CONFERENCE COMMITTEE REPORT NO. 140

                            Honolulu, Hawaii
                                            , 1999

                            RE:   H.B. No. 100
                                  H.D. 1
                                  S.D. 1
                                  C.D. 1






Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twentieth State Legislature
Regular Session of 1999
State of Hawaii


Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 1999
State of Hawaii


Sir:


     Your Committee on Conference on the disagreeing vote of the
House of Representatives to the amendments proposed by the Senate
in H.B. No. 100, H.D. 1, S.D. 1, entitled:

    "A BILL FOR AN ACT RELATING TO THE STATE BUDGET,"

having met, and after full and free discussion, has agreed to
recommend and does recommend to the respective Houses the final
passage of this bill in an amended form.


 
 
 
 
 
 
 
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     The purpose of this bill is to appropriate operating and
capital improvements program funds to the executive branch for
the 1999-2001 biennium.

OVERVIEW

     Over the past few years, your Committee sought ways in which
to help stabilize and energize the State's fragile economy with
the understanding that this could not be accomplished overnight.
Two years ago, your Committee took the first steps towards
economic recovery and committed State resources to tax incentives
intended to foster new business opportunities and revitalize
existing businesses.  Last year, the focus was income tax relief
for Hawaii residents through the development of a progressive tax
structure that was fair and equitable.  This year, your Committee
is focused on assisting small businesses and stabilizing the
economy.

     Your Committee believes that small business is the backbone
of our economic base and must be supported and nurtured in order
for it to thrive.  As such, your Committee reviewed and
prioritized numerous tax incentive measures and determined that
the depyramiding of the general excise tax would yield the
greatest positive impact on the business community, both large
and small---crossing all industries.  As such, your Committee
strongly supports the depyramiding of the general excise tax on
services and the exemption of exported services and the taxation
imported services, thus levelling the playing field for Hawaii
service providers.  These measures are intended to encourage
economic recovery by reducing the level of taxation and freeing
dollars for reinvestment in Hawaii.

     Your Committee has also provided for tax incentives for
investment capital, call centers, the health industry,
technology, and other businesses.  In addition, your Committee
has provided incentives for hotel construction and remodeling in
order to inject vitality into a maturing industry.

     Your Committee believes that this tax relief package, in
conjunction with the budget proposed by your Committee will be
the necessary catalyst towards economic viability.
     
CURRENT FISCAL BACKDROP

     As required by the State Constitution, the Council on
Revenues (Council) estimates economic growth based on various
factors such as tourism statistics, construction growth, and
inflation.  These projections are the guidelines by which the
biennium budget is crafted.  The Council notes that Hawaii has
been in the midst of a deflationary period in the past year and
while financial recovery has not reached the anticipated levels

 
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in Asia, the United States economy remains strong.  As a result,
the Council on Revenues moderately reduced it's growth rate of
general fund tax revenues for fiscal year 1999 by 0.5%, but
retains its optimistic growth rates in the remaining forecast
horizon.

     The general fund appropriation authorized in the operating
budget consists of $3.10 billion for FY 1999-2000 and $3.12
billion for FY 2000-2001.  The general fund appropriation for FY
1999-2000 represents a -2.69 per cent decrease over the executive
request.  Including other means of financing, the total operating
budget consists of $5.95 billion for FY 1999-2000 and $6.01
billion for FY 2000-2001.

     Capital improvement funds authorized in this bill consist of
$723,000,000 for FY 1999-2000 and $466,000,000 for FY 2000-2001.
Of these sums, $262,000,000 in FY 1999-2000 and $139,000,000 for
FY 2000-2001 would be financed through the issuance of general
obligation bonds.

ECONOMIC DEVELOPMENT

     Your Committee recognizes the continued importance of the
tourism industry and provided for the expenditure of up to $60
million in each fiscal year for the Hawaii Tourism Authority to
strategically plan, coordinate and develop the tourism marketing
initiatives.

     In support of the business community, your Committee
provided funds to continue the deregulation initiatives of the
small business task force on regulatory relief.  Furthermore,
your Committee is committed to enhanced outreach to the small
business community and further simplification and automation of
all aspects of business registry.

     Your Committee recognizes the development of new research
and commercial development in energy, aquaculture, and marine
biotechnology at the Natural Energy Laboratory of Hawaii (NELHA)
by providing additional resources to expand its operational
capacity.  Your Committee is encouraged that the activities of
the tenants at NELHA resulted in an economic benefit of $29
million in 1998.

     To support further economic diversification, funds have also
been provided for research in aquaculture disease management,
Forest Stewardship projects that protect endangered species and
diversify the economy, tropical flower research, Hawaii
Agriculture Research Center and the Agribusiness Development
Corporation.

 
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     Finally, efforts are being made to broaden the State's
economic base by enhancing forest watersheds and producing,
improving, and assisting in the production of high quality, high
yield forest production that will create job opportunities in
rural areas.  
 
EDUCATION

Lower Education

     Your Commttee finds that providing all children with the
services required to prosper as students is of utmost importance.
In this regard, achieving compliance with the Felix consent
decree has become a focal point within the department and
requires greater resources during this fiscal biennium.  Your
Committee has provided funds to meet this task by upgrading
departmental personnel and implementing the comprehensive student
support system (CSSS).

     Your Committee finds that the financial resources necessary
to comply with the requirements of the Felix consent decree are
growing at a seemingly exponential pace.  Your Committee is
alarmed that the Department of Education (DOE) is unable to
provide an accurate accounting of the funds currently provided
for Felix cases.  Consequently, to ensure efficient utilization
of resources and greater accountability, your Committee created a
new program, Comprehensive School Support Services, EDN 150, that
is intended to consolidate and identify all resources dedicated
to resolving the Felix consent decree. 

     Reduction in class size continues to be a priority of the
DOE.  The opening of new facilities, including Konawaena
Elementary School, Kauai Middle School, and Kapolei High School
will help to alleviate the problem.  Funds have also been
provided to fulfill the basic requirements of textbooks and
equipment for the new schools. 

     Your Committee continues to be concerned with the lack of
accountability in the DOE and has thus provided funds to revise
and implement the Hawaii Content and Performance Standards as a
systemic means of measuring performance.

     In addition, your Committee understands that teachers are
overburdened by large class sizes due to the current policy of
the Department of Education to not include special education
students in the class ratio formula.  Your Committee feels that
this is an unfair burden for educators and has therefore provided
funds to support the inclusion of special education students in

 
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the class ratio as a means of effectuating relief for teachers.

     Your Committee continues to support the educational system
with the full understanding that Hawaii's future rests in the
hands of our children.  Therefore, the DOE was spared from much
of the reductions that were required to balance the State budget.
During such lean times, education continues to be a top priority,
however, your Committee has taken appropriate action to ensure
greater accountability and fiscal responsibility within the DOE.

Felix Consent Decree

Your Committee agrees that the individualized education plan
(IEP) process should be reviewed with regard to the composition
of the IEP team and the process by which services are authorized.
Private service providers are now a major part of the team that
develops the IEP for Felix youths.  Your Committee is concerned
that some of these same providers are also involved in
determining the level of mental health services in the IEP
process.  Your Committee believes that an inherent conflict of
interest exists and there is an immediate need to eliminate this
conflict.  Furthermore, appropriate changes to the IEP process
are needed to ensure that necessary services are identified and
provided for in the most efficient and effective manner possible.
Given the importance and urgency of the decree, these issues must
be resolved swiftly by the Department of Education in
collaboration with the Department of Health to meet its
responsibilities in complying with the Felix Consent Decree.

Higher Education

     Your Committee continues to support the University of Hawaii
as it begins its first full year of autonomy.  Your Committee
fully understands that difficult decisions must be made by the
Board of Regents in order to achieve self-sufficiency.  However,
your Committee believes that the University has the potential to
be an economic force in the State.  Furthermore, the University
must be responsible for the development of a qualified workforce
to meet the changing needs of a global society and technological
advances.

HEALTH

     Your Committee has made every effort towards full compliance
with the law with respect to children with special needs,
especially those in the Felix class.  As such, quality health and
educational services to aid in the educational development for
these individuals remain a priority of your Committee.


 
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     Your Committee understands the necessity of the safety net
provided by rural health care services and has provided funds to
such programs as Molokai General Hospital, Kahuku Hospital, Hana
Medical Center, Waianae Coast Comprehensive Health Clinic and 24-
hour aeromedical services on Hawaii and emergency medical
services statewide.                    

HUMAN SERVICES

     Despite limited resources, your Committee is fully committed
to providing assistance to those that lack sufficient resources
or simply cannot take care of themselves.  Of particular concern
are the children of Hawaii.  As such, your Committee has provided
funds for the following:

     1.  Children's Health Insurance Program - provides access to
         health care for uninsured children.

     2.  Child Placement Board and Related Client Payments -
         helps children in danger of abuse and neglect find
         placement in foster care homes or other types of
         placements.

     3.  Child Care Payments Program - consolidates all payments
         for child day care into one program; allows low-income
         families remain self-sufficient by allowing both parents
         to retain employment.

     4.  Child Care Payment Processing Contract - allows
         overburdened child care administrators and social
         workers address pressing areas of concern such as
         licensing and renewal of licensing for child care
         facilities.

     Your Committee also continues to provide support for the
aged, blind and disabled; uninsured and underinsured populations
in rural areas; and First-To-Work contracts which serve welfare
clients who must meet work requirements in order to retain
assistance.

WORKFORCE DEVELOPMENT

Labor and Industrial Relations

     In an effort to become more proactive in the employment
field, the Department of Labor and Industrial Relations (DLIR)
developed a new Workforce Investment Act (WIA) system that will
allow the State to receive improved employment opportunities and
training for customers by July 1, 2000.  Your Committee supports

 
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DLIR's efforts with regard to the workforce development program
as it continues to promote apprenticeship opportunities for
women, veterans, disabled, disadvantaged, offenders and
immigrants.  

TRANSPORTATION

     Your Committee understands that a safe, reliable, and
efficient transportation infrastructure plays a crucial role in
the State economy as well as the overall well being of the
population.  Presently, the Department of Transportation (DOT) is
the only entirely self-sufficient department and in the current
fiscal climate, your Committee appreciates the department's
independence from the state general fund.

     Your Committee is aware that repair and maintenance is a
necessity for public infrastructure and has provided special
funds in the amounts of $61.6 million in FY 2000 and $59.8
million in FY 2001 exclusively for the purposes of special repair
and maintenance projects.

     Your Committee is cognizant of the traffic problems
occurring during peak hours on State highways and has provided
funds to continue the vanpool pilot project.  Your Committee
supports the DOT's efforts in promoting ridesharing as a way to
reduce the use of fuel, save wear and tear on the highways,
reduce air pollution and the need for parking facilities.

     Special funds are also provided to market an innovative
initiative, the "Aloha Spirit" program at the five major
airports.  As part of the Airports cultural master plan, the
program offers visitors the opportunity to experience a multi-
faceted Hawaii through exposure to exhibits and live performances
focusing on the Hawaiian culture.  Your Committee is aware that
it is critical to create a positive first and last impression of
Hawaii and is captivated by the potential of this volunteer
program.  

GOVERNMENT-WIDE SUPPORT

Accounting and General Services

     With the turn of the century approaching, the Department of
Accounting and General Services (DAGS) is preparing the State to
be Y2K compliant.  Your Committee has provided funds to support
resolution of this issue.  With eight months remaining in the
year, the Information Processing Service Program continues to
upgrade computer systems, as well as assisting other agencies in
achieving compliance.

 
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Budget and Finance

     In recognition of the spiralling cost of debt service to the
State, your Committee has maintained a responsible schedule of
capital improvement projects for the upcoming fiscal biennium. 
 
Commerce and Consumer Affairs

     During this biennium, the Department of Commerce and
Consumer Affairs (DCCA) continues its movement toward fiscal
self-sufficiency and insurance regulation reform.  To support
these efforts, your Committee has provided funds for the
following initiatives:

     1.  Consolidation of special funds to allow the department
         greater flexibility in the management of its funds.  

     2.  Realignment of positions within the various operating
         programs to facilitate better fiscal management and
         oversight; and

     3.  Development of new sources of revenue to enable
         regulatory programs to be self-supporting.  Of
         particular note is the Insurance Division's effort to
         strengthen insurance regulation with the implementation
         of the continuing education for insurance agents
         program, the health insurance revolving fund and the
         long term care revolving fund.


Taxation

     In FB1999-2001, the priority of the Department of Taxation
(TAX) is the implementation of the Integrated Tax Information
Management System (ITIMS).  With this complete overhaul of the
department's computer system, the Department of Taxation expects
that when fully implemented, the project will facilitate a more
timely collection of taxes due the state; reduce the amount of
"leakage" from the tax base of revenue that is due the state but
not collected; provide more flexibility in accommodating tax law
changes and initiatives to improve tax administration; and an
overall improvement in services provided to the public. 

CAPITAL IMPROVEMENT

     Your Committee remains cautious about managing the state's
debt limit in future fiscal years and has proposed lower
expenditures for Capital Improvement Projects in the amount of

 
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$200 million in each year of the biennium.  Your Committee
believes that this a prudent approach while still providing for
various projects, including DOE projects totalling over $161
million.

CONCLUSION

     After much deliberation, your Committee has developed a
budget that preserves current services while providing for the
basic requirements of health, safety and education. In
particular, your Committee has fully  funded the mental health
services mandated by the Felix vs. Cayetano consent decree.

     While crafting H.B. 100, H.D.1, S.D.1, C.D. 1, your
Committee was mindful of the need to balance the services
provided by government through the executive budget with the
equally critical need to  stimulate the economy.  In doing so
your Committee presents you with a budget that is affordable and
a tax package intending to improve the business climate,
stimulate the development of new industries, encourage investment
in Hawaii and provide relief for existing businesses. 

     Your Committee realizes that its work is not over and that
there is much left to be done.  However, your Committee is
committed to the direction set forth in this document and the
accompanying bills. 

     Your Committee on Conference is in accord with the intent
and purpose of H.B. 100, H.D. 1, S.D. 1, as amended herein, and
recommends that it pass Final Reading in the form attached hereto
as H.B. 100, H.D. 1, S.D. 1, C.D. 1.


                                   Respectfully submitted,

MANAGERS ON THE PART OF THE        MANAGERS ON THE PART OF THE
           SENATE                              HOUSE
                                   
                                   
                                   
______________________________     ______________________________
ANDREW LEVIN, Co-Chair             DWIGHT Y. TAKAMINE, Chair
                                   
                                   
                                   
______________________________     ______________________________
CAROL FUKUNAGA, Co-Chair           LEI AHU ISA, Member
                                   
                                   
                                   
                                   ______________________________
                                   IRIS IKEDA CATALANI, Member
                                   
                                   
                                   
                                   ______________________________
                                   KENNY GOODENOW, Member
                                   
                                   
                                   
                                   ______________________________
                                   MICHAEL P. KAHIKINA, Member
                                   
                                   
                                   
                                   ______________________________
                                   EZRA R. KANOHO, Member
                                   
                                   
                                   
                                   ______________________________
                                   BERTHA C. KAWAKAMI, Member
 
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______________________________     ______________________________
JAN YAGI BUEN, Member              SYLVIA J. LUKE, Member
                                   
                                   
                                   
______________________________     ______________________________
JONATHAN CHUN, Member              BOB NAKASONE, Member
                                   
                                   
                                   
______________________________     ______________________________
SUZANNE CHUN OAKLAND, Member       SCOTT K. SAIKI, Member
                                   
                                   
                                   
______________________________     ______________________________
DAVID IGE, Member                  BRIAN SCHATZ, Member
                                   
                                   
                                   
______________________________     ______________________________
MARSHALL IGE, Member               NATHAN SUZUKI, Member
                                   
                                   
                                   
______________________________     ______________________________
RANDY IWASE, Member                BRIAN Y. YAMANE, Member
                                   
                                   
                                   
______________________________     ______________________________
CAL KAWAMOTO, Member               GALEN FOX, Member
                                   
                                   
                                   
______________________________     ______________________________
BOB NAKATA, Member                 BARBARA MARUMOTO, Member
                                   
                                   
                                   
______________________________     ______________________________
ROD TAM, Member                    COLLEEN MEYER, Member

 
 
 
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______________________________     ______________________________
BRIAN T. TANIGUCHI, Member         MARK MOSES, Member
                                    


______________________________
WHITNEY ANDERSON, Member