Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Sir:

Your Committee on Ways and Means, to which was referred H.B. No. 1800, H.D. 1, entitled:

begs leave to report as follows:

The purpose of this bill is to amend the General Appropriations Act of 2001 (Act 259, Session Laws of Hawaii 2001), which appropriated funds for the operating and capital improvement costs of the Executive branch for the fiscal biennium July 1, 2001, to June 30, 2003.

Budget deliberations during the 2001 Regular Session took place amid the growing optimism that Hawaii was finally experiencing its long-anticipated economic rebound from a decade of recession. The Council on Revenues forecasted a steadily growing economy as many indicators pointed toward a reinvigorated tourism market. Airline flights were full, hotel occupancy was up, and visitor spending was on the rise. Still, this was cautiously balanced against the fact that eastbound tourism was still flat, as Japan remained mired in a terrible recession. Nonetheless, other positive indicators of Hawaii’s economic growth were evidenced by increases in real estate activity, increases in private construction, and a low jobless rate. Factors that precipitated this situation may have included the enactment of tax law changes, including lowering of the individual income tax rate, de-pyramiding of the General Excise Tax and granting of hotel renovation construction tax credits.

The projections of steady revenue growth brought sighs of relief from lawmakers who anticipated some breathing room in their fiscal policy decision-making. While cautious optimism prevailed, signs of a healthy economy bolstered renewed enthusiasm from many sectors of the public who sought financial relief from the burdens accumulated over the ten-year period. Many advocated economic stimulus tax proposals to expand the invigorated economy even further. Some advocated providing sorely needed government services to children, the elderly and the poor. Others reminded the Legislature that federally mandated programs still demanded attention.

While the Legislature recognized that a balanced allocation of resources would be most prudent, it focused its attention on the need to address the public mandate to fix our schools. For the first time in many years, the Legislature had the ability to improve the public education system in a wide-ranging manner.

It first recognized that teachers who were expected to provide first-class instruction deserved first-class compensation. To this end, it supported public school teachers and university professors in their pursuit of a fair wage increase during their collective bargaining negotiations. The Legislature also recognized that salary increases would go a long way to help address the teacher and professor recruitment and retention problem. After enduring one of the longest work stoppages in the State’s history-—the first time the entire public education system was shut down simultaneously-—the teachers and professors won their hard-earned pay increases that were quickly approved by the Legislature.

The Legislature also provided much needed resources for additional teachers, textbooks, and equipment for both existing and new facilities of the Department of Education. Furthermore, the University of Hawaii got a tremendous boost with a $6 million, one-year lump-sum appropriation.

Finally, as it set out to literally "fix the schools", the Legislature approved over $180 million in new construction projects to repair, upgrade, and improve public school facilities. It also provided $80 million for construction costs to improve and expand facilities of the University of Hawaii system.

While there was a growing sense that Hawaii’s economy was on the rise, the Legislature wisely approached this situation with great caution. Demand for resources, whether in the form of direct services or costs for providing such services, was also on the rise. Until State government could demonstrate long-term fiscal integrity, the 2001 Legislature made sure it kept a keen eye to the future. As such, the Legislature took bold, yet controversial steps to ensure that rising fixed costs could be contained. For example, it set out to investigate the use of public funds for the Felix Consent Decree mandate and created the Employer-Union Trust to administer the provision of health insurance to all government employees and retirees equitably.

With these fiscal policy debates taking center stage throughout the session, the 2001 Legislature closed amid a mixed sense of accomplishment and apprehension.

September 11, 2001 will go down in history as one of the most horrific events to take place on United States soil. The degree of damage inflicted upon the nation was unimaginable. In heroic response to this tragedy, our communities galvanized and our nation of individuals became a nation of Americans. Despite this newfound resolve of the people, the national economy inevitably went into shock. While encouraged to carry on with life as normally as possible, the mission to heal a nation became a daunting task of overcoming emotional, psychological, and financial trauma.

While our spiritual strength proved resolute, our economic strength faltered. Immediately following the attack, all air travel was halted for two days. Flights were reinstated, but air travel was severely restricted. Leisure travel was virtually shut down. Further aggravating consumer confidence was the declaration of war overseas that required military action that this country had never before witnessed.

Closer to home, Hawaii’s economy immediately fell into rapid decline. Tourism activity dropped swiftly, as did our retail and restaurant businesses. There was a sudden 26.1% drop in international visitors—a major component of the tourism industry.

Unemployment rates rose as businesses either closed or reduced the level of their service, resulting in both small business and large corporate lay offs. The ripple effect of the attacks was both immense and immediate and sent our State and our Nation into disarray.

Hawaii, like most states across the nation, convened in a special session to pursue options to help stimulate growth in our local economy and to provide a safety net to those most in need. Emergency powers were given to the Governor to provide businesses and private citizens with a broad-range of financial relief. Emergency funding was provided for the jobless and tax credits were extended for hotel and residential renovation construction.

In November, the Council on Revenues met in an emergency meeting to assess the effect the September 11^th attack had on our State’s economy. However, with only two months of new data, the Council was hesitant to make any new predictions. While a drop in revenue was inevitable, the duration and magnitude of this decrease was debatable. Based on models derived from the State’s economic reaction to the Gulf War and Hurricane Iniki, coupled with the State’s pre-event trajectory, the Council believed that the economy would react with a sharp decline, but follow with a quick and strong rebound. This led the Council to revise its forecast to reflect a drastic reduction in revenue for the remainder of fiscal year 2001-2002, a .7% decrease instead of a 4.1% increase. However, it retained a strong forecast for the ensuing five fiscal years.

The effects of that projection on planned state spending were tremendous. In terms of dollars, this amounted to a revenue shortfall of $315 million over the two years of the fiscal biennium--$150 million for fiscal year 2002 and $165 million for fiscal year 2003.

With these new projections, the Governor was forced to take quick action. He immediately imposed a 1% spending reduction on the discretionary budgets of all departments including for the first time in many years, the Department of Education (DOE) and the University of Hawaii (UH). All executive departments were then instructed to revise their budgetary plans for the remainder of the fiscal biennium. All departmental discretionary funding was to be reduced by 2%, and once again, the DOE and UH were not spared, as the Governor proposed to cut a combined $20 million from their budgets. In addition to cuts to expenditures, the Governor also attempted to offset the projected revenue shortfall by proposing to transfer the entire balance of the Hawaii Hurricane Relief Fund to the General Fund, transfer balances of other special and revolving funds to the General Fund, and increase the liquor tax.

While these options appeared unpalatable, it was well noted that Hawaii was clearly not alone in facing tough budget decisions. Before the end of 2001, there were at least 35 states struggling with budget deficits totaling in excess of $46 billion. Whereas some states may have large "rainy day" funds as a result of the prosperous economic times in the 1990s, many others like Hawaii were forced to look at a combination of tax changes and cuts to essential services.

In an unprecedented effort to address this serious matter in a manner that would recognize its gravity and urgency, your Committee and the House Committee on Finance, with the cooperation of the Department of Budget and Finance, jointly held a series of statewide public hearings on the Governor’s proposals. The hearings were used to generate public input on the State's financial situation and to get the pulse of the people’s priorities on essential government services.

From Opening Day of the 2002 Regular Session, public sentiment appeared generally opposed to the Governor’s proposals to increase state revenues. Your Committee thus believed that the public mandate was to cut government spending. However, the magnitude of these cuts must be put into perspective. It would take the complete elimination of the 12 smallest departments (of a total of 19) to generate a savings of $160 million a year necessary to cover the expected revenue shortfall. In another scenario, if the entire revenue shortfall were to be covered by across the board cuts to each department, it would require 7% budget cuts, resulting in a $50 million cut to the Department of Education, and a $20 million cut to the University of Hawaii. These statistics highlight the fact that the bulk of state government services are concentrated in the following major areas: public education, health and safety, and mandated costs and services.

While the popular sentiment may be to "right-size" government, the numbers indicate that addressing the revenue shortfall by merely reducing expenditures would force the elimination of crucial government services in a time when these services are most needed.

Although your Committee may have disagreed with prior fiscal initiatives of the Governor, we believe that his cautious approach to trimming expenditures is an appropriate course of action. Specifically, we agree that budget reductions that translate to lost jobs should be avoided as much as possible. While we acknowledge that the private sector has had to reduce its workforce recently, your Committee believes that elimination of government positions will only exacerbate our economic situation.

Further adding to the difficulty is the fact that a large percentage of government spending is now deemed as fixed costs. These types of costs—-court-mandated programs, social welfare, and debt-service—are found mainly in the Departments of Education, Health, Human Services, Public Safety, and Budget and Finance.

Your Committee has taken the position that government services are currently being provided at necessary and justifiable levels and that in some cases, below what is truly needed. This budget reflects months of analyses that validate what was already revealed throughout the 1990’s-—that budget cuts have severely hampered many departments’ ability to provide basic services to the community. Moreover, your Committee notes that the demands placed on our departments continue to grow each year by legislative mandate—sometimes with only limited, short-term resources. Worse, while the mandates remain, funds are continually taken away.

All this has kept morale of employees low, as they have endured years of being asked to do more with less. Program administrators are continually frustrated with the task of providing more services at ever-increasing costs with less and less funding.

However, as discussed above, the fiscal situation our State is in required your Committee to act prudently in examining all government expenditures. While this supplemental bduget represents a reduction to all executive expenditures by $73 million, your Committee believes that it has kept departments in a position to carry out its mandates. Your Committee cautions however, that the demand for services and the funding level that is committed towards it has reach a critical point. No longer will departments be able to absorb across the board reductions. Your Committee stresses that if funding to departments is to be reduced below the levels recommended in this budget, than this Legislature must concurrently reduce the mandates placed on those departments.

Again, public education remains the State’s top priority. Your Committee believes that even during these difficult times, providing additional resources for public education is warranted and necessary.

Your Committee had two important objectives when evaluating the Department of Education’s budget. The first objective, embodied both in this measure and in H.B. No. 2654, H.D. 2, S.D. 1, was to provide funding for critical needs of the DOE, by restoring critical educational programs targeted for reduction and providing additional funding for Board of Education-approved initiatives that failed to receive executive approval.

The second objective was to provide sufficient resources to cover all major fixed costs, to facilitate compliance with all legal mandates, and provide funding for many critical educational programs. While the funding for mandated costs are viewed as critical, the requirements of special needs students and regular education students have been treated equally.

Your Committee recognizes the need for sufficient school-level resources. With this in mind, your Committee has approved the addition of approximately $700,000 for equipment and textbooks for new special and regular education facilities for five schools. Additionally, your Committee has added approximately $5.6 million in funding for New Century Charter Schools. Your Committee’s appropriation for charter schools reflects the current per pupil allocation amount as determined by the State Auditor.

As evidence of a commitment to provide library services for patrons throughout the State, your Committee has provided 24 permanent FTE’s and $1.7 million in funding to staff and operate the Kapolei Library in Kapolei, Oahu. Noting that the public’s anticipated opening and use of the Kapolei Library has been delayed at least a year, your Committee believes that it is appropriate and timely that operating staff and positions be approved for this library at this time.

Your Committee has added $15 million in federal impact aid funding within EDN 100 (School-based Budgeting). With this appropriation, the department can mitigate some of the proposed budget cuts.

Your Committee regrets that this budget reflects a majority of the Governor's two percent and, in some cases, three percent departmental budget reductions, totaling approximately $15.5 million. However, your Committee has created a mechanism to not only restore $8.8 million of the cuts reflected in this budget, but to also add an additional $46.2 million in additional DOE-related priorities. Critical educational programs to be restored through H.B. No. 2654, H.D. 2, S.D. 1, include:

• After-school Plus (A+) program ($3.5 million);
• Computer education ($3.6 million);
• Summer school programs ($1.2 million);
• Instructional materials for regular education ($1 million); and
• Student enrichment programs (approximately $300,000).

Additionally, H.B. No. 2654, H.D. 2, S.D. 1, will fund important BOE requests that were denied by the Governor. These requests include:

• Multi-track schools (approximately $1 million);
• Lower student-teacher ratios for ESLL teachers ($400,000);
• Two clerks to expedite the payroll process for new hires (approximately $42,000);
• Electricity costs ($1.8 million); and
• Water costs (approximately $900,000).

During the 2001 Regular Session, special emphasis was placed on improving public school facilities, and $60 million was appropriated for the general repair and maintenance of public school facilities. An additional $120 million was appropriated for various improvements to the public school system including:

• Telecommunication and power infrastructure upgrades
• Renovation of buildings and school sites
• Health and safety improvements
• Heat and noise abatement
• New classroom buildings
• Playground equipment

The Legislature again showed its commitment to the State’s public education system by providing an additional $75 million during the Third Special Session of 2001. With this new appropriation for the repair and maintenance of public schools, the Legislature brought funding for the improvement of the public school system to $255 million over the fiscal biennium.

Your Committee has sustained this commitment to education by providing an additional $145 million for the repair and maintenance of public schools for fiscal year 2003. Another $70 million has been provided for various improvements to public education facilities. These new authorizations bring total funding of public education construction projects to $470 million, representing an unparalleled commitment to the State’s public education system.

To ensure that the children of Hawaii receive the best education possible, your Committee granted various requests by the Department of Education for supplemental funding. Your Committee approved $15 million that will provide new reading trainers, replace old science equipment, replenish science materials, accommodate growth in the Hawaiian language immersion programs, and also support and maintain Multi-track schools.

Most importantly, critical library functions such as children’s and young adult programs will be retained, library services to correctional and long-term care facilities will continue, bookmobile services will continue, and access to library facilities, books, and materials will remain generally unaffected.

Your Committee has taken a cautious approach to evaluating the Governor's requests to reduce 162 regular education teacher positions. The Governor requested a reduction in regular education teacher positions by 162, special education (SPED) teacher positions by 63 and educational assistant (EA) positions by 63. Convinced that the number of teacher and educational assistant positions should be based on actual workload and need, your Committee requested that the Department of Education re-examine the number of teacher and EA positions proposed for reduction.

The department recalculated and determined that 79 regular education teacher positions, 52 SPED teacher positions, and 24 SPED EA positions could be eliminated for fiscal year 2003 without compromising service. Your Committee accordingly trimmed the reduction of teacher and EA positions to reflect the department’s re-assessment.

Since 1994, the State has been subject to the Felix Consent Decree, which requires the State to provide adequate services for special needs children through the Department of Health and the Department of Education.

Approximately $8.1 million has been added to last year’s $65 million appropriated for the DOE’s Felix Response Plan (FRP) and School Based Behavioral Health (SBBH) services. This $73 million will maintain and supplement the department’s budget to support the over 1,600 temporary employees currently needed to implement the court-mandated FRP priorities and SBBH services.

Your Committee has increased funding for the Felix and special education-related programs by providing an additional $5 million for a grand total of $228 million. This clearly demonstrates your Committee’s commitment to providing the Department of Education with sufficient funding and resources to meet the U.S. District Court’s Felix-related benchmarks.

In the past, the Legislature has generally provided almost unrestricted funding for special education services pursuant to court mandate. However, as a result of the findings of the 2001 Joint Senate-House Investigative Committee to Investigate the State’s Compliance with the Felix Consent Decree, your Committee reviewed the Department of Education’s Felix and Special Education-related requests with an eye toward greater cost-effectiveness and restraint, while continuing to adequately meet the needs of these special students.

For example, the Department requested 1,686.50 additional permanent, full-time position counts to implement and maintain the FRP priorities and the SBBH services. In considering this request, your Committee decided that there was insufficient information to accurately determine the appropriate number and type of positions needed within the FRP and SBBH programs that would adequately meet student needs.

Your Committee also acknowledged that future court decisions, which will address compliance and sustainability under the Felix Consent Decree, might substantively affect current department estimates of the number and type of positions as well as overall funding needed to adequately staff and maintain the FRP and SBBH programs. Therefore, your Committee decided that all positions currently assigned to the FRP and SBBH programs should remain temporary. Creating permanent position counts for programs that could dramatically change was determined to not be a prudent course of action.

Your Committee has included a budget proviso directing the Department of Education to complete a comprehensive assessment of its efforts to meet and maintain compliance with the Felix Consent Decree and associated federal statutes. The proviso requests that the department, in its assessment, focus on identifying the specific needs (funding, positions, organizational schemes, facilities, equipment and any statutory/constitutional amendments) that would be required to maintain compliance. The proviso requests the department to submit a detailed report of its findings and recommendations to Legislature prior to the convening of the 2003 Regular Session.

Funding for the Felix and Special Education-related programs in the Department of Education generally has been maintained, and in fact, support for the implementation and maintenance of FRP programs has been increased by providing an additional $5 million in EDN150 (Comprehensive School Support Services). Concurrently, your Committee has reduced or eliminated those appropriations that are no longer necessary. The FRP and SBBH fiscal year 2003 appropriations were reduced by $709,681 and $450,000, respectively, targeting unnecessary expenses for the Felix Court Monitor as well as costs for equipment and administration.

Your Committee believes that the fiscal year 2003 budget for Felix Consent Decree and special education services and administration, which includes the Committee’s directive to maintain temporary FRP and SBBH positions, strikes a close balance between the need for fiscal accountability while providing sufficient resources to comply with the State’s Felix and special education mandates.

Your Committee reaffirms its support for children with special health needs and appropriated $408,812 to ensure continued care coordination support for the Department of Health’s Early Intervention Section, which services families and children between the ages of 0 to 3 years.

Your Committee further acknowledges the recent progress made by the Department of Health’s Child & Adolescent Mental Health Division (CAMHD) in improving mental health services for the Felix-class children so as to comply with the Felix Consent Decree. While the supplemental $10.06 million request was withdrawn by the CAMHD, your Committee remains unclear as to how the CAMHD will offset its multi–million dollar estimated shortfall by reviewing its current expenditure patterns and programmatic strategies to control costs.

In 1991, the United States government filed an action in the United District Court for the District of Hawaii against the State of Hawaii based on the Civil Rights of Institutionalized Persons Act, 42 U.S.C. Section 1997 et seq., regarding the deprivation of rights of persons residing at the Hawaii State Hospital (United States v. State of Hawaii, et al., Civil No. 91-00137 DAE-KSC). The State entered into a Settlement Agreement with the United States Department of Justice which was incorporated into a Stipulation and Order filed on September 19, 1991. This and subsequent Stipulations and Orders issued in 1996, 1997, 1998, and 2000, document the State's obligations to enhance the existing array of community services and related supports to ensure the timely and effective discharge of patients from the Hawaii State Hospital and to prevent the hospitalization or rehospitalization of individuals.

Your Committee affirms its full support of and commitment to the seriously mentally ill population residing in Hawaii by appropriating $4.09 million. However, your Committee has grave concerns as to the purchase of outpatient community-based services.

The total appropriation for the Adult Mental Health Division (AMHD), including funding for administrative support positions, amounts to over $94.31 million. While your Committee is dedicated to ensuring that a system of care is developed for the seriously mentally ill population, your Committee is disconcerted by the AMHD's inability to justify its requests for additional funds beyond stating that the Settlement Agreement requires such expenditures.

Repeated requests by your Committee for answers were returned with responses that referenced two reports, the "Implementation Plan for Service Development (IPSD) for Fiscal Years 2002–2005 dated March 15, 2001" and the "Hawaii Needs Assessment Project" report dated November 2000, as the basis of its funding requirements. While there is nothing intrinsically wrong with adhering to these reports, your Committee is concerned by the absence of explanations and details as to how the requested amounts were calculated.

Your Committee finds after reviewing the IPSD, that the IPSD is based on "projections for newly identified or emerging cases in the community as well as projections for the population of consumers currently being served." Since all of AMHD’s requests are tied to the IPSD, the logic that follows is that all requests for funds, including infrastructure support, are based on these projections.

Your Committee directs AMHD to look at actual caseloads and compare them with the projected numbers in order to validate whether they are "on target" with projections. Moreover, based on the projections and assumptions in the IPSD, your Committee is concerned that over-budgeting may occur as a result of the methodology used whereby the focus is on the most severe population case scenario. The funding request for the seriously mentally ill may be based on these higher cost estimates.

It is unclear how the IPSD's $122 million amount (over a four-year period) was derived. Your Committee believes that the basis for AMHD calculations to justify its requests thus far is based on "backing into" the numbers found in the IPSD.

To place this in proper context, if your Committee agreed to the AMHD’s request for funding in the next fiscal biennium, the funding requirement would total $64 million (including an administrative infrastructure support base to support the community-based services).

Your Committee was also unable to determine the basis or assumptions of the 22.5% used to calculate the amount needed for administrative infrastructure. The current division-wide infrastructure includes over 166 vacancies, yet the AMHD has requested an additional 22 temporary positions in fiscal year 2003 for administrative infrastructure support based on the IPSD report. Your Committee directs that the AMHD evaluate its existing vacant positions to address current and future needs before requesting for additional infrastructure support.

Your Committee further questions whether there are adequate service providers available to provide the services (also known as the "capacity issue.") Your Committee does not want to see a "culture of profit" by private providers and contractors as was evident under the Felix Consent Decree, however, the AMHD has failed to provide assurances that the current services provided are effective or efficient.

Your Committee notes that U.S. Magistrate Kevin Chang was appointed on May 17, 2001, by U. S. District Court Judge Ezra as Special Master to oversee the State's compliance with the Settlement Agreement. Your Committee is confident that the Special Master is providing the AMHD with sorely needed guidance, and that the AMHD will soon be able to provide the Legislature with clear articulation of its activities and justification for its expenditures pursuant to the Settlement Agreement.

The State must pay debt service each year as a result of issuing bonds for capital improvement projects. Just as individuals must make mortgage payments, the State must make payments on money it has borrowed. Total debt service payment for fiscal year 2003 will be $439 million, which represents about twelve per cent of the entire general fund budget for the State.

Other mandatory costs include health fund premiums for state employees owed by the State, as the employer of all state employees. Total health fund premium payments for fiscal year 2003 will total nearly $280 million, or about eight percent of the entire general fund budget of the State.

The State must also provide for the retirement of its workers. For fiscal year 2003, the State’s contribution to the pension accumulation fund is $157 million and social security payments are $139 million, totaling $295 million.

These three items alone total more than $1 billion, or nearly a third of the State’s general fund budget.

Your Committee, in consideration of the Department of Agriculture’s continuous general fund reductions and non-general fund transfers to the State treasury, has restored and preserved programs critical for the agricultural industry of Hawaii. Since fiscal year 1995, the department’s budget has shrunk by $4 million, and the number of full-time employees providing agricultural services has declined from 440 positions to less than 250.

Recognizing the importance of diversifying our agriculture industry, your Committee has appropriated over $2.3 million for agricultural development and research. Increased funding for the Hawaii Agricultural Business Corporation Revolving Fund will generate additional revenues for the State and improve Kauai's economy by using agricultural lands and irrigation resources vacated with the closure of sugar plantations. Your Committee also provided additional resources for vital improvements to the infrastructure in the Hamakua subdivision to strengthen the agricultural industry of the island of Hawaii. These two measures will stimulate economic growth in Hawaii.

Your Committee preserved the Sex Offender Registration Program, the Missing Child Center Program, and the Victim Assistance Program--programs previously targeted for elimination in their entirety.

To combat healthcare fraud, funds have been provided for the prevention and prosecution of fraudulent and abusive billing practices that contribute to rising costs of the state Medicaid program and other health care programs. Your Committee also provided for an investigator for the Financial Investigations Unit to maximize federal grant funds. Your Committee has also provided for federal criminal justice grants for victims of crime and crime prevention activities.

Department of Defense

To help combat terrorism, your Committee has provided for new positions in the Department of Defense. These positions will coordinate and plan state anti-terrorism activities and oversee Civil Defense communication systems. Furthermore, your Committee has taken strides to preserve the Department of Defense’s budget to keep funding of Civil Defense, Hawaii Air National Guard, and Hawaii Army National Guard at the highest possible levels.

In regards to maintaining the health and safety of the public, your Committee has provided funds to meet the needs of the Emergency Medical Services (EMS) ambulance services by providing collective bargaining increases totaling $1.64 million for the City and County of Honolulu and for the counties of Hawaii, Kauai, and Maui. Your Committee realizes that the scope of the Health Insurance Portability & Accountability Act (HIPAA) compliance activities is expansive and has appropriated $303,250 to allow for the Department of Health's initial compliance deadline of October 2002.

The Department of Human Services provides critical services to those least able to provide for themselves. The department provides services across the State through 88 locations, allowing easy accessibility for those in need. Recognizing that a reduction in funds for the department would impair its ability to deliver services when needed most, your Committee has been judicious in maintaining existing funding levels of the department.

Two important programs in the department, Temporary Assistance to Needy Families (TANF) and Temporary Assistance to Other Needy Families (TAONF), make up the State’s time-limited welfare programs for adults with children. TAONF is funded entirely by state general funds and provides for two parent families and those families with at least one member who is a non-citizen. Together, these welfare programs have a budget of nearly $50 million from the state General Fund and over $55 million of federal funds. In fiscal year 2001, these programs serviced 19,500 families throughout the State.

Another significant program of our State is the General Assistance (GA) program, funded by a state block grant amounting to approximately $24 million. Every month, an average of 5,100 individuals in Hawaii receive $418, which is the current mandated maximum. Your Committee notes that the number of individuals served by the GA program has been decreasing in recent years. In light of current economic conditions, your Committee has reduced funds for the GA program by $1 million, still allowing the GA program to maintain its monthly benefit payments.

The department’s Med-QUEST Division (MQD) administers the State’s medical assistance or Medicaid programs, which are designed to provide medical care to the low-income population. Your Committee strongly believes that medical care to people with low income should not be reduced and has allowed MQD to continue with its current funding level. Your Committee understands that health care costs have risen tremendously in recent years, making it even more imperative to continue funding of these programs.

The Child Welfare Services (CWS) branch of the department ensures the safety and permanency of children in their own homes or in out-of-home placements. The total budget for CWS is approximately $90 million, which includes nearly $41 million in federal funds. Your Committee recognizes that these services are essential to the well being of children across the State, and has increased spending for this program to help handle the ever-increasing caseload.

Your Committee notes that the department offers numerous other services that provide relatively inexpensive alternatives to nursing homes and other institutions. As such, your Committee did not see fit to reduce the budget for the Adult and Community Care Services branch.

Your Committee understands that further reductions to the Department of Land and Natural Resources may seriously impact the natural resources held in trust by the State, and has provided the funding necessary to ensure that these resources are conserved and protected for the benefit of the people and future generations.

To encourage economic development of commercial fisheries and an environmentally responsible aquaculture industry for Hawaii, your Committee has provided additional funds for the Commercial Fisheries and Aquaculture program. These funds will promote economic development and enhance public welfare by conducting research on bottom fish species and survey the impacts of shoreline fishing on marine sea turtles. Your Committee further has provided $250,000 for the detection and eradication of newly invasive species thus highlighting the importance of preventing future damage to the environment in Hawaii.

To protect and enhance Hawaii’s forest watersheds and unique native plant and animal species, your Committee has appropriated $5.0 million in state and federal funds. These funds will support programs to protect and improve the condition of forests that benefit Hawaii’s water supply as well as enhance the ecosystem to increase the population of Hawaii’s threatened and endangered species.

Department of Public Safety

Your Committee is aware of the legal consequences that may result if the issue of prison overcrowding is not addressed and thus has provided over $2 million to the Department of Public Safety to route 100 additional inmates to out-of-state facilities. In addition, $215,498 has been provided for sex offender treatment programs to better identify problem offenders who should not be released on parole and ready those inmates whose success in treatment may significantly reduce their likelihood to re-offend after release. Since 1988, the number of sex offenders released from prison has doubled while the number returning to prison on new sex crime convictions has steadily decreased to a recidivism rate of zero in the past three years.

Due to the catastrophic events of September 11, the Federal Aviation Administration has required heightened security measures at the airport. To enhance security, your Committee has authorized 36 deputy sheriffs to monitor eight new posts at Honolulu International Airport. These additional law enforcement personnel will enhance public safety at one of the nation’s busiest airports, and the key point of entry for visitors to our islands.

Department of Taxation

Your Committee recognizes the importance of generating revenues to offset decreases in expenditures and has appropriated $25,000 to allow two teams of three senior auditors to be sent to the mainland. Your Committee anticipates a minimum of an additional $3.5 million in projected revenue from audits performed.

Currently, some of the greatest areas of concern are our airports and air safety in general. Your Committee understands the importance of heightened security and has provided an additional $10 million to the Department of Transportation to assist in addressing security needs at all airports statewide. To maintain safety on our State’s runways your Committee has provided over $4 million for specialized fire trucks to replace the current aging fleet. This will ensure compliance with federal regulations to keep our airports open for travel.

University of Hawaii

Your Committee recognizes that the University of Hawaii, the State’s only public higher learning institution for students statewide, is also a nationally-recognized research institution and therefore a major economic contributor to our local economy.

Last year, the Legislature appropriated a one-time lump-sum amount of $6 million for fiscal year 2001-2002 to the University of Hawaii with the caveat that it cannot be expended on non-recurring costs--with the exception of $1,009,421 for the establishment of the Mauna Kea Management Authority and $1,000,000 for the Department of Information and Computer Sciences. Your Committee was disappointed to learn early this year that the remaining $3,990,579 was expended on recurring costs such as hiring personnel and establishing new programs.

While represented as a "flat budget request", in reality the University has requested an additional $6 million for fiscal year 2002-2003. Not only did this skew the University’s assertions of no-growth in general fund assistance, it has placed undue pressure on your Committee to take into account that without the additional $6 million, the programs created may be forced to end—including eliminating filled positions. Furthermore, your Committee is concerned that these employees may or may not have been duly informed of the status of the funding that initially created their positions. Given that, your Committee strongly recommends that the University be prepared to look for alternative methods of funding if it wishes to continue these initiatives.

Your Committee has decided to deny the University’s $6 million request in additional funding at this time. However, additional funding has been appropriated in H.B. No. 2564, H.D. 2, S.D.1.

Your Committee also recognizes that the University is still in the early stages of solidifying its autonomous status and will inevitably take additional time to become more financially self-sufficient. Your Committee appreciates the efforts of the University’s new administration to continue the hard work of its predecessor. It will therefore remain open and flexible on the needs of the University and plans to continually review this situation until the end of this session.

During the Regular Session of 2001, the Legislature appropriated $500 million for various construction projects. Another $100 million was appropriated during the Third Special Session of 2001, bringing the total amount of general obligation bond funded projects authorized for the fiscal biennium to $600 million.

In addressing the Governor's additional $900 million dollar CIP request, your Committee considered that a potential $1.5 billion in new construction projects may prove too large an investment in capital at one time. Not only would this saddle the State with too much debt, it may create artificially high demand, which may in turn cause project bids to increase. Secondly, careful consideration must be given to correlating increases to operating costs for any new facilities constructed. Thirdly, while public funded construction may serve as a means to stimulate economic growth, there are some indications that privately-funded construction projects are on the rise. Providing additional tax credits as incentives for such projects may be the more appropriate method to stimulate growth in this sector.

However, your Committee recognizes that opportunities exist where it makes sense to invest in the State’s physical infrastructure. As such, your Committee finds it reasonable to authorize an additional $360 million in new expenditures on construction. Your Committee views any simulative effect this additional authorization of construction may have on the economy as an added benefit of sensible investment in the State’s infrastructure.

Almost three-fourths of the additional construction expenditures your Committee authorizes invest directly in the State’s educational infrastructure. Your Committee sets aside $215 million for the repair, maintenance, and improvement of our State’s public schools. An additional $32 million is also provided by your Committee for the repair and upgrade of University of Hawaii facilities. Much of the remaining new construction expenditures your Committee provides are for the health and safety needs of various facilities and institutions statewide.

Your Committee approached the onerous task of the review of this supplemental budget request with great vigor. In the end, your Committee believes it was a healthy, necessary exercise, as continual and thorough budget review only leads to a more efficient and effective product for the public.

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. 1800, H.D. 1, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 1800, H.D. 1, S.D. 1, and be placed on the calendar for Third Reading.