Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2001

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. 200, H.D. 1, S.D. 1, entitled:

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.

The purpose of this bill is to appropriate funds for the operating and capital improvement costs of the executive branch for the fiscal biennium July 1, 2001 through June 30, 2003.

The Legislature has a responsibility to manage state revenues in the most prudent manner possible in order to ensure efficient and effective government operations. Although resources available to the State have increased slightly, government cannot be all things to all people. Despite the State's current prosperity and favorable outlook for the near future, uncertainties remain.

National economic indicators bring about the feelings of uncertainty that your Conference Committee has concerning Hawaii's economy. At the national level, economic activity began slowing in the second half of 2000. Growth in consumer spending and residential investment decelerated markedly, and stock prices fell substantially. Consumer spending declined and investment in housing fell. The Standard and Poor's 500 stock price index, which grew at an annual rate of almost 15 per cent in 1999 and the first half of 2000, declined at an annual rate of 17 per cent later last year and has now entered what many analysts consider to be a bear market. This slowdown in growth was inevitable to some extent, as both consumer and business spending grew at unsustainable rates in the earlier periods. At the same time, sharp decreases in stock prices last year reduced consumer wealth, raised the cost of capital, and weakened consumer expectations and business confidence in future economic activity.

By the middle of 2000, the Federal Reserve had raised the federal funds rate to 6.5 per cent in response to rapid expansion in aggregate demand. As the economy slowed, however, the Federal Reserve lowered the rate four times in 0.5 percentage point increments, bringing it down to 4.5 per cent.

In Hawaii, general fund revenues from tax collections through the first eight months of fiscal year 2000-2001 grew at a rate of 7.8 per cent although the Council on Revenues predicted a 6.0 per cent increase. The continued lowering of federal interest rates will reduce the cost of mortgage money resulting in further refinancing activity and increased construction.

It is for these reasons that your Conference Committee has taken a conservative fiscal approach in the construction of this biennial budget.

Although the state budget has increased in size, your Conference Committee emphasizes that numerous fixed costs drove the budgeting process. Your Conference Committee considers fixed cost items to be health fund premiums for the State's employees, debt service payments on capital improvement projects, pension accumulation payments to the Employee's Retirement System, Social Security and Medicare payments, and costs related to compliance with the Felix Consent Decree. Increases in these 5 items total $279.5 million in fiscal year 2001-2002 and $406.7 million in fiscal year 2002-2003. Your Conference Committee would like to emphasize that growth in these non-discretionary items account for 75 per cent of the general fund increase for the State's entire budget in fiscal year 2001-2002, and 77 per cent of the general fund increase for the State's entire budget in fiscal year 2002-2003.

In addition, your Conference Committee was mindful of collective bargaining agreements being reached throughout this legislative session. Careful consideration was given to providing appropriations in the budget while maintaining a reasonable general fund balance. Consequently, your Conference Committee will be able to accommodate agreements reached with the Hawaii State Teachers Association, University of Hawaii Professional Assembly, Hawaii Government Employees Association, and the United Public Workers. Combined, these agreements represent an estimated increase of $110 million in fiscal year 2001-2002, $213 million in fiscal year 2002-2003, and $227 million from fiscal year 2003-2004 onward.

Rising costs in these unavoidable "must-fund" items make up the majority of the general fund increases for the State. While revenue may be increasing, these cost drivers have kept pace with State receipts.

Health fund premiums are contributions the State, as an employer, owes on behalf of its employees to cover health fund costs. Payments to the Health Fund will account for an additional $27.7 million in general fund expenditures in fiscal year 2001-2002 and an additional $45.9 million in fiscal year 2002-2003. As a whole, the State will pay $260.1 million in fiscal year 2001-2002 and $278.3 million in fiscal year 2002-2003 for health fund premiums. While your Conference Committee assumed a conservative and responsible 7 per cent per annum increase in those costs, these increases are of continued concern. Methods to ameliorate this growth need to be implemented before the State finds itself unable to absorb further increases in employer health fund payments.

Debt service payments (payments of principal and interest due on the State's issuance of general obligation bonds) are essential because they cover the costs of the bonds the State issues to pay for its capital improvement projects. Projects such as the creation of parks, construction of new schools, and improvement of infrastructure are usually paid over a period of twenty years. These debt service payments will increase by $29.7 million for fiscal year 2001-2002 and by $90.4 million for fiscal year 2002-2003. Total general fund debt service payments for the State are $417.0 million in fiscal year 2001-2002 and $477.8 million in fiscal year 2002-2003. As your Conference Committee has reduced the Governor's initial capital improvement project proposal from $1 billion to roughly $500 million, projected debt service payments have been reduced considerably.

Total pension accumulation costs amount to $114.0 million in fiscal year 2001-2002 and $157.2 million in fiscal year 2002-2003. This represents an increase of $108.7 million in fiscal year 2001-2002 and $151.9 million in fiscal year 2002-2003. The State is required to make these payments to the Employees' Retirement System for the benefit of state workers. Recent changes in assumptions for the calculation of these payments have allowed your Conference Committee to trim these payments by $10.2 million.

The State is required by federal law to make Social Security and Medicare insurance payments on behalf of its employees. These figures are derived from the sum of personnel costs and total $136.2 million in fiscal year 2001-2002 and $138.6 million in fiscal year 2002-2003 in general fund expenditures. These numbers represent an increase of $29.5 million in fiscal year 2001-2002 and $31.9 million in fiscal year 2002-2003 from fiscal year 2000-2001 figures.

Your Conference Committee is committed to full compliance with the Felix Consent Decree and more recently, the Revised Consent Decree of August 3, 2000. Nevertheless, your Conference Committee continues to have grave concerns with the escalating costs associated with the Decree. Since fiscal year 1995, both the Department of Health (DOH) and the Department of Education (DOE) have expended $1.35 billion in their attempts to achieve compliance with the Felix Consent Decree. Neither department has been able to manage the cost of compliance, as evidenced by the habitual annual requests for emergency funding submitted by the Governor.

Your Conference Committee has made every effort to comply with all aspects of the Felix Consent Decree and the commitments made to the Federal Court. Further, your Conference Committee is foremost committed to providing quality mental health services for the Felix class of children and adolescents. While the Felix Consent Decree has become a major cost driver, your Conference Committee reiterates its commitment by providing an additional $85.7 million over the biennium to the DOH to meet the mandate of the Federal Court. It is important to note that although the responsibility, workload, and number of clients served in the Felix class has decreased for this division; their total budget appropriation has been increased. Your Conference Committee also provided $41.9 million in emergency funding for the current fiscal year to the Child and Adolescent Mental Health Division (CAMHD) to meet its sixth straight shortfall since the benchmarks went into effect on October 24, 1994. Your Conference Committee also provided an additional $7.2 million in emergency funding for the early intervention (Zero-to-Three) and Healthy Start programs.

While your Conference Committee is committed to providing essential and integrated services to Hawaii's children and adolescents, your Conference Committee notes that during the legislative session, the lack of timely submittals and clarification relating to specific details in various budget requests by the CAMHD stymied your Conference Committee's efforts to make more prudent recommendations concerning some of the Division's requests. Your Conference Committee's attempts to solicit information were frustrated on several occasions by CAMHD's failure to respond. Your Conference Committee is aware that its role as a public watchdog is to scrutinize each request, and notes that other programs within the DOH were able to provide timely responses with sufficient justification upon request.

Furthermore, your Conference Committee notes that the DOH lacks a reliable accounting, projection and expenditure tracking system. The current internal accounting system relies on a single individual, who was on maternity leave during the most critical period of this legislative session. Your Conference Committee believes that this is a critical management issue that must be addressed if the DOH’s management team is truly sincere in providing clear channels of communication with members of the legislature and public with regard to the accountability of state expenditures.

Your Conference Committee is also of the firm belief that no program of this magnitude and importance should rely on a single individual for financial information. Moreover, your Conference Committee believes that this may be one of the reasons for the backlog and slow turnaround timelines for the division to respond to the unusual amount of requests for budget details and information this legislative session.

Your Conference Committee also expresses its concerns with regard to the inability of the CAMHD to clearly state what their needs are, and whether the funds and services being provided are appropriate. Your Conference Committee cites an example of the lack of fiscal management on the part of CAMHD. To illustrate, CAMHD's accepted records expenditure reports showed that the department had millions of dollars tucked away for the current fiscal year, yet the DOH indicated on March 19, 2001, that it was out of funds to serve the Felix class. Specifically, CAMHD’s own expenditure reports showed that as of March 2001, only expenditures up till November of 2000 have been approved for payment. Your Conference Committee was provided with many convoluted explanations as to the reasons why CAMHD was "out of money" even though less than fifty percent of the fiscal year’s invoices were received or were not verified for payment approval.

Another example involves the Trotter Building renovation project at the Leahi Hospital Campus. In September of 2000, CAMHD’s management team started an unauthorized $1 million renovation project without available funding. When your Conference Committee questioned the Department on such issues as to what the space would be used for, the responses from the division were inconsistent. More distressing was the fact that included in the cost for renovations was furniture costs whereby the shipping and installation alone for the high-end furniture amounted to over $30,000. Your Conference Committee believes that funds appropriated for CAMHD should be directed toward providing services for Felix children, rather than new furniture at a cost of over $400,000. The final point of this issue is that construction services have already been rendered for this building and have not been paid. This tarnishes the credibility of this State by failing to pay vendors for work performed. As experienced this session, we can expect CAMHD placing this burden on next year’s legislators to find funding for this unauthorized project. This is just one example that reflects the attitude of the management team and your Committee on Conference is concerned that, given more time, more of these incidents will be uncovered.

Given the fiscal austerity currently faced by the state, your Conference Committee believes that it was inappropriate for the DOH to embark on these unauthorized renovations. Further, the division attempted to include these costs in its second draft of their emergency appropriation, until your Conference Committee brought it to light. Yet, in spite of this discovery on the misuse of taxpayer dollars, the division continues to pursue the Trotter Building project, not knowing where monies will be obtained or the number of actual staffing that will be utilizing the space at the Leahi Hospital Campus. Thirdly, your Conference Committee was informed of the lack of fiscal management with regard to the division’s expenditure projection system. Expenditure projections by CAMHD were based on recent historical data less than two years old. Your Conference Committee was made aware that there is no sound basis for the projection of expenditures, except for weak assumptions. Moreover, these numbers were frequently changed without proper or clear justification.

In light of the above, your Conference Committee is concerned that the tens of millions of dollars provided for the CAMHD for mental health services for the Felix class is not always reaching the children most in need of these services. If we are sincere about addressing the Felix problem, we must understand and realize that because of the accelerated growth in the division, the level of management expertise necessary to skillfully administer resources and to communicate, design and implement efficient, effective and successful programs is the key component.

Your Conference Committee believes that its role of ensuring fiscal responsibility should not be taken lightly. The DOH's apparent failure to provide services in an efficient and effective manner has resulted in further scrutiny by the Federal Court. As evidenced by the Department's actions, your Conference Committee believes that the DOH has been forced into making reactive decisions based on pressure to comply with the court's order, as opposed to doing what it believes is fiscally prudent.

As to the executive request, your Conference Committee notes that the DOH's request to transfer "low end" mental health services to the DOE (thereby decreasing the DOH Felix population by approximately 7,000 children and transferring out $21.5 million) did not result in a reduction in the cost associated with DOH's compliance with the consent decree. The remaining population under the DOH's jurisdiction, as submitted by CAMHD, is 3,070, of which 2,500 are considered moderate-end Felix youths and 570 are considered high-end Felix youths.

Moreover, the DOH has never provided an adequate explanation as to why the transfer of responsibility to provide "low end" services was not also accompanied by a reduction in necessary staffing. To be more specific, your Conference Committee, prior to making its final recommendations, requested CAMHD to justify its need for retaining all 180 mental health care coordinator positions within the Division. Your Conference Committee's repeated attempts to solicit a response were met first with excuses; then approximately five weeks later, with a response that had no direct relation to the questions asked. The deletion of 33.0 permanent positions and related funds was based on your Conference Committee's understanding that the Legislature's approval in 1999 of an additional 73.50 mental health care coordinator (MHCC) positions was based on CAMHD's determination that a total of 180 MHCCs' were needed throughout the Family Guidance Centers. At that time, your Conference Committee sympathized with CAMHD's position and approved the entire request.

The staff to client ratios presented by CAMHD for coordinating services to the various Felix class populations are as follows; 1:15 for high-end; 1:30 for moderate-end; and 1:150 for low-end. Considering the most current data, your Conference Committee finds that the number of staff required to treat the clients requiring low intensive services who are still with the DOH is distinctly lower than claimed by the DOH, even if the Division is given the benefit of the doubt to the extent using the staff to client ratio for children requiring moderate-end services. In light of this finding, your Conference Committee's decision to reduce the total of 180 mental health care coordinators by 33 positions is more than justified. CAMHD was unable to reconcile the number of filled positions against the total number of positions for which funds were appropriated. Moreover, based on workload calculations the caseload levels of the filled Mental Health Care Coordinators are at 50 per cent capacity. In other words, these positions are only handling half of the workload standards. Absent sufficient clarity and justification from the DOH, your Conference Committee's reduction of these positions was appropriate.

With regard to the reductions made to funding levels for multisystemic therapy (MST) and for other various CAMHD requests, your Conference Committee reiterates that its intent is not to terminate or remove MST treatment services from the CAMHD service array or from the continuum of care for MST. Furthermore, your Conference Committee does not intend to eliminate other services needed by the Felix class youths. Rather, your Conference Committee reviewed the CAMHD's projected expenditures for the upcoming fiscal biennium and found that a $104.9 million budget is being requested to serve a population of approximately 2,500 Felix class youths who require a moderate level of services, and 570 requiring high-end.

By the DOH's own admission, the premise for developing its fiscal biennium 2001-2003 budget for the CAMHD was based on a myriad of assumptions and a "start from scratch" approach to budgeting. Your Conference Committee is once again reminded that in the nearly seven years that have elapsed since the Felix Consent Decree was issued in 1994, no clear methodology for projection of expenditures has been developed by CAMHD to account for its Felix-related expenditures.

The largest projected cost items for CAMHD is Out-of-Home (Residential) services budgeted at $53.4 million in each year of the biennium. Your Conference Committee notes that the $53.4 million accounts for the 570 Felix class youths requiring high end services, while at the same time, MST is expected to address some 112 youths in the same population group.

Multisystemic Therapy is based on a philosophy of treating the youths and their families in their homes congruent with the Felix consent decree principle that services be delivered in the least restrictive and most normal environment in which treatment can be administered. As MST is an alternative to Out-of-Home (Residential) Placements, your Conference Committee believes that the $53.4 million already accounted for should be used to offset the MST costs that were budgeted by CAMHD as a separate cost item.

Your Conference Committee reduced the MST funding because it believes that the foregoing is, in effect, a duplication of either services or appropriations for overlapping targeted populations that are similarly situated. Further, the attempts made by various legislative staff to solicit reasonable explanations for proposed CAMHD services went unanswered. Therefore, the information provided by the DOH at the outset of the 2001 regular legislative session, and the background information and testimony provided by the Department formed the basis of your Conference Committee's recommendations. More to the point, any reductions in the DOH's budget requests made by your Conference Committee are based specifically upon the information provided by the DOH or the lack thereof.

Your Conference Committee acknowledges the importance of providing for early intervention services for infants and toddlers, and for the Healthy Start Program for screening, assessments, and home visitations for children environmentally at-risk. As such, your Conference Committee provided an additional $31.9 million to support these programs and services.

Your Conference Committee carefully scrutinized each request, and provides as accurate a budget as was possible to provide for the needs of the Felix class.

Your Conference Committee was distressed at the emergency appropriation request submitted to the Legislature by the DOE for the current fiscal year. Your Conference Committee believes this deficit reflects an evident need for increased fiscal responsibility on the part of the DOE in determining the appropriate level of funding required to service Felix class children. Despite its concerns, your Conference Committee approved the DOE's emergency appropriation request of $33 million to address the shortfall incurred this current fiscal year. Your Conference Committee was surprised, however, to learn that soon after this emergency appropriation measure was passed, the DOE decreased its request for funding to $27.9 million, resulting in an over budgeted difference of $5.1 million due to delays in hiring. Your Conference Committee feels that although the DOE has helped to reduce its expenditures by revising previous figures, fiscal responsibility dictates that revisions such as this one should be made prior to requests for emergency funding.

Your Conference Committee finds that although the DOE has demonstrated its propensity to over-budget in its efforts to comply with the Felix Consent Decree, providing all children with the services required to prosper as students and individuals remains your Conference Committee's top priority. The Felix Consent Decree has become a major cost driver demanding further commitment of resources to the DOE during this fiscal biennium. To this end, your Conference Committee fully funded the Governor's request by providing $86 million and 90 new positions over the biennium for Comprehensive School Support Services to meet this task.

The $86 million provided over the biennium will go toward complying with the Felix Consent Decree. Specifically, your Conference Committee is providing funds to recruit, train, and retain needed professionals, establish year-round support services, address compliance issues in rural areas, and implement the long overdue integrated special education database system.

In order to initiate the DOE's school-based mental health services efforts, your Conference Committee is approving the transfer of the responsibility for approximately 7,000 "low-end" Felix children and $21.5 million to the DOE from the DOH.

Your Conference Committee understands that developing an industry demands support for both marketing and promotion. Money is needed to support business attraction efforts such as marketing Hawaii as an attractive and viable place to do business, publicizing high tech successes, marketing projects and services for export, and marketing new programs. As such, your Conference Committee provided $400,000 over the biennium for the marketing of Hawaii's high technology initiatives.

In addition to marketing funds for high technology development, your Conference Committee also provided $3 million over the biennium for start-up capital to assist the High Technology Development Corporation incubator tenants at the Manoa Innovation Center and the Maui Research and Technology Center to continue their high-tech endeavors.

Your Conference Committee understands the importance of promoting new high technology initiatives and has appropriated $40,000 to allow the Department of Agriculture to provide training to staff members and enable certified importers to bring various microorganisms into the State for research and development purposes. Your Conference Committee sought ways to provide support for programs within a budget driven by increases in fixed cost items. As such, these importers will cover the cost of ensuring the safety of Hawaii's environment and their compliance with established rules by providing beneficial services and revenue to the State without incurring additional taxpayer support.

Your Conference Committee recognizes the importance of ensuring that Hawaii's farmers use pesticides appropriately. Therefore, your Conference Committee has appropriated an additional $400,000 to address the expansion of the pesticides program for research and education, and continuing registration compliance by Hawaii's pesticide distributors and to preserve and protect Hawaii's groundwater supplies.

Providing well-kept thoroughfares for commerce is an important aspect of transportation. To this end, your Conference Committee has appropriated an additional $10 million in each year of the biennium for repair and maintenance on our state highways. This will allow the Department of Transportation to convert from the current 13-year repair schedule to a 10-year schedule, keeping our roads safe. In addition, your Conference Committee has also appropriated an additional $1.7 million for two bridge inspection units for the islands of Hawaii and Maui. Each of these islands has over 100 bridges that need to be inspected in a thorough, timely, and safe manner.

For the benefit of present and future generations, the State has the responsibility of conserving and protecting Hawaii's natural beauty and all its natural resources. For the reason that all natural resources are held in trust by the State for the benefit of the people, your Conference Committee provides the funding necessary to ensure that these resources are conserved and protected.

Your Conference Committee provides $300,000 for the restoration and protection of Hawaii's beaches. To ease the burden on the State's general fund, funding for the restoration and protection of Hawaii's beaches will come from the Beach Restoration Special Fund, in which proceeds from the leasing of public lands for existing seawalls, fines for unauthorized shoreline structures, and fees for the processing of applications for coastal projects are deposited.

To ensure that public lands that are harvested for timber are reforested, your Conference Committee provides $300,000. Funding for the reforestation of harvested areas will come from revenue derived from the sale of tree seedlings and harvests of plantation and naturalized non-native forest resources to ensure that persons who harvest timber on public lands bear the financial burden of reforestation. Funds will also be used for the management of public forest reserves, environmental education, and training for the public.

Your Conference Committee provides $480,000 for the protection and conservation of Hawaii's streams and its native aquatic organisms. These funds will allow for a quantitative assessment of potential impacts on stream conditions due to changes in stream flow, as it affects the restoration and reestablishment of native aquatic species. This assessment will generate standards and procedures to enhance the streams' biological community.

To protect important watersheds, preserve native ecosystems, and produce renewable forest resources, your Conference Committee provides an additional $600,000, bringing total funding for the Natural Area Partnership Program and the Watershed Management Program to $3.6 million over the biennium. The Natural Area Partnership Program provides state funds for the management of private lands that are dedicated to conservation. The Watershed Management Program works to protect and improve the condition of forests that benefit Hawaii's water supply.

Your Conference Committee provides $870,000 for the detection and eradication of invasive species. Funds will be used by Invasive Species Committees to prevent new invasive species from becoming established and to stop established invasive species from spreading. A rapid response program will also be established to eradicate newly established pests to prevent incalculable future damage and economic costs from these species.

To prepare and implement habitat conservation plans and safe harbor agreements under the Federal Endangered Species Act and the state endangered species law, your Conference Committee provides $800,000. Funds will be used to identify steps to minimize and mitigate negative impacts to threatened and endangered species and to protect, maintain, and enhance ecosystems to increase the population of Hawaii's threatened and endangered species.

The appropriations authorized by your Conference Committee in the area of health will ensure the quality of health care protection of the physical and psychological well being of the people of Hawaii.

Your Conference Committee appropriated an additional $23.4 million to assist developmentally disabled persons who need lifelong care to function in our community and an additional $22.6 million was appropriated for the care and treatment of seriously mentally ill persons. The funds appropriated for the biennium for the Developmental Disabilities Division and the Adult Mental Health Division reflect the State's priority in facilitating change and improving needed services for our mentally challenged population.

Persons with developmental disabilities or mental retardation (DD/MR) present a unique challenge to the DOH's Developmental Disabilities Division as they strive to implement person-centered plans for treatment and care. This planning requires a great deal of time and patience as case managers must develop a viable plan for each individual to create opportunities for each person with DD/MR to live a productive life in the community. In addition, the Olmstead court decision that requires infrastructure supports for DD/MR individuals living in long-term care facilities and the community places additional strain on the resources of the Developmental Disabilities Division. Your Conference Committee has therefore provided essential funding over the biennium to the Developmental Disabilities Division that will ensure compliance and accountability in meeting these guidelines as well as the Makin settlement agreement timelines.

Your Conference Committee is supportive of the plight of seriously mentally ill persons and, therefore, provided the requested funds to improve the system of care for patients being discharged or diverted from the Hawaii State Hospital. Your Conference Committee, however, is concerned with the lack of progress being made on the mandate to improve conditions at the state (mental) hospital, even though the hospital was granted an extra year to make these improvements. Incidents of abuse and neglect continue, and the hospital still faces staffing problems. Furthermore, the plan to move patients to less-restrictive community settings has not been consistently successful.

Your Conference Committee is also sensitive to the needs of our aging population, and appropriated an additional $1.96 million for the expansion of the Kupuna Care program and to establish elder abuse response services. These funds will provide special assistance to victims of abuse and neglect. Moreover, your Conference Committee approved full funding for a study of state-sponsored long-term care for Hawaii's rapidly aging population.

To support the Governor's initiative to develop a criminal justice continuum that provides substance abuse services to prevent incarceration as well as reduce the recidivism rate of ex-offenders, your Conference Committee appropriated $4.4 million to meet this challenge.

Your Conference Committee also provided for the health needs of persons living in rural communities by appropriating a total of $18 million in general funds to the Hawaii Health Systems Corporation (HHSC) in the biennium to offset projected operating losses.

Your Conference Committee understands the necessity of the safety net provided by rural health care services and thus provided $2.5 million to support community health care facilities in Hana, Waianae, Kahuku, and on Molokai.

Lastly, your Conference Committee appropriated funds for the Emergency Medical Services program to establish a rapid response unit to serve the greater Honolulu area; to continue the Volcano ambulance services on the Big Island; and to provide additional ambulance services in Kula on the island of Maui.

More notably, the funds provided for the next two years in the area of health will ensure the quality of care and improve the scope of services to meet the public health needs of the State.

The Department of Human Service strives to provide high-quality services and assistance to people in need. The Department, however, must do this under the budgetary pressures placed upon all state agencies. In this light, your Conference Committee is providing additional funding for many initiatives, such as: providing for special needs children under the care of child welfare services, managing the costs of long-term and acute care, and providing for rising prescription drug costs.

Providing for children with special needs is an overriding concern for your Conference Committee. To address this trepidation, your Conference Committee has appropriated an additional $1 million for each fiscal year for additional services for abused and neglected children. In addition, your Conference Committee has provided funds for eight multi-agency case coordinators and twenty-one additional case support aides. These positions will assist the Department of Human Services in its efforts to coordinate services for Felix class children between the Department of Human Services, DOH, and the DOE. These additional positions are needed to ensure that Felix class foster children receive appropriate care, and that the State is not creating inefficiencies in its service.

Of particular interest to your Conference Committee is the placement of special needs children in foster or adoptive care. To this end, your Conference Committee has appropriated an additional $8.3 million in fiscal year 2001-2002 and an additional $10.4 million in fiscal year 2002-2003 across all means of financing for adoption assistance and difficulty of care payments. These payments are designated for children who are removed from their family home due to harm or threatened harm from family members.

Long-term care is an expensive option and the Department of Human Services’ Adult and Community Care Services Branch seeks alternative methods of treatment, which are more cost-effective than institutional care. The Nursing Home Without Walls (NHWW) program was established in 1983 to provide in-home services as an alternative to institutional care for Medicaid-eligible individuals. The Residential Alternative Community Care Program (RACCP) provides residential placements in foster homes, expanded care in Adult Residential Care Homes, and assisted-living facilities as alternatives to institutional care for Medicaid-eligible adults who require nursing-facility level care but who are not able to benefit from in-home services due to an absence of caregivers or residence.

Your Conference Committee notes that the waiting lists for admission to these programs are rather lengthy. In addition, admission into the Residential Alternative Community Care Program has been closed due to lack of funding in the current fiscal year. Your Conference Committee has appropriated an additional $2.2 million in each fiscal year in general fund expenditures to aid the Nursing Home Without Walls program and the Residential Alternative Care Community Program. Across all means of financing, the Adult and Community Care Services Branch will be able to expend over $162.9 million for home and community-based services for the fiscal biennium. Additional funds for Medicaid waiver programs will allow the Department to decrease the number of individuals on waitlists for these cost-effective and proactive programs.

The rising cost of prescription drugs is a grave concern facing your Conference Committee. Growth in spending for prescription drugs has far outpaced growth in spending for other types of health care in recent years. This problem arises not only in Hawaii, but across the entire country. Between 1990 and 2000, annual spending on prescription drugs across the country grew at nearly double the rate of total national health expenditures and has maintained a double-digit growth rate since the mid-1990s. Increasing prescription drug costs may be attributed to new drug therapies that provide better treatment or have fewer side effects than older alternatives, but tend to be more expensive than older drug therapies.

Generic alternatives for many current drugs are still years away, and the biomedical industry continually produces better drugs, constantly pushing drug costs upward. In addition, as a testament to the effectiveness of these new drug therapies, people are living longer and healthier lives, thereby increasing the population of those needing and using these new therapies, thus generating ever-larger expenses. To deny or restrict access to new drug therapies runs counter to the core purposes of the medical assistance programs of the State.

Your Conference Committee has addressed the rising costs of prescription drugs by appropriating an additional $12.3 million in general fund expenditures in fiscal year 2001-2002 and an additional $21.8 million in general fund expenditures in fiscal year 2002-2003. In total, $192.3 million is budgeted over this coming fiscal biennium for prescription drug costs for Medicaid fee-for-service recipients, which serves the aged, blind, and disabled population. Your Conference Committee notes that access to prescription drugs prevents the further progression of illnesses, reduces emergency medical costs, and reduces costly long-term care services.

While your Conference Committee recognizes that helping those in need is a humanitarian ideal that we should strive for, it also recognizes the budget constraints that have been placed upon the State. To this end, your Conference Committee and the Department of Human Services have looked for additional federal funding to supplement the State's general fund resources. Therefore, while your Conference Committee has appropriated an additional $45.5 million in general fund expenditures for the fiscal biennium, it emphasizes that the appropriation of these state moneys will allow the Department of Human Services to receive an additional $242.3 million in federal funds.

In furthering the goals of the Hawaii State Planning Act to assist needy individuals to attain an adequate standard of living, your Conference Committee provides for the housing needs of Hawaii's people through the following biennium appropriations:

• $2.5 million for the maintenance of existing homeless shelters, the establishment of new shelters, and for programs that help to prevent homelessness;

• $37.8 million for project-based rental housing subsidies;

• $2.4 million for the Public Housing Drug Elimination Program;

• $482,000 for the Economic Development and Self-Sufficiency Program;

• $14.1 million for the Welfare-to-Work program; and

• $1.6 million for the Section 8 Mainstream Program.

When the National Cemetery of the Pacific was closed, the State received the duty from the federal government to provide for the burial needs of veterans and established the Hawaii State Veterans Cemetery. From the Cemetery's inception, the Department of Defense has struggled to meet its responsibilities in providing for the proper condolences and honor due to recently deceased veterans. Due to funding constraints, the department has struggled to maintain and beautify the grounds of the Hawaii State Veterans Cemetery. Therefore, your Conference Committee acknowledges the debt owed to these veterans and has appropriated $117,000 to provide additional equipment to honor, maintain, and beautify this sacred place.

Your Conference Committee also acknowledges the responsibility it has to protect the citizens of Hawaii from disasters, both natural and man-made. Therefore, your Conference Committee has appropriated $220,000 to match $802,000 in federal funds to improve the facilities at Kalaeloa, which was recently acquired by the Hawaii Army National Guard as its new base of operations. The funds will enable the National Guard to protect and assist the public in times of crisis. Additionally, your Conference Committee has appropriated nearly $300,000 to upgrade and staff the State Civil Defense Network. Funding will provide positions, as well as communication equipment, vital to the rapid response of Civil Defense in its role of ameliorating natural and man-made disasters.

Your Conference Committee finds that aiding the Department of Education in its efforts toward providing quality education is a top priority of the State, a responsibility that can only be met through appropriate financing of our public education system. In spite of fiscal austerity imposed throughout other areas of the State budget, your Conference Committee has chosen to increase the DOE's appropriations by $185.9 million and $235.3 million in FY 2002 and FY 2003 respectively. All told, the educational professionals of our state have a total budget of $3 billion for the fiscal biennium with which to teach and empower the next generation of Hawaii's people.

The education budget presented herein is designed to address the evolving state of education in Hawaii, in which decreasing enrollment, implementation of the long-awaited Hawai`i Content and Performance Standards II, towering Felix Consent Decree costs, shortages in school administrators, and the continued need for quality facilities and administrative support all play a role. Rather than "reinventing the wheel" to meet the constant changes of our education system, your Conference Committee has chosen to abide by the budget priorities of the Board of Education, with additional input from the DOE, teachers, constituents, and the students themselves.

Your Conference Committee is confident, that within the State's fiscal limitations, this budget presented herein is conscientious in providing for our children, the future of Hawaii nei.

In this regard, your Committee is providing 201 additional teachers to account for mainstreaming of special education students, additional vice-principals and principals for new schools, business support assistants to provide administrative support, and 200 clerks to address the Board of Education number one priority. Additionally, your Conference Committee is providing $4.5 million for new textbooks for existing schools, and $656,000 in funding for equipment and textbooks for new special education pre-school facilities, $11.4 million for increased utilities costs, $998,000 for security attendants, and $800,000 for criminal history record checks of prospective school employees to provide for safer schools.

In order to assist the department in addressing the anticipated shortfall of educational officers, $3 million is appropriated over the biennium for the Hawaii Leadership Academy to train the next generation of educational leaders.

Your Conference Committee believes that achieving gender equity also is an important goal that must be reached. To this end, your Committee is providing $800,000 to move closer to equity in funding and opportunities for female athletes. The funding provides for coaches' compensation, equipment and supplies, and transportation at all high schools for girls' junior varsity soccer and softball, and varsity water polo.

Your Conference Committee also believes that enabling all students to become literate, productive citizens is an important endeavor. To support this, your Committee is providing for full implementation of Hawaii Content and Performance Standards in the form of $4.8 million over the next biennium.

A quality educational environment continues to be a priority of the DOE and your Committee. Each public school currently receives $4,000 to be used at its discretion to conduct school-level minor repairs and maintenance. Your Conference Committee understands the importance of providing this flexibility for schools and is increasing the available amount for school-level repairs and maintenance funding to $7,000 per school. Your Conference Committee also is providing $1.4 million for additional custodians, kitchen staff, and equipment to enhance the current environment, and $3.3 million for electricity due to rising costs, increased usage, and the opening of new schools.

Your Conference Committee continues to be concerned with the efficiency of the department’s administration and is providing $6.8 million for a new human resource system and a new student information system to support increased efficiency.

Your Conference Committee continues to support the education system with the full understanding that Hawaii's future rests in the hands of our children. Even during lean times, education must continue to be a top priority.

With the recently conferred constitutional autonomy for the University, the Legislature and the University must continue to work mutually in defining each of its roles for the successful implementation of self-governance for the University and, most importantly, its students. In this new realm of an autonomous University system, your Conference Committee acknowledges the responsibility of supporting the University with a lump-sum of appropriation of $6 million in general funds for fiscal year 2001-2002. It is the intent of your Conference Committee's lump-sum appropriation that the University have a degree of flexibility in expending funds to address the needs of the students and faculty.

Your Conference Committee recognizes the University's efforts of moving toward self-sufficiency by means of requests for non-general fund ceiling increases. As a result, your Conference Committee approved the expenditure of $9.8 million for the University's non-general funds to address various repairs and maintenance issues such as student and faculty housing renovations and road repairs.

During the early 1990s, the Pear Harbor Naval Shipyard ceased to hire new employees due to cutbacks. Currently, Pearl Harbor is expanding with a dramatic increase in ship and submarine repairs that is creating a demand for a highly trained, high technology workforce. With approximately two-thirds of its workforce retiring by 2004, Pearl Harbor is seeking to hire 100 to 200 new apprentices each year. The apprenticeship program at Pearl Harbor and Honolulu Community College has negotiated to establish a satellite campus at the shipyard to train and provide classes for these apprentices. Your Conference Committee appropriated $145,000 in fiscal year 2002-2003 to provide resources to Honolulu Community College for instructors at the Pearl Harbor satellite campus. Additionally, Pearl Harbor will provide the facilities and resources needed for this program.

Your Conference Committee is hopeful that in the future the University and the Board of Regents will advise the Legislature of proposed tuition increases. With the cost of living increasing, the Legislature is committed to balancing the fees associated with a quality higher education and the continued access for all those who seek it.

Your Conference Committee is steadfast in providing for educational excellence and services on behalf of the students of our University.

While it is true that state revenues have increased slightly, the demands on these increases from "must fund" items and collective bargaining increases challenge the Legislature as a whole on the best ways to allocate these meager resources. A concern expressed by some members of the public is that funds allocated to the Department of Public Safety would be better spent on social or educational purposes. Unfortunately, prison expenses are "must fund" items, which the Legislature cannot avoid. Since most inmates will not remain incarcerated indefinitely, steps must be taken to address the safety of the public upon an inmate's eventual release from incarceration. Your Conference Committee understands the concerns raised by the public when the Legislature provides funding for inmate programs. However, your Conference Committee believes that the public interest is better served by attempting to address the core of the problems of mental health and substance abuse than just punishing the criminal behavior of substance abusers.

It is the responsibility of the Legislature and the State to care for certain needs of inmates as they are considered wards of the State. Many inmates have or develop mental health problems while incarcerated. If these problems are not addressed medically, the chances for rehabilitation are reduced. Therefore, your Conference Committee has appropriated funds for two psychiatric social workers and $141,000 to provide support to both the Kulani and Waiawa Correctional Facilities.

Likewise, many pre-trial detainees and inmates have serious substance abuse problems. Substance abusers who stay in prison resemble a "revolving door" process due to lack of treatment options available to handle their addictions. Cost analysis shows that it is generally more cost-effective to treat non-violent drug offenders through substance abuse programs that target the root of the inmate's behavioral problems rather than locking them up in penal facilities. Therefore, your Conference Committee has appropriated funds for two substance abuse counselors and $152,000 to assess and refer inmates to a variety of substance abuse treatment programs. Additionally, your Conference Committee has appropriated $1.28 million to provide funding for these various substance abuse programs.

The State of Hawaii and the public at large have struggled over the question of whether to construct a prison in Hawaii. While that debate rages on without resolution, the Department of Public Safety needs to address the issue of prison overcrowding. Often, concerns about inmate rights are a delicate topic with the public. While the public holds many ideas concerning what the living conditions of inmates should be, it is important to understand that the American Correctional Association has established legal minimum standards for an inmate's living conditions while incarcerated. At a certain point, inmates' living conditions cease to be matters of policy choice, and become a matter of law. Overcrowding is one of the most common problems cited and addressed by the courts and is once again a problem for the State of Hawaii. As a temporary fix, the State has resorted to sending approximately 1,200 inmates to prisons on the U.S. Mainland. The Department of Public Safety has completed negotiations for a new contract to house these prisoners in mainland facilities. Until a new prison is constructed, your Conference Committee supports and provides for the new contract by appropriating an additional $9.9 million to cover its cost.

Likewise, your Conference Committee finds that until more convicted inmates can be relocated locally, the Intake Service Centers will continue to lack space to handle the growth of pre-trial detainees. Therefore, your Conference Committee has appropriated $5.7 million to cover the cost for the State to rent bed space in the new Federal Detention Center due to open in October 2001.

Computers are essential in today's business and high technology workforce. It is imperative that the State of Hawaii ensures that the technology and infrastructure is in place to allow government facilities, especially schools and libraries, to access the vast resources of the Internet. To this end, the State established the Institutional Network (INET) to create and improve the State's telecommunications infrastructure. INET is funded by Hawaii's cable television operators as part of their franchise obligations to the citizens of Hawaii. Therefore, your Conference Committee has appropriated an additional

$1 million to continue upgrades to INET to ensure that state facilities, especially libraries, have better access to the resources of the Internet.

Since 1986, the State of Hawaii has been an active participant in the promotion of captive insurance coverage. Since the mid-1990s, there has been an exponential growth in the number of companies applying for and maintaining captive insurance licensing in the State of Hawaii. Currently, Hawaii has over 90 licenses issued, the most in the United States after Vermont. Due to the requirements that each company holding a captive insurance license conduct at least one board meeting locally, these companies have also helped to stimulate Hawaii's tourist industry. Up to fifteen new licenses have been issued during calendar year 2000. Therefore, your Conference Committee has appropriated funds for two captive insurance examiners and $182,000 for the Insurance Division to meet its responsibilities.

Your Conference Committee finds that an excessive amount exists within the Commissioner's Education Trust Fund and has appropriated $1 million to be returned to the beneficiaries that have paid fees into the fund. Additionally, your Conference Committee has appropriated an additional $129,000 to provide for staff training to ensure that members of the Insurance Division are able to meet the changing nature of the insurance industry and will provide the most current information to educate and protect the citizens of Hawaii.

Your Conference Committee recognizes that for Hawaii to continue to grow and embrace the high technology sector, the citizens of Hawaii must be knowledgeable of the use of computers. Acquisition of this knowledge must begin from a young age, but access to computers also has a price. Children are often harassed or abused while many elderly citizens are defrauded through the Internet. In the commercial sector, 273 respondents to the "2000 Computer Crime and Security Survey" stated that their losses due to fraud and computer hacking exceeded $265 million. Therefore, your Conference Committee has appropriated $210,000 to match $1,052,000 in federal grants to establish an Internet Crimes Against Children Task Force and a Hawaii High Technology Crime Unit to develop methods and resources to deal with the rise in white-collar computer crimes.

Addressing the needs of single custodial parents, your Conference Committee finds that there are over 101,000 cases handled by the state Child Support Enforcement Agency. To handle the large volume of cases and meet federal requirements, the State developed the KEIKI computer system with private contractors. The KEIKI computer system has been operational for almost three years and it is time for the State to shed private contractor support and assume full responsibility for the improvement and maintenance of the KEIKI computer system. Therefore, your Conference Committee has appropriated funds for five additional data processing analysts and $538,000. Your Conference Committee has also appropriated $147,000 to conduct a study on the most efficient ways to enhance the KEIKI computer system, making it more responsive and accurate and at the same time improving and streamlining the Child Support Enforcement Agency's organizational structure to address the best way that the Agency can balance its customer service requirements while performing its primary responsibility of ensuring that payments are made to custodial parents.

Upon review of the capital improvement program budget proposed by the Executive Branch, your Conference Committee believes that a more responsible approach must be taken. Consequently, your Conference Committee has reduced the Executive's proposed $1 billion capital improvement program budget to approximately $500 million in general obligation bond funded projects over the biennium.

Although your Conference Committee proposes lower expenditures on capital improvement projects, it has placed high priority on those projects that invest in the State's basic infrastructure. Your Conference Committee believes that improvements to the State's public schools, higher education facilities, public housing, state hospitals, and state parks are needed and has sought to fund these improvements to the extent possible.

The State of Hawaii is responsible for a school system serving over 180,000 students and is tasked with the mission of making quality education available to all of Hawaii's children. Your Conference Committee believes strongly that given the proper environment, all students can, and will, learn.

Your Conference Committee recognizes that facilities provide the centerpiece around which all educational activities exist. As such, $143 million is provided for the statewide repair, upgrade, and improvement of public school facilities to make aggressive improvements to the State's school system and enhance the environment in which Hawaii's children will learn.

In addition, your Conference Committee provides $17 million for Mililani Mauka II Elementary School in anticipation of future development in the area, and an additional $18 million to continue construction at Kapolei High School.

In keeping with the vision of a world-class university that provides all qualified people in Hawaii the opportunity for quality higher education and training, your Conference Committee is providing the funding necessary to ensure that the University of Hawaii facilitates its mission to provide quality instruction, research, and community service programs.

Your Conference Committee finds the University of Hawaii is in critical need of improvements to its basic infrastructure. Therefore, your Conference Committee finds it appropriate to invest approximately $60 million statewide for the repair, upgrade, and improvement of facilities and infrastructure to enhance higher education in the State of Hawaii.

Your Conference Committee believes a modern medical school and research facility can play a key role in diversifying Hawaii's economy and serve as an economic development tool. As such, your Conference Committee is providing $13 million to design the new School of Medicine and Biomedical Research facility.

Hawaii's physical location gives it a unique advantage in the advancement of astronomical education. In acknowledgement of this, your Conference Committee is authorizing the University of Hawaii to construct the Mauna Kea Astronomy Education Center with approximately $20 million in federal funds. The Center will serve as the principal astronomy educational facility in Hawaii and will be a substantial resource for astronomy programs around the world.

Your Conference Committee notes the importance of ensuring the availability of adequate housing for low-income families. In response to the increasingly inadequate conditions of Kuhio Park Terrace, your Conference Committee is providing $10 million for the Kuhio Park Terrace revitalization to improve housing conditions and provide tenants with community supportive services to help them attain economic self-sufficiency.

Hawaii's state community hospitals are tasked with improving the welfare of all the people of Hawaii, and especially those in rural areas. State community hospital facilities are located throughout the State to provide comprehensive health care services to those in need.

Your Conference Committee believes the state community hospital system plays a vital role in bettering public health, and thus is providing $12.5 million statewide for health and safety projects for state community hospitals. Funding will allow state community hospitals to meet current building code requirements, and continue their mission of providing quality health care in rural areas.

Hawaii's state parks are a resource for residents and tourists alike, offering educational opportunities, as well as a diversity of exotic coastal and inland experiences. Your Conference Committee believes the time has come to reinvest in Hawaii's state park system.

To this end, your Conference Committee is providing $8 million for improvements to state parks to enhance park users' experience of Hawaii's special environment, and allow them to learn more about its unique history. Hawaii's state parks not only directly benefit the people of Hawaii through their use, but also serve as an economic development tool by providing a natural attraction for visitors to our islands.

With ever-increasing budget requirements, your Conference Committee carefully scrutinized the executive budget for fiscal biennium 2001-2003. Your Conference Committee maintained the current level of funding for needed services by focusing its efforts on preserving resources that provide direct services to the people. Your Conference Committee has emphasized making government leaner and more efficient. Through collaborative efforts on the part of your House and Senate members, your Conference Committee submits this balanced budget.

As affirmed by the record of votes of the managers of your Committee on Conference that is attached to this report, your Committee on Conference is in accord with the intent and purpose of H.B. No. 200, H.D. 1, S.D. 1, as amended herein, and recommends that it pass Final Reading in the form attached hereto as H.B. No. 200, H.D. 1, S.D. 1, C.D. 1.