Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committee on Ways and Means, to which was referred H.B. No. 200, H.D. 1, entitled:

begs leave to report as follows:

The purpose of this measure 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.

A legislature has the responsibility to tax its citizens judiciously with the implicit promise that it will allot those precious resources in a thoughtful and prudent manner. Simply put, government must tax fairly and spend wisely.

Any legislature, while inheriting fiscal parameters set by legislatures past, must move decisively to either continue with such policies or modify them in such a manner that will provide government with the ability to meet the public’s most pressing needs, yet also sustain its long-term stability. It must react to needs for change with prudence and courage.

This Committee began its budget discussions faced with the ironic challenge of balancing an open-ended budget with growing tax revenues. While the Governor dutifully programmed expenditures for the ever-increasing fixed- and mandated-costs of running state government, unknown costs due to collective bargaining cast doubt on the executive’s ability to provide for all new expenditures and balance the budget. That said, this Committee made an early commitment to carefully scrutinize those expenditures described as "must fund" in nature and provide them with only necessary levels of funding, yet also made it a top priority to find resources specifically for public education--especially in the areas of fixing school buildings, providing textbooks and technology in the classrooms, and increasing teacher pay.

As a means to provide the legislature with as many options as possible, this Committee has looked at several different fiscal policy changes that would provide State government with adequate resources to provide funding for mandated costs, fixed costs, and new initiatives. As reflected in this bill, the Committee also took a hard look at reducing expenditures as yet another important component of balancing the state’s budget.

After enduring difficult economic conditions over the last few years, the State of Hawaii is, at least statistically, entering a phase of sustained economic growth. State tax revenues are healthier and resources are more available. Even with growing concerns about the tourism industry on the horizon, the economic forecasters are still optimistic. The outlook includes a robust construction industry and a growing high technology sector. In the near-term, most indications show positive growth for Hawaii’s economy.

National economic indicators are mixed. The stock market has fallen close to bear territory, inventories have surged, and economic activity began slowing during the latter half of 2000. This slowdown in growth was inevitable to some extent as both consumer and business spending grew at unsustainable rates in the preceding decade.

By the middle of last year, the Federal Reserve had raised the Federal fund rate to 6.5 percent in response to the rapid expansion in aggregate demand. However, in response to the slowing economy, the Federal Reserve lowered the rate three times in 0.5 percentage point increments bringing the rate down to 5.0 percent. As a result, the housing sector of the national economy remains buoyant and recently, consumer expectations have begun to rise.

In Hawaii, tax collections accruing to the general fund through the first eight months of the fiscal year 2000-2001 grew at 7.8 percent while the Council on Revenues had predicted a 6.0 percent increase. Low Federal interest rates will reduce the cost of mortgage money resulting in refinancing activity and increased construction. Even if tourism is flat this calendar year, tourism would have its first or second best year ever.

Your Committee is optimistic concerning the future, but has taken a conservative fiscal approach in the construction of this biennial budget.

Your Committee has identified increases in debt service payments, Employees' Retirement System and Health Fund contributions, Felix v. Cayetano and Makin v. State of Hawaii costs, prescription drug costs, annual emergency appropriations, and prospective collective bargaining cost items as the major cost drivers to state government’s ever-increasing expenditures.

In total, debt service payments, health fund premiums, and the Employees’ Retirement System’s pension accumulation payments and Social Security and Medicare payments make up $927.4 million in fiscal year 2001-2002, or 27 per cent of the general fund budget, and $1.052 billion in fiscal year 2002-2003, or 29 per cent of the State’s general fund budget. In terms of additions to the existing base budget, these non-discretionary items total $195.6 million in fiscal year 2001-2002, or 57 per cent of all additions to the general fund budget, and $320.1 million, or 64 per cent of all additions to the general fund operating budget for the biennium. Your Committee feels it is important to note that these non-discretionary items account for the lion’s share of state spending.

Your Committee is unequivocally committed to full compliance with the Felix Consent Decree and more recently, the Revised Consent Decree of August 3, 2000. Nevertheless, your Committee continues to have grave concerns with the escalating costs associated with the Decree, since the compliance standards of October 24, 1994, went into effect. Since fiscal year 1995, both the Departments of Health and Education 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 now regular annual requests for emergency funding submitted by the Governor.

Early in the legislative session, your Committee was distressed at the emergency appropriation request submitted to the Legislature by the Department of Education (DOE) for the current fiscal year. Your 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 for servicing the Felix class. Despite its concerns, your Committee approved the DOE's emergency appropriation request of $33 million to address the shortfall incurred this current fiscal year. However, your Committee was surprised to learn that soon after this emergency appropriation measure was passed, the DOE decreased its request for funding to $27.9 million, for an over budgeted difference of $5.1 million due to delays in hiring. Your Committee feels that although the DOE has helped reduce its expenditures by revising previous figures, fiscal responsibility dictates that revisions such as this should be made prior to requests for emergency funding.

Your 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 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 Committee is providing nearly $70 million and 90 new positions over the biennium for Comprehensive School Support Services to meet this task. Specifically, your Committee is providing funding to recruit, train, and retain needed professionals, establish year-round support services, address compliance issues in rural areas, and implement an integrated special education database system.

In order to initiate the DOE's school-based mental health services efforts, your 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 Department of Health. In addition, your Committee is providing 33 new positions and $1.09 million in funding to ensure that the transfer of school-based mental health services will be a seamless one.

While your Committee desires to be supportive rather than combative with the Department of Health's (DOH) efforts to come to grips with the cost of compliance, it is difficult to do so when questionable fiscal decisions come to light. For example, the DOH to date has incurred costs of over $350,000 in unauthorized renovations to the Trotter Building on the Hawaii Health Systems Corporation's Leahi Hospital campus. Also, the DOH included $1,026,000 in projected expenditures for the Trotter Building as part of its anticipated costs associated with meeting stipulations in the Felix contempt order, with which this building has no association. Another example concerns the commencement of a new program termed multisystemic therapy (MST), using emergency funding $1,250,000 in fiscal year 2000. Within twelve months, the total estimated expenditures for MST increased to $4,250,000, which exceeded the amount budgeted, thus requiring additional funding to cover the shortfall. Despite these concerns, your Committee is appropriating $46.7 million in emergency funding to the Child and Adolescent Mental Health Division to address its shortfall for this current fiscal year.

As to the executive budget request, your Committee notes that the DOH's request to transfer "low end" mental health services to the Department of Education (decreasing the DOH Felix population by approximately 7,000 children) was not accompanied by a reduction in the cost associated with DOH's compliance with the consent decree. Although it has been almost seven years since the Felix Consent Decree's inception in 1994, the DOH's formulation of the Child and Adolescent Mental Health Division’s overall budget is still based on myriad assumptions and a "start from scratch" approach to budgeting. Your Committee also believes that the division’s purchase of services contracts are spiraling out of control. Your Committee insists on better fiscal planning and accountability from the department.

Absent sufficient clarity and justification from the department, measures are being taken by your Committee to curtail costs and eliminate duplication of services that were included in the Child and Adolescent Mental Health Division’s budget requests. Your Committee has scrutinized each request, and believes its draft of the budget for the DOH Felix class children reflects a more accurate, prudent, and fiscally responsible budget. In sum, your Committee is appropriating a total of $77.7 million in additional resources for the DOH for Felix-related costs over the fiscal biennium 2001-2003.

Your Committee recognizes the challenge faced by the Developmental Disabilities Division of the DOH in implementing the person-centered plans for individuals with developmental disabilities or mental retardation (DD/MR). Planning for these individuals will require a protracted amount of time and patience as case managers develop a viable plan for each individual, and in doing so, create opportunities to make it possible for these persons with DD/MR to live productively in the community.

To this end, your Committee is providing essential funding of an additional $23.7 million over the biennium for the Division’s infrastructure supports. This includes fiscal and technological resources, all of which are necessary to ensure compliance and accountability by the Division in meeting the Makin settlement agreement timelines. In addition, other requirements such as the Olmstead court decision require infrastructure supports that provide services to individuals with DD/MR living in long-term care facilities as well as those living in the community. Your Committee also is appropriating funds to enable the Division to hire additional personnel who will provide appropriate services and supports to these individuals.

Your Committee also is concerned with the lack of progress in complying with the mandate to improve conditions at the Hawaii State 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 Committee is sensitive to the plight of the seriously mentally ill and, therefore, is providing funds to improve the system of care for patients being discharged or diverted to other programs. In fiscal year 2001-2002, the first $8.1 million is provided for this target population. Your Committee is deferring funding for the second year of the fiscal biennium, in order to monitor how the $8.1 million will be used before approving further funding for community-based services.

Health fund premiums continue to increase at an alarming rate. Despite your Committee’s use of a conservative yet responsible seven percent per annum increase assumption, the amount necessary to provide health insurance coverage to all State employees is staggering. 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 be required to pay $260.1 million in fiscal year 2001-2002 and $278.3 million in fiscal year 2002-2003 for health fund premiums. While the reasons for the costs increases are many, it is evident that the State may not be able to continue to absorb these types of increases. In conjunction with its conservative budgeting practices, your Committee also hopes that future use of an employer-union trust may provide assistance in controlling these health care costs.

Appropriations to the Pension Accumulation Fund are the State’s contribution to the Employees’ Retirement System, which provides retirement benefits to qualified State government employees. Currently, total pension accumulation costs amount to $114.0 million in fiscal year 2001-2002 and $157.2 million in fiscal year 2002-2003. Their respective increases in general fund expenditures are $108.7 million in fiscal year 2001-2002 and $151.9 million in fiscal year 2002-2003 from their base fiscal year 2000-2001 figures. Your Committee finds these rising costs to be disquieting but at this time, has no responsible alternatives.

Social Security and Medicare insurance payments are required by federal mandate to be paid by the State, as the employer of all State employees. These figures are derived from the sum of personnel costs and total $136.2 million in fiscal year 2001-2002 and $157.2 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 their base fiscal year 2000-2001 figures.

Debt service, or payments of interest and principal due to the State’s issuance of general obligation bonds to finance capital improvement projects such as parks and schools are usually paid over a span of twenty years. Your Committee's additional debt service payments for fiscal year 2001-2002 amount to $29.7 million and for fiscal year 2002-2003 amount to $90.4 million. Total debt service payments are $417.0 million in general funds for fiscal year 2001-2002, and $447.8 million in general funds for fiscal year 2002-2003. While the Governor’s initial request for bond financed projects totaled close to $1,000,000,000 for the fiscal biennium, your Committee chose instead to scale back the number, size and scope of many of those proposed projects. As a result, a more prudent schedule of bond issuances can occur to maintain control over debt service payments.

Of continued concern to your Committee is the rising cost of prescription drugs, as growth in prescription drug spending has far outpaced growth in spending for other types of health care in recent years. This is a problem facing not only Hawaii, but the entire country. Between 1990 and 2000, annual spending on prescription drugs across the country grew at nearly twice the rate as that for total national health expenditures and has maintained double-digit growth since the mid-1990s. While new drug therapies provide better treatment or have fewer side effects than older alternatives, these new brand-name drugs also tend to be much costlier than older drug therapies. In addition, use of prescription drugs has broadened as awareness of these new drug therapies is expanded.

Your Committee sees little recourse in changing these factors. To deny or restrict access to new drug therapies would run counter to the core purposes of the medical assistance programs of the State. Generic alternatives for current therapies are still years away and the biomedical industry is continually producing better drugs, pushing the cost envelope. In addition, because of the effectiveness of these drugs, people are living better and longer, thereby increasing the population of those benefiting from the new drug therapies in a feedback loop generating larger and larger expense.

Other states have tried a variety of alternative means of procurement including purchasing as a block of states and capping drug costs at nearby market values. While these cost-cutting measures may work for other states, the unique isolation of our island-state does not allow for the pursuit of these options.

Of all recipients of prescription drugs, your Committee is primarily concerned with those receiving Medicaid fee-for-service benefits. In addressing its responsibility to this population, your Committee is 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, your Committee is providing for $86.4 million in fiscal year 2001-2002 and $105.9 million in fiscal year 2002-2003 to handle the rising costs of prescription drugs for this group of recipients.

While the current level of prescription drug costs is manageable, your Committee notes that recent projections indicate double-digit growth annually for the coming decade. While the federal government provides matching dollars to state expenditures, the State must continue supplementing a large portion of these rising costs. Your Committee hopes that proper attention continues to be paid to this increasing expense before the State is caught in the national rising tide of prescription drug costs.

In regards to public education, your Committee has fully embraced the public mandate to "fix our schools." It considers as remedies, not only the provision of modern tools and proper environments for students to learn, but also the provision of meaningful salaries and just working conditions for educators to teach. This Committee firmly believes that appropriate salaries for educators are long overdue. Your Committee further recognizes that adequate compensation, or the lack thereof, is possibly the highest contributing factor to the DOE’s and the University of Hawaii’s ability to recruit and retain the best and brightest individuals to the classrooms.

Furthermore, this Committee has no hesitation in admitting that much of its fiscal policy decisions this session were driven by its desire to provide increased funding for the needs of students and teachers--at all levels of public education. While at the time of submitting this report the public school teachers and university professors had not completed contract talks with the State, this Committee feels confident that its financial plan can adequately accommodate a pay increase for these employees, as well as for those public worker unions that already have new contracts.

Your Committee finds that aiding the DOE in its effort toward providing quality education is of the utmost importance. In this regard, your Committee is providing 201 additional teachers to account for mainstreaming of special education students, additional vice-principals and principals, business support assistants, and 200 clerks to support education at the school level. Additionally, your 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, for increased utilities costs, for security attendants, and criminal history record checks of prospective school employees to provide for safer schools.

Your Committee believes that computer literacy is a necessary skill and access to information technology is a major factor in the future success of our children. In this regard, your Committee is providing $27.5 million for new computers, infrastructure, and training. The new computers will aid in lowering the computer ratio from 6 students per computer to 4 students per computer.

Your 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 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 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 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 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 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.

The Committee would like to first acknowledge the hard work and dedication of its outgoing President and credit him with the current successes of the University. Through his endeavors, the University now embarks on a new course of self-governance and self-reliance. This Committee also looks forward to working with the new President and continuing, if not strengthening, the relationship between the legislature and the University.

In light of the overwhelming public support exhibited during the passage of the constitutional amendment granting autonomy to the University of Hawaii, the University has pushed forward its definition of autonomy. Your Committee applauds the University’s willingness to solicit dialogue with the Senate to come to a mutual understanding on the issue of autonomy.

Your Committee also acknowledges that the Board of Regents are now thrust with the responsibility of taking an unpopular stand, albeit an important one, by raising tuition levels at the University. As much as this action raises the ire of its beneficiaries, the Board must not forget the fact that the University still has one of the lowest tuition costs in the country, and is highly acclaimed in both research and instruction.

If the University and the legislature are to move forward together, there needs to be an understanding that autonomy implies that the University needs to be more self-reliant. Therefore, your Committee is providing a one-time lump-sum appropriation of $5 million for each year of the biennium for the University to use as it sees fit, and also appropriating $9.8 million from the University’s non-general funds for the University to address various repair and maintenance issues such as student and faculty housing renovations and road repairs.

Through discussion of the responsibilities of an autonomous University, your Committee accepts the State’s responsibility of assisting the University with general fund support. The University has often stated that it is best capable of addressing the needs of the University system and as witnessed by the number of citizens supporting the constitutional amendment, we believe that the people of Hawaii have affirmed this. Also, realizing that an autonomous University is best at promoting high technology resources and improving the State’s economy, your Committee is appropriating a lump sum of $8.2 million to the University. Your Committee expects that the University will report to the legislature at the start of the next regular session concerning the actual expenditures of the $8.2 million including the achievements for higher education and the State of Hawaii as a whole.

Mauna Kea is considered one of the best observatory sites in the world for astronomy and the Institute for Astronomy is one of the top research groups in the country. Before its development as a high technology observational park, Mauna Kea was considered to be one of the most sacred sites to native Hawaiians. Accordingly, the State of Hawaii and the University of Hawaii entered into an agreement with various native Hawaiian groups establishing the Mauna Kea Management Authority. The intent of this agreement is to provide for the protection of native Hawaiian sites and preserve the volcano in as natural a setting as possible, while continuing use of the summit for cutting edge astronomical research. Your Committee is appropriating $1.8 million to support the establishment of this authority and the associated cost of preserving Mauna Kea as a cultural landmark for native Hawaiians and the citizens of Hawaii as a whole.

In the early 1990’s Pearl Harbor Naval Shipyard ceased hiring new employees due to cutbacks. Now a decade later, Pearl Harbor is once again expanding as dramatic increases in ship and submarine repairs through 2010 will require a highly trained technical workforce. Pearl Harbor is seeking to hire 100 to 200 new apprentices each year to replace two-thirds of the workforce, which will be eligible to retire by 2004. The Honolulu Community College apprenticeship program has negotiated to establish a satellite campus at the Pearl Harbor shipyard to provide classes and ultimately, an Associates in Science degree for apprentices. Pearl Harbor is providing all the facilities and resources while Honolulu Community College is providing qualified instructors to teach eight classes. Your Committee sees this as an opportunity to provide for well paying jobs for the citizens of Hawaii. Therefore, in support of promoting higher education and a high tech workforce, your Committee is appropriating $145,000 to provide resources to Honolulu Community College to staff the Pearl Harbor Satellite campus.

Realizing the importance of small business to Hawaii’s economy, your Committee supports the success of the Small Business Development Center in assisting Hawaii’s small business and in bringing in over eight dollars of tax revenue for every dollar invested in the program. In order to comply with its statewide mandate from the Small Business Administration, the Small Business Development Center has opened a Kona center expanding its coverage to both sides of the Big Island. Your Committee is appropriating $121,000 to support the continued mission of the Small Business Development Center and to assist in the coverage of the cost of opening and operating the new Kona office.

Your Committee understands the importance of promoting new high technology initiatives and accordingly is providing $40,000 to allow the Department of Agriculture to provide training to staff members and to enable importers to bring various microorganisms into the State for research and development purposes. These importers will cover the cost of insuring the safety of Hawaii’s ecosystem and their compliance with established rules providing beneficial services and revenue to the State without requiring taxpayer support.

In addressing responsibility, your Committee recognizes the importance of ensuring that Hawaii’s farmers use pesticides in the least damaging way possible. One of the responsibilities of the Department of Agriculture is to ensure that pesticides utilized for farming purposes do not harm the ground water resources of our islands. Therefore, your Committee is appropriating an additional $400,000 for the expansion of the Pesticides program to ensure continued registration compliance by Hawaii’s pesticide distributors and to preserve and protect Hawaii’s groundwater aquifers.

With the increase in the number of lawsuits nationwide it was only a matter of time until this trend arrived in Hawaii. The Attorney General has successfully litigated several major settlements (such as those involving tobacco companies, the Aloha Stadium contractors, Bishop Estate, and asbestos companies) helping to deter losses incurred by the State. Currently, due to many cases pending, the Attorney General has resorted to contracting private attorneys as special deputy attorneys general at greater cost to the State. Recognizing the importance of litigation services to the State, your Committee is appropriating money for two additional in-house tort litigation teams to assist with the pending cases, thus providing over $110,000 in savings to the taxpayer.

Your Committee recognizes that for Hawaii to continue to grow and embrace the high technology sector, citizens of Hawaii must be computer literate. However, access to computers has a price. Children are often harassed or abused and 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 Committee is appropriating $105,000 as a match to $526,000 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 computer white-collar crimes.

Addressing the needs of single custodial parents, your Committee finds that there are over 100,000 cases handled annually by the State Child Enforcement Support Agency. High divorce rates and the increase in single females raising children ensure that this trend will continue. To handle the large volume of cases, 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 Committee is adding five data processing analysts and $538,000 to support and improve the KEIKI computer system and replace private contracted support by November 2001. Your Committee also is adding $147,000 to conduct a study to enhance the KEIKI computer system by making it more efficient, responsive, and accurate. At the same time this will improve and streamline the Child Support Enforcement Agency’s organizational structure to ensure the Agency balances its customer service requirements with its primary responsibility of ensuring that payments are made to custodial parents.

Computers are essential in today’s workforce. It is imperative that the State of Hawaii ensures that technology and infrastructure is in place to allow government facilities, especially schools and libraries, to access resources available through 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 Committee is appropriating $1,000,000 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 companies. Since the mid 1990’s there has been 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 nation after Vermont. Due to the requirement that each company holding a captive insurance license conduct at least one board meeting locally, these companies have also helped stimulate Hawaii’s tourist industry. Fifteen new licenses were issued during calendar year 2000, which has strained the limited resources of the captive insurance division. Therefore, your Committee is appropriating money for two captive insurance examiners and $182,000 to ensure that the captive insurance division meets its responsibilities as prescribed by section 431:19-108, Hawaii Revised Statutes.

Fees are a necessary part of a cost effective government. Through fees the State is able to provide services to beneficiaries without straining the limited tax resources provided by the citizens of Hawaii, by having the beneficiaries themselves cover the cost of the services provided. Fees are established to offset cost of services that the State of Hawaii provides. There are times, however, that excessive balances accrue and it becomes the State’s responsibility to reimburse these amounts to the beneficiaries. Your Committee finds that an excessive amount exists within the Commissioner’s Education Trust Fund and therefore is appropriating $1,000,000 to be returned to the beneficiaries that have paid fees into the fund. Additionally, your Committee is appropriating $128,000 to provide for staff training to ensure that staff 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.

One in ten of Hawaii’s citizens is a military veteran. A significant majority of Hawaii’s veteran population is over 60 years of age. 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 Hawaiian Memorial State Veterans Cemetery. From its inception the Department of Defense has struggled to meet its responsibilities in providing for the proper condolences and honor due recently departed veterans. Additionally, the department has struggled due to funding constraints to maintain and beautify the grounds of the State Veterans Cemetery. Therefore, your Committee acknowledges the State’s debt owed to these veterans and is appropriating $117,000 to provide additional equipment to honor, maintain, and beautify this sacred place.

The cost of oil has increased significantly during the last year and a half contributing to higher utility cost, and your Committee recognizes that large amounts of water and electricity are required to maintain the State's correctional facilities. Your Committee is appropriating $1.5 million to cover the increased cost of utilities at all facilities and maintenance at the Halawa Correctional Facility. This will ensure that funding is available for utilities preventing a reduction in either security services or rehabilitation programs.

Many inmates have or develop various problems while incarcerated within the prison system. If these problems are not properly addressed, chances for rehabilitation are greatly reduced. Therefore, your Committee is providing two psychiatric social workers and $140,000 to provide support to both Kulani and Waiawa Correctional Facilities.

The State of Hawaii and the public at large have struggled over the question of whether to construct a prison in Hawaii and where that facility should be located. Until that debate is resolved, the Department of Public Safety must address prison overcrowding. As a temporary solution, the State has resorted to sending approximately 1,200 inmates to the continental U.S. The Department of Public Safety recently completed negotiations for a new contract. Your Committee finds that until a new facility has been constructed and because incarceration on the continental U.S. is still cost effective, the new contract should be supported, and therefore is appropriating $9.9 million towards that end.

Likewise, your Committee finds that until more convicted inmates can be reallocated either locally or to the continental U.S., the Intake Services Center will continue to lack space to handle the growth of pre-trial detainees. Therefore, your Committee is appropriating $1.2 million for the first year of the biennium to cover the cost of the State renting bed space in the new Federal Detention Center opening in October 2001.

Your Committee is appropriating funds for the design of a management certification-training program that will provide management competency instruction to current state managers and supervisors. The goal is to instruct the basic management competencies needed to successfully perform as a manager in the State of Hawaii. This program will develop employees for promotional opportunities to ensure that current managers have the proper skills to be effective in our workforce. Your Committee is also providing funds to develop and administer a statewide employee assistance program designed to support work productivity. Funds provided will be used for the restoration of the Resource for Employee Assistance and Counseling Help (REACH) program. This short-term counseling program helps troubled state employees deal with personal problems that affect work performance. This service, provided by contracted professional counselors, will be made available to all State employees. The funds spent for REACH will help to maintain a safe, productive workforce, in the face of downsizing and reorganizational changes, increased pressure to do more with less, and increased concerns about potential violence in the workplace.

Your Committee is maintaining essential services in health, but more importantly appropriating funds for the developmentally disabled that need lifelong care to function in our community and for the seriously mentally ill. Core functions for the communicable disease programs are being funded to maintain vital services.

Your Committee determined that it is important to provide additional funds for early intervention services for infants and toddlers, and for the Healthy Start Program for screening and assessments, including home visitations for those environmentally at-risk as stipulated in the revised Felix contempt order.

Your Committee is sensitive to the needs of our aging population, and as such, is appropriating an additional $1.7 million to further expand Kupuna Care and to establish elder abuse response services that will provide special assistance to victims of abuse and neglect. Your Committee has provided for the health needs of those living in rural communities by appropriating a total of $18 million to the Hawaii Health Systems Corporation (HHSC) over the biennium to offset projected operating losses. However, your Committee has continued concerns with HHSC's inability to collect its receivables in a timely manner to offset its cash and operating shortages.

Funds are also provided for Emergency Medical Services to establish an additional rapid response unit to serve the greater Honolulu area. In addition, your Committee provided additional ambulatory coverage for Kula on Maui, and funding for the Volcano area on the island of Hawaii to maintain existing services.

The appropriations authorized by your Committee reflect a thoughtful and fiscally responsible budget for the Department of Health for fiscal biennium 2001 through 2003. More notably, the funds provided for the next two years in the area of health will ensure the quality and continuum of care as well as improve the scope of services to meet the public health needs of the State.

Maintaining avenues for commerce is an important consideration for your Committee. Keeping the State’s airports, highways, and harbors operating properly ensures freedom for people to commute, vacation, or conduct business. With this in mind, your Committee has increased highway repair and maintenance by $10 million in each year of the biennium. This will make certain that the Department of Transportation can perform its routine repair and maintenance work on our state highways on a ten-year schedule, keeping our roads safe.

Proper maintenance of the numerous bridges across the State is essential to ensure suitable thoroughfares over the many valleys and rivers. The inspection of these bridges is not easy, however, as they may traverse streams, gulches, or valleys. Your Committee understands this fact and is appropriating $1.7 million for two bridge inspection units for the Big Island and Maui. Currently, Maui has 117 bridges, and the island of Hawaii has 132. Thorough inspection of all these bridges is time-consuming, and your Committee believes that by providing these inspection units, the job can be performed in a timely and safe manner.

After review of the capital improvement project budget proposed by the Executive Branch, your Committee believes that a more responsible approach must be taken. Consequently, your Committee has reduced the Executive’s proposed billion-dollar capital improvement project budget to approximately $565 million in general obligation bond funded projects over the biennium.

Although your 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 Committee believes that improvements in the condition of 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 Committee believes strongly that given the proper environment, all students can, and will, learn.

Your Committee recognizes that facilities provide the centerpiece around which all educational activities exist. As such, $150 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. An additional $42 million is provided in various lump sum appropriations for a range of other improvements to schools.

To address overcrowding at public schools, your Committee provides $21 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 with the opportunity for quality college and university education and training, your Committee is providing the funding necessary to ensure that the University of Hawaii’s physical infrastructure facilitates its mission to provide quality instruction, research, and community service programs.

Your Committee finds the University of Hawaii is in critical need of improvements to its basic infrastructure. Whereas facilities affect the quality of instruction, research, and community service programs, your Committee finds it appropriate to invest approximately $49 million statewide for the repair, upgrade, and improvement of facilities and infrastructure to enhance higher education in the State of Hawaii.

Your Committee believes a modern research facility can play a key role in diversifying Hawaii’s economy and serve as an economic development tool. As such, your Committee is providing $56 million in general obligation bonds and authorizing an additional $9 million in revenue bonds for the Pacific Biomedical Research Center.

Hawaii’s physical location gives it a unique advantage in the advancement of astronomical education. In acknowledgement of this, your 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 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 Committee is providing $10 million for Kuhio Park Terrace revitalization to improve housing conditions and provide tenants with community supportive services directed to help them attain economic self-sufficiency.

Hawaii’s state community hospitals are tasked with improving the welfare of all 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 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 Committee believes the time has come to reinvest in Hawaii’s State Park System.

To this end, your Committee is providing $10.5 million for improvements to state parks to enhance the experience of Hawaii's special environment by park users’ 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 the ever-increasing budget requirements, your Committee carefully scrutinized the executive budget for fiscal biennium 2001-2003. Your Committee preserved the current level of funding for needed services by focusing its efforts on preserving resources that provide direct services to the people. Your Committee has risen to the occasion to make government leaner and more efficient. Through collaborative efforts on the part of your Senate members, your Committee on Ways and Means submits this balanced budget.

As affirmed by the record of votes of the members of your Committee on Ways and Means that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 200, H.D. 1, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 200, H.D. 1, S.D. 1, and be placed on the calendar for Third Reading.