surprised, Randy, because I thought coming from the backyard of the speakers, he would get more people out in support. But as it turned out, the Seventh Day Adventist came out very, very strong and that's where it was a seven to one in opposition.

[00:09:38] Randall Roth: Okay. As I listen to the two of us talk about more revenues from um, legalized gambling, and more revenues, however we describe it, having some money there that wouldn't otherwise be there by changing the tax law, what I haven't yet heard and what I think is the thrust of of Jack's article in this morning's advertiser, is it's on the expenditure side. And and by expenditures now, we're talking about the size of government. Um, he and a number of other people who've been quoted in the press lately, seem to think that shrinking government is at the heart of any solution to the budget crisis. What do you think?

[00:10:19] Calvin Say: That's a very interesting question because what we have to address as legislators is the quality of life as far as the budget cuts that the general public at large is requesting. When we talk about lowering expenditures, it has a major impact on the quality of life, and it was reflected with the mass demonstration of the university students, for example. The two the two court decisions right now, this past week in regards to general assistance, the prison transfers, the state hospital, it all has a major impact on our expenditures. So you're saying the experts are saying shrink government, but as you listen to the people, you get a different message. Yes. And the message is that how much further can we go in cutting? Let me say this, Randy, that the general public has to realize that the state of Hawaii generates tax revenues of about 2.8, 2.9, Jack. Give or take billion, right? And one third of it is already set aside on fixed costs. Fixed costs, which is the retirement benefits, the health fund benefits and our debt service. Debt service is for our capital improvement projects. 800 million of this 2.8 or 2.9 billion, Jack, Randy is already set aside also for education and the balance is for all other departments throughout the state of Hawaii. What I've been trying to concentrate the efforts of the finance committee is in those fixed costs. The operational side, I've said to the general public and to the press, very candidly, that we've already gone into the marrow. If you guys want to cut more programs, I'm willing to cut, but the members of the state House, the subject committee chairs will have to tell me what programs they want to cut, because if I make the cuts arbitrarily, don't get mad at me.

[00:12:16] Randall Roth: So you're the money guy, but what you're hearing from the community, and what you're hearing from the chairs of the other committees in the in the House at least, is suggesting to you that that government can't shrink anymore. You you've cut into the marrow as you put it.

[00:12:29] Calvin Say: Yes.

[00:12:31] Randall Roth: Okay. Well, Jack Syderhoud, good morning and welcome to Pop Radio. It's wonderful wonderful to see you.

[00:12:35] Speaker 1: Thank you very much.

[00:12:37] Randall Roth: For one morning, I oversleep. Oh, and I'll let our listeners know that this is Pop Radio. My name is Randy Roth, my guests in the studio are Representative Calvin Say, the chairman of the House Finance Committee, and Professor Jack Syderhoud, who is a professor of business economics at the University of Hawaii, Manoa and until mid 1995, was a member of the Council on Revenues. If you would like to ask a question or make a brief comment, just call us at 955-8821. Neighbor islanders are always invited to call us collect and your chances of getting through this morning neighbor islanders is especially good. Uh, we've had uh some transmission problems on KHPR and so we think our neighbor islanders are going to have a much easier time getting through this morning than what might normally be the case. Again, if you'd like to ask a question or make a brief comment, just call us at 955-8821. Well Jack, uh you got in just a little bit late. We started the show by getting Calvin's reaction to your article this morning and and he shared that. I heard that.

[00:13:39] Randall Roth: Oh, you heard that.

[00:13:40] Speaker 1: Well, I heard it on the Maui antenna.

[00:13:43] Randall Roth: Oh, okay. That's true. Well then, uh you've got an opportunity to respond to anything that you heard Calvin say about your article. Or anything else that you want to talk about.

[00:13:52] Speaker 1: Well, I I just wanted to uh to highlight the fact that uh the the reason that we got into this problem, um as Calvin mentioned, uh it really goes back to the the mid 1980s when we had the high growth, but then obviously, uh when that growth stopped, um effective basically 1991, um the revenues stopped growing, unfortunately, the expenditures didn't. And as a result, uh we're in the budget mess today because uh our expenditure growth was not adjusted quickly enough. Perhaps in part because people thought that the slowdown in the economy, the slowdown in revenues, would be temporary, but unfortunately, it hasn't been.

[00:14:32] Randall Roth: Mhm. And and your impression is there's there's a new reality that we're not going through just a cyclical thing that if we wait long enough, the economy will come back to where it was. The impression I have from your piece is that this is a new world that we're in.

[00:14:47] Speaker 1: Absolutely. There's a there's an expression among us the economists uh that uh in the long run we're uh in the long run you're all dead. That is to say, uh you uh some people are really concerned about the uh about the short run. The short run uh lasts a long time and uh in this case it's lasted much longer than we thought it would. Um, there is a recognition, a wider recognition now than perhaps a couple of years ago, that the the growth rates of the 1980s will not be turned to Hawaii anytime soon. And as a result, uh government and those of us who uh depend on our paychecks for government revenues are going to have to get used to the fact that uh the pie is going to be growing much more slowly and that it's going to be much more difficult to get uh your slice of the pie than it was before.

[00:15:34] Randall Roth: Did I correctly characterize your message or another one of your messages when I said that you're suggesting government needs to shrink some more?

[00:15:43] Speaker 1: Well, I'm I'm not sure how much it needs to shrink. Uh, I think it has to get used to the fact that the growth rates are smaller. Uh, the the shrinkage right now, I think is a is a sort of a temporary um, result of the fact that uh expenditures have to get into line with the projected revenues.

[00:16:03] Randall Roth: Because there's a requirement that we not go into deficit spending.

[00:16:07] Speaker 1: Correct, technically. Um, one of the problems is that the uh it it's not so much the tax revenues that are the problem right now. Uh, as I see it when I read the uh budget and finance projections, but rather the non-tax revenues. The uh their perceptions of what federal aid will be, their perceptions of what other sorts of revenues will come into the state, interest income, charges, fees, uh recoveries from various sorts of things. And they're projecting a substantial reduction in those. And as a result of those estimates, um the present expenditure levels are too high, and therefore they are making cuts in those expenditure levels.

[00:16:46] Randall Roth: And I guess no one wants to skate too closely to what we think is thin ice, but we're not even sure if it's thin ice because all of this is based on projections. And hope springs eternal and once you've got a program, there's always a constituency that's going to to fight to save it. And so I guess it makes the job of the legislature and the governor really difficult right now. Well, let's take a couple of our callers and then I want to come back uh especially I'm interested in something that that Calvin mentioned, these fixed costs that he's interested in and you mentioned something about those in in your article. But let's go to uh some callers first. We have Shell from Kapaa. Good morning, Shell.

[00:17:21] Speaker 2: Good morning, Reynolds. How are you today?

[00:17:23] Randall Roth: Just fine.

[00:17:24] Speaker 2: Um, I've heard I've been following the budget issue like so many other uh residents of Hawaii trying to to understand and I I believe that many of us out here finally do understand uh where the money went and understand the great problems that the governor is facing dealing with the crisis. I've I've heard Erlan several times referred to exactly what Calvin Say uh mentioned a few moments ago, about the percentage of the budget that is fixed in terms of debt service. Uh, the one thing I've never heard or read, and I could have missed it but it doesn't seem to come out very often, is how much in debt is the state in with the bonds? And where are we? Is there a bond ceiling? How much more money can we borrow? And uh if that is a fixed amount, uh should we not be looking at that amount of money for some of these things, ideas that keep coming up such as uh, uh, doing something about Diamond Head to make it more uh uh appropriate for visitors and also an income earning, or the Hamilton library which uh seems to have been forgotten in all of this.

[00:18:38] Randall Roth: So, so, Shell, is is the primary question, uh why don't we just borrow the money that we need for important uh projects, if it's not there from current government revenue?

[00:18:50] Speaker 2: Right, and also what where are we? How much in debt are we?

[00:18:54] Randall Roth: Mhm. Okay. Jack Syderhoud, why don't we just borrow the money?

[00:18:58] Speaker 1: Um, for two reasons. One, we have

[00:19:00] Randall Roth: have a constitutional, I believe it is, uh limit on the amount of borrowing. Um and I forget the exact amount. Uh somehow 500 million uh strikes me, but that that could be way off. But we have a constitutional limitation against uh uh too much borrowing.

[00:19:15] Speaker 3: And we're we're pushing up against that?

[00:19:17] Randall Roth: I believe so. Um but I don't don't quote me on that because I'm uh I'm not an expert on borrowing by any means. Um a second reason is that obviously borrowing costs uh interest and um um we have to repay that interest and generally you cannot make um more money on investing the proceeds of borrowing than you can on um the than the interest cost itself. Um, finally, um for economic reasons, you uh want to finance current expenditures out of current revenues. You don't want to go into um to debt to finance current uh outlays, current operating uh obligations because basically what you're doing is you're passing on the cost of current spending to future generations, and that doesn't make sense.

[00:20:00] Speaker 3: So our our kids pay for those things that we're getting right now.

[00:20:04] Randall Roth: That's right. Well I understand that. Shell, shout let me let me just get Calvin's thoughts on this then I'll come right back to you.

[00:20:10] Speaker 3: Calvin Sei, chairman of the finance committee.

[00:20:12] Speaker 4: Okay. Shall I I would say that the the amount that I can give you in not in exact figures but in a estimate is the floor would be over 200 million that we pay in general funds for our debt service.

[00:20:27] Speaker 3: So that that that that still begs the question. How much are we paying uh in terms of what is the debt? Where where are we? I see I've never heard that figure.

[00:20:36] Randall Roth: I can try to get that figure for you. Are we are we 10 billion dollars bonded are we Let let me ask the question because they don't have the dollar answer. Calvin are you under the impression that we are at or close to the cap that Jack was referring to?

[00:20:51] Speaker 4: No, we've got about a 14% difference. There's a there's a cushion in there. And and it's your understanding that that borrowed money could be used for for current needs as opposed to to capital uh needs.

[00:21:05] Randall Roth: Reverse. Well, um I I don't understand exactly the difference between uh how current revenues can be used, tax revenues can be used as opposed to borrowed money. But I do understand that that there is a difference in terms of of the application that you can uh that's available to us. Okay.

[00:21:26] Speaker 4: Yes, it is based on the premise that if you're going to use general obligation bonds to pay operating costs is taxable Geo bonds. If you're going to use Geo bonds for capital improvement projects for the state of Hawaii, it's non-taxable general obligation bonds.

[00:21:42] Randall Roth: And that just goes to the cost to the state of that type of finance. Yes. Okay.

[00:21:46] Speaker 4: A very good example Randy, I could give you is that uh I I forget what year when we did pay the Office of Hawaiian Affairs, we floated 127 million dollars in general obligation bonds to pay that particular debt that we owed OHA. It was not general fund monies but floating general obligation bonds.

[00:22:09] Speaker 3: Okay. Jack.

[00:22:10] Randall Roth: I just wanted to perhaps expand the discussion slightly. Um in whenever you have uh debts uh you also tend to have assets. You we the state parks a lot of money in various places. Um when I looked at the state's numbers uh last summer about 6 months ago, we had uh nearly 2 billion dollars parked in various accounts. And that money is either the proceeds of borrowing or tax revenues, usually they're associated with special funds, and they're put into various banks, accounts, CDs, repo agreements, and all sorts of things that earn the state interest. My question uh would be to uh Budget and Finance is uh are there opportunities to take some of those funds that have been that they that are basically parked into cash balances and uh put them into the economy a little faster.

[00:23:01] Speaker 3: So in in effect, borrow from those funds. Well not not so much borrow from those funds as perhaps uh spend them in a uh more timely fashion. Um because right now certainly our economy needs it.

[00:23:13] Randall Roth: Yeah. Our our economy needs a lift and and and I'm wondering whether or not we're shooting ourselves in the foot by parking too much money. Okay. into accounts.

[00:23:22] Speaker 4: I would say this but Randy, in in Jack's uh question is this in Paul Paul's uh testimony this past week on the council, this is Paul Brubaker from the council on revenues. Yes, the vice chair. In the non-tax revenue side, we have dropped or like Jack said, we are decreasing in our revenues. It is a reflection on the principle that we don't have. If the if the amount of cash balance was there, it would generate that interest earnings. So, in that sense, what you're what Jack is saying that try to use that balance that we have, that balance has really diminished because we are not getting the returns on our interest earnings on these monies.

[00:24:02] Randall Roth: It's interesting that we really don't have a very good grasp of just how much money is in the various special funds and where they are. But that's that's a whole new show. Shell, you've heard a lot of thoughts about your initial question. And I told you I'd come back to you to give you a chance to respond to all of that.

[00:24:20] Speaker 5: Well, my my point really wasn't uh that we should borrow money uh for the operating fund, although it would seem since we've run into this this uh situation very quickly, rather than than make all the dramatic cuts that have been made, we might might want to consider borrowing a bit for a transition to a more uh uh uh a lesser budget. But I I I I I'm I'm I'm still not clear on where we I I I I think the public would like to know how how deeply in debt Hawaii is, what what is left there for some of these projects that seem dear to the public, such as the Hamilton Library, that seems a drop in the bucket to this whole thing and if if one were viewing the state or trying to view the state budget in terms of a a a business running the government as a business, uh we would look at these priorities and uh uh uh use all of these possibilities and maybe that's the process we're in and we're just not able to do it quickly enough.

[00:25:23] Speaker 3: Okay. Shell, um we'll go to Calvin Sei and then move on. Thanks.

[00:25:26] Speaker 4: Shell, just let me say this. I can understand the uh improvement that you would like to have for Hamilton Library, but the public has to realize that the capital outlay is not like some some people say 37 million. But it's a capital outlay of about 74 and it's growing every year. 74 million of general obligation bonds is a tremendous amount of money that is being diverted to another project. Randy and I had a very good discussion earlier during the year that uh when the state house passed it 1% in trying to resolve the Hawaiian Homelands.

[00:26:05] Randall Roth: Would have increased the excise tax 1% temporarily to resolve the issue.

[00:26:11] Speaker 4: But to give you a background for the general public at large, every year the state of Hawaii floats just 200 million in general obligation bonds. Presently, 180 is already committed to our special educational facility fund which gives us a balance of 220 from the 400. Okay. Out of that 220 now, Randy recognizes and Jack recognizes and I myself recognize that another 60 million has been committed or obligated gets to what? HHL. 30 million per year for the next 20 years. And that's Hawaiian homelands. Right. And that then leaves us with how much? Uh from 220, you minus 60, we're down to 160. 160 million for all other projects throughout the state of Hawaii which we can only release 80 million per year because it's going to be 200 per year that we float.

[00:27:09] Randall Roth: And that's a cap of sorts. Again, and that's focused on operating and you were saying in terms of financing things like Hamilton, maybe it's more expensive than what the general public realizes.

[00:27:19] Speaker 4: Right, and that's why I came up with some of my concerns about West Oahu before you.

[00:27:24] Randall Roth: Okay, and I want to come back to West Oahu but uh we've got someone else who's been on the line for some time. Shell, thank you for your call. Let's move to David on Maui. Good morning David.

[00:27:32] Speaker 6: Good morning. Um I have a a few things, and I just going to say them rather bluntly. First of all, why he threw money around like a drunken trailer? The 160 million he spent trying to promote a jet launch facility on the Big Island. I'd like to know whether that infrastructure and the waste that it incurs has been completely liquidated yet. That's one thing. Then the fact that while he went out one time and hired the entire graduating class of lawyers, the last thing we need is the that kind of wasteful expense. But they being kicked out yet? And I'd like to know why the so the legislators who are supposed to represent us threw away 64 million of our money on their wretched state house.

[00:28:18] Randall Roth: Okay. Well, let's get uh a quick reaction from Jack Sidell have Well let's I'm innocent. Okay. Well, that's a quick reaction. Uh Calvin Sei, what do you what do you think about um David's comments?

[00:28:34] Speaker 4: Well, David's comments have some degree of validity. That's uh that's, you know, one one premise that I agree upon. The 64 million for our capital renovation goes back to the time of former Governor Ariyoshi, when we had a major discussion and debate on the issue of encapsulation versus removal of asbestos. David, I don't know what happened from a 27 million dollar project that went up to 67 maybe based on change orders. But if there's any group that should be held liable, it should have been the general contractor who did the overall assessment of our state capital of where the all of the asbestos was located because as the sub subcontractors went in to remove, they found more and more and more making it the project a much more difficult project to address.

[00:29:25] Speaker 4: So for the 64 million dollar 67 million dollar question, I take the blame, yeah. But it's something that is not legislatively done but administratively.

[00:29:36] Randall Roth: Okay. What about David's other comment? And I don't know if if the the main message was that Governor built up the size of state government by quote hiring too many people or whether it was hiring too many lawyers, too many lawyers or whether it was the cronyism aspect of of hiring people from a particular place that he had an association with. What's your reaction to to all of those possible spins on what David said? No matter how how I look at it David you can interpret it to be whatever you feel comfortable with. But for the past former governor Hawaii, I think he he tried to be very upfront and fair with everyone.

[00:33:59] Speaker 3: Law school.

[00:34:00] Randall Roth: I can I have death for me to confident of standing.

[00:34:02] Speaker 3: Okay. Thank you David. We appreciate your call.

[00:34:07] Randall Roth: Uh you're listening to Pop Radio. My name is Randy Roth, my guest in studio a representative Calvin Sei who's the chairman of the House Finance Committee. He's been in the House of Representatives for 20 years and has chaired committees on uh Culture and the Arts, tourism, water, land use, development and Hawaiian affairs. Also, Professor Jack Sidell. Jack has been a professor at the University of Hawaii for some years. Jack, how many 10, 12? 18 18 oh my, and currently as a professor of business economics. He's a former member of the council on revenues. We're talking about uh the top three issues from 1995, budget crisis, budget crisis, budget crisis. And I'm especially interested in um what lies ahead uh especially as it's perhaps going to be shaped by this so-called budget crisis. If you'd like to call in and ask a question or make a brief comment, just call us at 955-8821 and neighbor islanders can call collect. And if you've caught the show a little bit late today, but would like to hear all of it tonight beginning at 8:00 on KIFO, 1380 AM, you'll have that opportunity. Well, something that was mentioned by both Jack and Calvin earlier and then indirectly, I think, our one caller Shell was getting into this, has to do with the so-called fixed costs. And Jack, in this morning's article, you suggested that there are certain assumptions being made by the governor about those fixed costs that you think perhaps aren't warranted. Could you elaborate a little bit?

[00:35:38] Randall Roth: Well, as as Calvin mentioned, um about a third of the expenditures are uh called by some people fixed costs. And uh whenever I look at the terminology fixed costs, I always want to think to myself, how is it that a cost, especially in a government setting is fixed. Well, clearly, we have predetermined debt obligations, um, and that's part of the fixed cost picture. Uh, another large part of the fixed cost picture are employer contributions, that's to say government contributions to the employee health fund and the employee retirement system. And then another large part of the so-called fixed costs are in the welfare area. Now, I think that uh uh the legislature is starting to look more closely at how fixed those costs really are.

[00:36:27] Randall Roth: For example, are there ways that the uh debt can be refinanced, to be restructured to take advantage for instance of lower interest rates.

[00:36:35] Speaker 3: And interest rates are down.

[00:36:36] Randall Roth: And interest rates are down. Uh so in in essence can uh as many homeowners do can can can the government refinance. Um secondly, um the employer contributions to the health fund are collectively bargained and um it it is it possible to visit uh those issues and to uh to trade off perhaps uh job security wages for uh reduced employer obligations for the health fund or to negotiate with the providers in some ways. Um, third, welfare. Um, I don't know what uh I I'm I'm not an expert on welfare. Um, but uh you know I don't know the extent to which the state's obligations for the various welfare programs are fixed and my understanding is that there uh there probably is some room to move there.

[00:37:27] Randall Roth: Finally, uh one that uh people have been taking an increasing look at is the employee retirement system. Um the state is obligated to fund employee retirement contributions um on the basis of assumptions made by the actuary that's hired by the employee retirement systems. And some of those assumptions about future obligations are in my way of thinking somewhat suspect. For example, they're the actuary is assuming that public sector wage increases are going to be 6% per year. I would love as an employee, right? As a state employee, I would love to have 6% annual wage growth, but that doesn't seem likely. And so, I think it's time to really investigate those because when we talk, if you make a 10% change in those, in that basically $1.3 billion of fixed so-called fixed costs, that frees up $130 million.

[00:38:27] Randall Roth: And $130 million goes a long way to financing the revenue shortfall or the expenditure excess, however you want to define it, for this fiscal year that we're in now and the next one.

[00:38:40] Speaker 7: Okay. Well, let's see what finance committee chair say, has to say about all of this. Calvin?

[00:38:46] Calvin Say: Well, Jack is correct, first of all, that one of the bigger issues is in the area of the health insurance program that we have. Yes, Jack is correct that it is a 60/40 ratio right now. The employer contributes 60% employee 40 for those active employees. I've always stated to the press also, Randy and Jack, is this that as retirees, it's a 100% coverage by the employer state of Hawaii plus its spouse. What I have done the past interim and as far as investigating and looking at the health fund is to find ways of what Jack is saying. Can we go with self-insurance? Can we go with managed care? Can we review maybe the vision and dental? Can we go a a capitation on the number of visits for dental and vision and medical?

[00:39:39] Randall Roth: So, so these fixed costs are being looked at at least by you and the Finance Committee, yes.

[00:39:45] Calvin Say: Is the administration open to that? Well, I've been trying to get as much information possible from the Board of Directors or trustees of the health fund. So I think BNF should be aware that we are investigating it same as the retirement system.

[00:40:03] Randall Roth: Okay. Now another item that Jack mentioned was was welfare payments. And next week, we're going to have a show that that focuses on government's role in in this area. And in preparing for that show, I've I've really been struck on the one hand, there are a lot of things that have been in the press during 1995 to suggest that we've really cut welfare to the bone and and there are some folks out there who are really, really hurting because of cuts that have already been made in in that area. And then on the other side, there was an article in the Wall Street Journal about a study that the Cato Institute did and this is a libertarian organization and and one would expect um the the results to to be kind of skewed if if you will.

[00:40:46] Randall Roth: But what caught my eye about that study was that it's it it was doing it on a state by state basis. It was saying based on the programs in place, how much money somebody currently on welfare would have to be earning so that after taxes, they would have the same net amount that they currently have available through government programs. And again, the numbers were very high, and partly I think that's a reflection of of the the bias of the Cato Institute. But folks in Hawaii had to earn far more to be in as good a shape as they are currently under welfare according to this study, as compared to any other state. In other words, the message seemed to be, even though you could quibble about the actual numbers, by comparison, Hawaii seems to be super generous compared to the other states.

[00:41:31] Randall Roth: So I'm getting these mixed messages and I'm wondering what what your thoughts are on it.

[00:41:36] Calvin Say: My thoughts are the report may be correct. Four or five years ago, I think the speaker, Jo Suki, did request a study by his analyst and looking at all the benefits of welfare. Aid to family with dependent children, general assistance, the aged blind disabled, food stamps, rental, per diems, write down the list. It was interesting to note that a family of three, a single parent with two children could generate an excess of 30,000 a year.

[00:42:14] Randall Roth: Under the programs that are in place right now. Right. Jack, is this one of the things that you had in mind when you were suggesting that that there are some changes that could be made in that area or were you picturing something else? Well, I I was picturing a a very general review of of of welfare and and what goes in it. I I'm somewhat troubled by um saying that the um the budget should be balanced on the uh back of the people who can least afford it. Uh, I and I'm particularly troubled about that in regard to tax credits, which uh to a number of people, to a number of low-income people, are an important source of income.

[00:42:52] Randall Roth: And I would not uh you know, I would not end tax credits for low-income people just to uh to balance the budget. I think there there are more creative ways of dealing with that. Okay. Um, well, let's go to a caller and then we'll come back to to finish this conversation about fixed costs. Uh, we have Mr. Moore on the Big Island. Good morning.

[00:43:10] Speaker 8: Yes, good morning. I just wanted to ask a short question. I appreciate the work that those men are doing there and their time, but there was a uh land management uh investigation on the Big Island and Glenn Taguchi was dismissed or transferred at that time. Uh, but the acknowledged mess of that department continues today, and one of their divisions is the uh parks department which spent an excess of $7 million in uh fiscal 67 93 and 94 and 95. And all was spent without any results uh except the the uh all on consultancies and all on uh uh surveys and on studies and uh and they acquired one lot at that time, but the the mess continues.

[00:44:04] Speaker 8: So anyway, there was an investigation of that, so they can stop this uh the uh the park department from going ahead with the Hapuna uh without any any real um prudence in their in their design. The there seems like the whole operation of the uh uh ones who are doing the uh uh designing work for the state are are all influenced by uh belt and belt studies in connection with the wealth and wealthy and the famous people instead of the public.

[00:44:41] Randall Roth: Let's get a reaction from Calvin. Okay.

[00:44:44] Calvin Say: This is a tough one, believe me.

[00:44:45] Randall Roth: Mr. Moore, thank you very much for your question. You know, I think personally, chairperson Wilson will be looking into it and I I believe he's already had because of the redeployment of Mr.

[00:44:56] Calvin Say: I'm I'm in touch with Mr. Wilson. Well, he's less than dozen to respond.

[00:45:05] Randall Roth: Okay. Well, I I I think our guests in the studio really aren't in a position to give you a a a meaningful response to your specific concern other than doing

[00:45:14] Speaker 8: Well, $7 million is a lot of money.

[00:45:15] Randall Roth: Yeah.

[00:45:16] Speaker 8: And when it when it has not gone to the public. One one penny of that went to the public. And it all went to consultancies and surveys for archaeology surveys, and a supposed public golf course, which we need like a hole in the head.

[00:45:29] Randall Roth: Okay. Well, thank you for your call. We appreciate it. You're listening to Pop Radio. My name is Randy Roth. With me in the studio are Representative Calvin Say, the chairman of the House Finance Committee, and Jack Ciderhouse, a professor of business economics at the University of Hawaii, Manoah. We're focusing especially on the budget crisis of 95 and its possible impact on 96 and and beyond. I don't know how far beyond, as Jack says in the long run, we're all dead, but uh during the period between now and then, we've got some concern as to just where this budget crisis is heading us. If you'd like to ask a question or make a brief comment, our number is 955-8821.

[00:46:07] Randall Roth: We have Katherine from Mililani. Uh good morning, Katherine.

[00:46:11] Speaker 9: Hi, good morning. I would like to make a comment. It's regarding the health benefits, that I feel that 6040, the employee the employee should be able to contribute more. Um uh I've been in a situation where um I was making uh twice as much as I was making now and I worked in the private sector where I had to contribute um a lot more than um what the government workers are paying for their health benefits. Also regarding the tax credit, um now that I'm making less money, right, the little tax credit means a lot to me. So that's all the comment I wanted to make.

[00:47:05] Randall Roth: Okay. I appreciate your call.

[00:47:07] Speaker 9: Thank you.

[00:47:08] Randall Roth: You bet. Uh we were talking earlier about so-called fixed costs and Jack, I think you were suggesting that the administration hasn't been taking a a real close look at those specific items like the pension plan contribution and health funds and welfare and that sort of thing. Is is there anything real specific that you would provide in the way of advice to them uh about how to maybe squeeze some money out of those so-called fixed costs? Well, uh I I'm sure they've been looking at them very carefully. Um, I I I sometimes wonder uh to what extent uh they are saying poor me um and binding themselves by these uh uh somewhat arbitrary decisions of, for instance, the um the actuary of the retirement system.

[00:47:58] Randall Roth: Um, my my advice is uh that this needs to be looked at carefully. Uh I I don't think that you can write off 1/3 of the state budget and say that's off-limits. That uh that that can't be uh can't be discussed. Uh we just don't have the room for that sort of thing. Are you very nicely saying that the the public worker unions are are perhaps sending signals that that that should be left alone because obviously that's the group that would be adverse potentially adversely affected if the contribution of the retirement plan were reduced. No, I I really can't say that. I I don't know. I know that for instance, uh that my union UPA, um and uh the HSTA have been looking at these issues, and I don't think that they are saying uh that those have to be left alone.

[00:48:41] Randall Roth: I I I frankly, I just don't know um what their official position is. But I know that people uh in the union leadership in those two unions are are interested in these issues, and they're looking uh as much as the legislature is for for answers about these issues. They're looking for guidance, they're looking for information. And one of the things that I found troubling in this entire budget debate is uh how little we really seem to know about the very important issues, such as the one that Shell raised um uh earlier in this conversation. Um, how much money is sitting around in various places, how how much is owed and why is it owed and uh what are our obligations and um it seems that the uh the legislature is uh is just as much in the dark as sometimes the governor seems to be about exactly what are all the funds that are around and the and what our responsibilities and our flexibilities.

[00:49:33] Randall Roth: Well, I want to throw that that to Calvin, but I want to add something to it. Um and I I can't point at you on this one because here you are engaged in this public conversation, but your counterpart in the senate, uh Senator Donna Ikeda, I guess uh a week or so ago, had sent out uh a memorandum basically saying to the heads of the various departments that any communications between them and her office about the budget uh should be kept confidential. That we didn't want the public to be looking over shoulders at just what's going on. Um, number one, what do you think of Jack's comment that a lot of things that really ought to be known, seemingly folks in the legislature aren't on top of.

[00:50:15] Randall Roth: And then number two, the suggestion that maybe some of the things that they are on top of they don't want the public in on.

[00:50:23] Calvin Say: I would say that uh Jack has his point of views which I respect, but overall, what happened really during the past I would say 10 years from the mid 80s to what we have today is that we all got caught up in this double digit growth of how to spend the resources.

[00:50:42] Randall Roth: So it wasn't a matter of not knowing what was going on, it was just this notion that that any slowdown in the economy was going to be temporary, that nobody thought that it would really drop off significantly like it has.

[00:50:56] Calvin Say: Well, I recognized maybe about four or five years ago, right after the Persian Gulf, but the question is that when you look at the 76 elected officials who may not be in business, who are not aware of what's happening in the national international arena, they don't get to see that this is a cyclical type of economic situation we are in. It's just that what we've been doing now is deferring the inevitable every year out, that it's going to be a recovery someday, but at what point, I really don't know.

[00:51:30] Randall Roth: So you would say at least members of the Finance Committee you feel are are as informed as one could expect that group to be informed of the various issues like debt ceilings and whatnot.

[00:51:42] Calvin Say: No, Randy, and Jack because the past four years, we've had a 56 57% turnover in the State house and within two years, you can't learn the overall operating budget. And what I give as as advice to freshman legislators who are not sitting on finance is to just concentrate on one department for two years to get a better understanding of the department's budget. It's scary because you've got to have the continuity and stability of members being on a particular committee for a certain number of years. I've got two colleagues who's been there for eight nine years that don't know what a special or general fund, they don't know that you can't use Department of Transportation special funds to run the Department of Education because of all of these conditions as part of the bond covenants.

[00:52:34] Randall Roth: Is this another is this another topic? Someday, how do we get members of the legislature uh uh on a higher level in terms of understanding their jobs.

[00:52:43] Calvin Say: And with the support of the speaker and leadership, I've I've tried and I've told you this that uh I look at myself more as a facilitator educator as a chair of the Finance Committee in giving the members the broadest perspective of what government is.

[00:52:58] Randall Roth: What about the public though, what what do you think of the suggestion if anyone is in a position to to sympathize with whatever caused Senator Ikeda to issue that memo, I would think it would be you. What do you think of her direction that all of this be kept confidential?

[00:53:15] Calvin Say: I would say that it was never her intentions of saying that the memo that she sent out was going to be confidential. Maybe it was misinterpreted by the respective media who got a hold of the memo. But if it if there is, I don't see why she should be hiding information if that was her ulterior motive because at this point in government, the way we are what we are today, Jack, from coming from UPA recognizes that there is no give outs. What I'm looking at as a chair now is to take back what I've already given to the public employees.

[00:53:53] Randall Roth: Harder Harder to take back, right?

[00:53:55] Calvin Say: But if if the information is on the table, it makes it much more easier for everyone to understand our dilemma.

[00:54:01] Randall Roth: Okay. Now and I I think that that last point is very important because uh these budget decisions are are so difficult, uh so complicated that if the information is not readily available to all parties, uh we're going to just uh make decisions that are are bad for us in the long run and in the short run. Um and I think that uh that something has to happen in terms of uh better information with regard to the budget, all the sources of revenue, all the uh destinations of expenditures and so forth, that people can really understand what's going on, because right now, um I'm not comfortable that I understand what's going on, and I'm not comfortable that that a lot of the important legislators know what's going on.

[00:54:41] Randall Roth: Uh an issue that's been in the paper in the last week or so that that I've been thinking about as I've listened to the two of you for the last few minutes is the whole West Oahu campus issue. Uh the governor came out with what sounded in reading the article as a a wonderful sort of solution, he was going to change this land for that land and after doing some infrastructure we're going to come up with 100 plus million dollars and it just sounded uh quote too good to be true in a way. And and I was just uh amazed that there wasn't an immediate uh asking of of really tough questions until I read Calvin that that you started asking uh I think some some real good questions about that and then I noticed Paul Brubaker uh was saying, gee, you know, do we want to get into the land speculation business the the the government and and number two, if there is over $100 million that comes out of that, um why would we put it into a new campus if we've got major major problems at an existing campus.

[00:55:43] Randall Roth: And it was the kind of dialogue that Calvin's questions and Paul Brubaker's observations created that struck me as something that that might eventually result in in a better decision than what would otherwise be the case. Jack, what's your reaction to all that? Well, I I was somewhat puzzled by the the the West Oahu um discussion that I saw, not by uh Paul and Calvin's uh uh things, but uh but things that preceded that. Um, I I guess my my concern is um you know we had a governor who went to uh a meeting and came back and said we're going to have virtual university, which means a university without buildings. Um and that's the way of the future because everybody's recognizing that buildings are expensive, uh maintaining buildings expensive, operating buildings is expensive and we ought to take advantage of modern technologies.

[00:56:30] Randall Roth: And so this would be through computers and teleconferencing and that sort of thing. Exactly. Um and then a few weeks later it's let's build a new campus, um which strikes me as being an extremely expensive way to go. Now, if we have a lot of valuable land that's that the state owns that's sitting out somewhere, um one one should legitimately ask, look, how can that land best be used? Can it best be used for a university campus and other university campus or can it be best be used by liquidating it and using the revenues for something else? There are all sorts of important questions that ought to be asked and I think that Calvin's initiation of those kind of questions is important.

[00:57:08] Calvin Say: Calvin, any additional thoughts? Well, when you look at it on a county basis, you have to ask yourself the first question, will there be enough water for the second city? recognizing that if we are developing the Ewa plain, Central Oahu, what what agricultural crops do we have for replenishing the Pearl Harbor aquifer that is providing the water resource. But other issues that brought that I came up with was, like I told the media also once again, was we owe the federal government 64 million plus, plus interest of about 7. So you're up to 71 million.

[00:57:49] Randall Roth: And this is because of of the acquisition land swaps in the past.

[00:57:53] Calvin Say: Right. That the the FAA or the Department of Transportation found that it was illegal. I'm I'm just saying to the governor, why don't we address that first rather than having it dangling over our heads for the future legislators to address.

[00:58:09] Randall Roth: And handing it off to our our kids in effect, future generation.

[00:58:13] Calvin Say: Yes. That was one issue. The second big issue was the issue of 30 million in general obligation bonds once more, Randy and Jack. I don't know who I'm going to find that. Not unless we lapse capital improvement projects that we have already appropriated the funds.

[00:58:27] Randall Roth: If it's borrowed and used for that purpose, it can't be borrowed and used for another purpose.

[00:58:31] Calvin Say: It could be because the governor doesn't have to release the money and if he doesn't release the money, the money just sits there.

[00:58:36] Randall Roth: Okay. Well, we're down to just the last two minutes, and and I apologize to callers that we haven't been able to to get to, but each of you has about a minute to add anything that needs to be added or subtracted from what's been said this morning. Jack, let's start with you.

[00:58:52] Jack Suyderhoud: Well, I I think the the key issue with regard to the budget is the economy. And uh as long as the economy maintains um its present uh pattern, which is kind of described as a sideways move, uh we're not growing very fast. As long as that maintains, we're going to be in a situation where our uh revenues are not going to be growing as fast as what we've been used to, and we're just going to have to get used to the fact that um uh we have to reduce expenditure growth as a result of that. And that's going to force us to confront uh what we think our true priorities are. I know that at the beginning of the show Calvin said that we've pumped a lot of money into education. Well, um in the last 20 years, education as a percent of the total budget has gone down precipitously, and uh I find that a troubling pattern. And I'd certainly like to see that in the future that uh the legislature and other uh elected officials concentrate on what really are the fundamental uh jobs that government has to do with its limited resources.

[00:59:52] Randall Roth: So you're suggesting tough, tough choices have to be made, they're especially tough because of the budget crunch, but it all comes down to prioritization. Absolutely. Calvin, say.

[01:00:02] Calvin Say: Jack is absolutely correct, and uh this coming session will be a very critical point for the state of Hawaii in trying to determine and reevaluate what our public policies will be. It's going to be a major issue because of the competing interests that we have out there protecting one's turf, and I acknowledge that. Don't get me wrong. But members, we all have to bite the bullet, somewhere or the other, and Jack is correct. I don't want to say it, you know, but I'll say it. Expenditures are far exceeding revenues. That difference we have to address.

[01:01:22] Randall Roth: Okay. Well, there comes the music. It's time to get going. Thank you representative Calvin Say and Professor Jack Sidderhoud. Our producer is Susie Roth, director of operations Jeff Alardi, our assistant producer this morning was Cassie Roth. If you'd like to hear the show in the entirety tonight at 8:00 on 1380 AM KIFO, you can hear the rebroadcast. Next week, we're going to talk about the role of government in helping the needy. You've been listening to the Price of Paradise Radio Show. I'm Randy Roth. Aloha.

[01:01:02] Randall Roth: to talk about the role of government in helping the needy. You've been listening to the Price of Paradise radio show. I'm Randy Roth, Aloha.