Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Sir:

Your Committee on Conference on the disagreeing vote of the House of Representatives to the amendments proposed by the Senate in H.B. No. 1800, H.D. 1, S.D. 1, entitled:

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

The purpose of this bill is to amend the General Appropriations Act of 2003 (Act 200, Session Laws of Hawaii 2003), which appropriated funds for the operating expenses and capital improvement costs of the Executive Branch for the fiscal biennium from July 1, 2003, through June 30, 2005.

Through this Supplemental Budget, your Conference Committee has met its fiduciary responsibility to ensure the most prudent, efficient, and effective distribution of state resources. While your Conference Committee continues to affirm that government cannot be all things to all people, this budget provides for the priorities of the people of Hawaii while maintaining fiscal discipline.

At its meeting on December 22, 2003, the Council on Revenues (Council) revised its general fund tax revenue growth rate forecast for fiscal year (FY) 2003-2004 from 6.2 percent to 5.2 percent, based on a review of tax revenue growth trends. Its forecasts for general fund tax revenues for FY 2004-2005 and beyond remained unchanged.

At its subsequent meeting on March 10, 2004, the Council reaffirmed its forecast of general fund tax revenues for FY 2004-2005 and beyond. The Council’s rationale was that the factors that drive the economy--visitor arrivals, construction, real estate activity, and consumer spending--were all very strong.

Although the Council provided relatively unchanged projections, your Conference Committee could not ignore the extremely low tax collections received to date. While the economy appears to be growing rapidly, the cumulative growth rate in actual tax revenue collections to date is roughly 3 percent, a situation that troubles your Conference Committee.

As the effects of recent events such as the war with Iraq and the severe acute respiratory syndrome (SARS) outbreak have subsided, it appears that Hawaii's economy has stabilized and is beginning its progress toward recovery. According to the latest figures from the Department of Business, Economic Development, and Tourism, unemployment in the state fell to 3.9 percent in January, and an all-time high of 603,200 workers are currently employed. Nominal personal income has risen by $1,900,000,000, or 5 percent, and wages and salaries in the private sector grew roughly 6 percent.

Furthermore, factors are pointing to a recovery in the international stock markets. Indicators suggest that the corporate restructuring and governmental reforms in Japan's banking sector are allowing Japan to emerge from its decade-long economic stagnation. In the fourth quarter of 2003, Japan's economy expanded by 1.7 percent, its fastest growth rate in 13 years. As bad bank loans have been cleared out, investments in the securities markets have increased, allowing the benchmark Nikkei stock average to hit its highest closing point in 20 months. Despite the decrease in international arrivals, Hawaii has benefited from the strength of the yen relative to the dollar, as Japanese visitor spending has risen with increases in the purchasing power of the yen.

Although economic indicators seem promising, your Conference Committee recognizes the continued existence of risks in the geopolitical environment that could affect the economy at a moment's notice. The situation in Iraq remains extremely unstable, North Korea continues its provocative statements regarding nuclear arms, and the threat of terrorism is omnipresent. These factors could disrupt the global economy and affect the leisure travel that currently drives Hawaii's economy.

Despite the positive economic outlook, your Conference Committee is also concerned about the future impact of the diminished purchasing power of Hawaii's residents. According to the federal Bureau of Labor Statistics, the rate of inflation in Hawaii has risen 2.9 percent, exceeding the national average of 2 percent. Recently, the median price for a single-family home on Oahu rose to a record $410,000. Regular gasoline prices have hovered around $2 a gallon, 19.4 percent higher than in the second half of 2002.

Your Conference Committee believes that the signs of economic recovery reflect prudent steps taken by the Legislature in recent years, which have set the stage for a vibrant, diversified economy. Continuing efforts to maintain tax reductions, protect our consumers, and streamline government remain critical to economic stimulation.

Many states expect to finish the current fiscal year with only one-tenth of the budget shortfalls they carried at this time last year, and 30 states estimate ending the year with a modest surplus. At the same time, some states are projecting more than $35,000,000,000 in budget shortfalls for FY 2004-2005. To fill these gaps, states have increased fees, tapped into rainy day funds, and cut government services. They have also received some relief from federal allocations providing $10,000,000,000 for state Medicaid expenses and $10,000,000,000 for other purposes.

According to the National Conference on State Legislatures, ten states, including Hawaii, have seen their fiscal health deteriorate since last November. Hawaii and 16 states reported that spending for Medicaid or other health programs continues to exceed prior budgeted amounts. In addition, these states are facing another round of budget shortfalls. Although budget shortfalls are less severe than in earlier years, the shortfalls are occurring at a time when many states, including Hawaii, have already depleted reserves, nearly exhausted one-time sources of funding, and imposed repeated budget reductions.

Early in the legislative session, the Director of Finance outlined the four budgeting principles that this Administration recommended in developing its spending plan:

Your Conference Committee generally agrees with these principles and developed its own Supplemental Budget and six-year general fund financial plan based on these shared principles.

Your Conference Committee labored to craft a balanced budget that is responsive to the needs and demands of Hawaii’s communities. Your Conference Committee has balanced the budget while ensuring the availability of adequate resources to:

• Put students first by reinventing our public school system with a focus on the factors that truly improve student achievement;
• Fight the crystal methamphetamine (ice) crisis through comprehensive and balanced initiatives to toughen criminal laws, provide treatment and prevention services, and empower our communities; and
• Make prescription drugs affordable and accessible to as many as 300,000 persons who lack adequate medical insurance by approving the Hawaii Rx Plus Program.

Providing the tools required to educate the children of Hawaii has been a focal point for the 2004 legislative session, during which the Legislature has carefully considered numerous proposals for education reinvention and improvement.

The results of a recent statewide survey by the Honolulu Advertiser mirrored what your Conference Committee and the House and Senate Committees on Education felt necessary to create true educational improvement. First on the list of priorities for improving education was providing enough textbooks for students, followed by creating smaller classes in the primary grades, making needed repairs to school buildings and equipment, providing computers for students, and giving principals more control over how money is spent. These widely-supported, common sense approaches have also been identified by recognized education researchers as critical factors in improving student achievement.

These priorities reflect what the Department of Education (DOE) and the Board of Education (BOE) found to be vital components of their efforts and overall vision for improving public education in Hawaii. In an effort to support the DOE and the BOE’s continuing efforts to improve and reinvent our schools, your Conference Committee and the House and Senate Committees on Education, funded many of the higher-priority items requested by BOE that were not included in the Governor’s submittal.

BOE had asked the Governor to include an additional $51,000,000 in the Executive Supplemental Budget. However, only $3,700,000 was approved for submittal to the Legislature. Your Conference Committee and the House and Senate Committees on Education provided an additional $26,000,000 for DOE in FY 2004-2005 to address the immediate needs of our schools and to further DOE’s long-term plan and vision for public education.

The primary goal of the Legislature’s educational initiatives is to provide the resources and the environment necessary for student achievement. Toward that end, your Conference Committee and the House and Senate Committees on Education developed a comprehensive funding approach, making the following appropriations through this bill and S.B. No. 3238, C.D. 1:

• $2,500,000 for math textbooks and learning materials, almost doubling the current appropriation for schools;

• $2,143,350 to lower the class size for kindergarten, first grade, and second grade;

• $1,743,900 to establish Parent-Community Networking Centers (PCNCs) at every school;

• $480,000 for pay differentials and reimbursements for teachers who earn National Board Certification;

• $264,769 for the Hawaii Teachers Standard Board;

• $500,000 to increase the ability of the University of Hawaii College of Education to produce highly-qualified teachers and administrators for our public schools;

• $460,000 for full-time high school student activities coordinators;

• $211,140 for 15 additional school security attendants to provide increased campus monitoring and supervision at 13 schools;

• $347,299 for equipment and resources for new facilities;

• $12,262,811 to raise the federal fund ceiling to reflect increased federal revenues under the federal No Child Left Behind Act and the Individuals with Disabilities Education Act; and

• $25,886,070 for charter schools, based on the per pupil formula established under Act 203, SLH 2003.

These appropriations represent the Legislature's continuing commitment to fund quality education in our public schools. The $2,500,000 appropriated for textbooks boosts the total amount available to purchase textbooks and instructional materials statewide to over $5,000,000 in FY 2004-2005. The $2,000,000 appropriated to lower class size will allow 75 additional teachers to be hired and will bring more attention to students' needs, especially during their critical formative years in kindergarten and first and second grade. The over $1,200,000 appropriated for teacher education and advancement will help to develop teachers of the highest quality, and the $1,743,900 to expand PCNCs at every school will allow greater parent involvement in the education of their children.

While your Conference Committee and the Senate and House Committees on Education believe that the complex area structure recently created to decentralize the old DOE district system will serve as an excellent base on which to build our educational reinvention efforts, more authority and accountability are needed at the school level. This authority and accountability should extend to school budgeting and expending funds.

It is the intent of your Conference Committee and the House and Senate Committees on Education to empower principals to act as their schools’ educational leaders and to work together with the school community. To accomplish this, the Legislature provided $500,000 for a Hawaii Principals Academy, $400,000 for recall days for principal training, $183,780 for the Administrator Certification of Excellence (ACE) program, $400,000 for pilot school community councils and the development of academic and financial plans prior to statewide implementation of the weighted student formula, and $350,000 for School Community Council training.

Hawaii is known for equity in public education funding, largely due to the State’s organization under a single statewide district, which enables fair distribution of moneys to our public schools. In Hawaii, the poorest of communities receive the same level of resources as the wealthiest communities. In other states with local revenue sources, such as property taxes, there generally are large financial disparities between school districts in poorer neighborhoods and those in more affluent areas. To take the equity of Hawaii's public education funding one step further, your Conference Committee and the House and Senate Committees on Education have embraced a weighted student formula to allocate resources based on the needs of individual students, and to serve as the cornerstone of efforts to improve the delivery of educational services to our children.

To foster implementation of a weighted student formula, your Conference Committee provided $10,000 to fund the operations of a Committee on Weights within DOE to determine student weights. $2,000,000 has also been appropriated to facilitate field support, security and privacy, and training for the information technology infrastructure required to provide schools with a firm foundation for their reinvention efforts.

To help DOE prioritize school repair and maintenance expenditures and expedite their completion, your Conference Committee and the House and Senate Committees on Education consolidated certain responsibilities that were divided among various state agencies. The user and expending functions and funds for school repair and maintenance were transferred from the Department of Accounting and General Services (DAGS) to DOE. This will streamline administration of these functions and allow DOE to better address one of the major concerns of the Legislature, BOE, DOE, parent, and teachers: the quality of the physical learning environment.

In summary, your Conference Committee and the House ad Senate Committees on Education worked with DOE and BOE to prioritize initiatives and successfully develop workable educational reinvention measures that address the needs of the children in our public schools. Over $26,000,000 in additional funding has been provided to DOE for FY 2004-2005 along with initiatives that will reduce the bureaucracy that hinders school repair and maintenance, and the performance of public school functions. These measures represent only the opening notes of an educational initiative that will provide long-term benefits for our children and the people of Hawaii.

Your Conference Committee recognizes and commends the work of the Joint House-Senate Task Force on Ice and Drug Abatement (Ice Task Force). The Ice Task Force traveled statewide to research the issues and listen to diverse communities. These communities told the Ice Task Force that the status quo is unacceptable. Over 6,000 ice users need treatment, and of these, fewer than 3,000 are able to access publicly funded treatment. The Ice Task Force found that women of childbearing age, pregnant women, parents with young children in the home, and Hawaiians are underserved, and should be given priority in receiving publicly funded substance abuse treatment.

Your Conference Committee has identified additional resources to begin the serious effort required to deal with the crystal methamphetamine crisis that has burdened every community in our state. To respond to the call heard clearly from communities across the state, your Conference Committee appropriated funds, through H.B. No. 2004, C.D. 1, for a multipronged approach to the crisis. This approach improves and extends the State’s drug use prevention, drug abuse treatment, and public safety programs.

Appropriations in H.B. No. 2004, C.D. 1, include:

• $4,000,000 for adult treatment services;
• $3,000,000 for school-based treatment programs in high schools and middle/intermediate schools;
• $2,000,000 for substance abuse prevention;
• $500,000 for treatment of first-time, nonviolent drug offenders and any such drug offender sentenced to probation under sections 706-622.5 and 706-625, Hawaii Revised Statutes;
• $1,499,688 for the introduction of drug court programs in the second and third judicial circuits;
• $1,200,000 for the expansion of drug court programs, including those of juvenile and family drug courts;
• $400,000 as a grant-in-aid to the various counties to fund community-based substance abuse prevention programs;
• $300,000 for a study and analysis of the effects of clandestine methamphetamine laboratories on the environment;
• $125,000 for the coordination of community-based drug abatement and mobilization efforts;
• $75,000 for the Canine Drug Interdiction Program; and
• $100,000 in grants-in-aid to each county to fund grassroots community efforts to sustain their anti-drug campaigns.

Your Conference Committee has supported the efforts of the Legislature to refine and improve the Hawaii Rx Program, renamed the Hawaii Rx Plus Program (Rx Plus) in S.B. 3237, C.D. 1. Rx Plus employs the purchasing power of consumers to negotiate lower prices and rebate agreements from pharmaceutical companies for residents who lack drug coverage under Medicaid or other government or private programs.

Rx Plus will provide drug coverage for people with incomes up to 350 percent of the federal poverty level, approximately $75,880 for a family of four, or $37,450 for a single person. Eligible Hawaii residents will apply for a Hawaii Rx Plus card and use it to qualify for reduced drug prices between 10 and 60 percent below the retail price at their local participating pharmacy.

Your Conference Committee has put the people of Hawaii first by taking immediate action to address the issues of education reinvention, ice use abatement, and affordable prescription drugs--issues of primary importance to Hawaii's people.

In addition to providing the means to address the priorities of the people of Hawaii, your Conference Committee has also provided resources to address various other statewide concerns.

Your Conference Committee diligently reviewed the requests of the Department of Human Services (DHS) and arrived at equitable decisions based on departmental and public testimony. DHS is tasked with providing high-quality social services for those least able to help themselves. Your Conference Committee acknowledges the importance of the employees and programs within DHS and the individuals whom they serve. Accordingly, your Conference Committee has provided the needed fiscal resources to continue funding critical social service programs including those serving individuals under QUEST, the Compact of Free Association, foster care, adult and community-based care, and services for the medically uninsured.

In difficult financial times, low-income individuals are forced to go without basic health insurance. Your Conference Committee realizes that since QUEST is the primary safety net that provides low-income individuals with the basic medical services they need, it is imperative that the State provide funding at the highest possible level. Your Conference Committee is in full support of providing additional funds needed for QUEST due to higher enrollment and capitation rates, and has provided an additional $25,800,000 in FY 2004-2005 to allow DHS to deliver basic health insurance to qualified residents.

The State spends approximately $32,000,000 annually to cover the medical care costs of individuals under the Compact of Free Association and agrees that it is in the best interest of the State to continue providing medical services to Micronesians and Marshallese living in Hawaii. Your Conference Committee has accordingly provided $7,300,000 in general funds for FY 2004-2005 to help defray costs in areas such as health and social services for individuals who receive services under the Compact of Free Association. A majority of the funds, $6,700,000, will be used to offset high enrollment and capitation rates associated with the Hawaii QUEST managed care program. The remaining $600,000 will fund services to approximately 500 eligible recipients in the aged, blind, and disabled population.

Abused and neglected children are a primary concern of your Conference Committee. These children have the right to live in safe homes and receive adequate care and supervision. Your Conference Committee has provided an additional $3,600,000 to assist the State with payments made for foster care, higher education, difficulty-of-care, and subsidies to facilitate adoption for children with special needs. The increased child-out-of-home payments will care for approximately 700 children who will need services in FY 2004-2005.

Your Conference Committee realizes that the Adult and Community Care Services Branch (ACCS) is instrumental in sustaining a functional population of semi-dependent adults who are able to contribute to our community. One of the programs central to achieving success in this arena is the Residential Alternatives Community Care Program. Your Conference Committee has provided $500,000 for home and community-based medical care services to persons with disabilities and chronic illnesses as an alternative to more costly institutionalization. An additional $500,000 is also allocated in H.B. 2796, C.D. 1, for these purposes.

Another core program of ACCS is the Chore Services Program (CSP), which provides Hawaii’s rapidly aging adult population an alternative to the more costly institutionalized care offered by hospitals and community-based service centers. CSP also provides in-home social, health, and protective services to this population. Your Conference Committee believes that the services provided by CSP are critical in helping vulnerable dependent adults sustain an active lifestyle. As a result of your Conference Committee’s concern for disabled adults and the 675 individuals on CSP's waitlist, your Conference Committee has provided $767,850 to care for approximately 150 individuals in need of services. The Legislature also provided $100,000 in H.B. No. 2796, C.D. 1, to ensure that in-home services will be provided to an additional 40 recipients.

Your Conference Committee recognizes that the uninsured population must be dramatically reduced within the State. The Hawaii Uninsured Project in 2003 projected there are approximately 14,000 uninsured children within the State. Additional studies indicate that increasing the population of healthy keiki can reduce future medical expenses borne by all taxpayers. Your Conference Committee believes that, even under fiscal constraints, it is important to provide medical insurance to individuals and specifically to children who meet eligibility requirements for QUEST. Therefore, your Conference Committee provided an additional $4,800,000 for medical insurance for approximately 2,000 adults without children, and children who are currently without health insurance. Your Conference Committee strongly believes that insuring children is a cost-effective approach to avoiding additional medical costs borne by community health centers and emergency hospitals.

Your Conference Committee affirms its support for our most vulnerable populations, including those suffering from mental illness and substance abuse and reaffirms its commitment to ensuring that the health and safety needs of all of Hawaii’s people are met despite the State’s limited resources.

Your Conference Committee addressed these needs by providing the Department of Health’s (DOH) Adult Mental Health Division (AMHD) with $14,782,032 for FY 2004-2005 to assist individuals suffering from mental illness. The funds provide outpatient community-based services such as case management services, crisis intervention and rehabilitation services, as well as community housing services. Included in the funding amount is $4,036,902 in general funds for additional bed space to accommodate patients being transferred or diverted from the Hawaii State Hospital (HSH). Additionally, your Conference Committee provided for the conversion of 66 temporary positions to permanent status for HSH to meet its staffing ratios as required by the federally imposed Remedial Plan for Compliance.

The Legislature further provided $1,900,000 from the State’s Emergency and Budget Reserve Fund, otherwise known as the "Rainy Day" fund for healthcare services for uninsured individuals. The funding, provided in H.B. 2796, C.D. 1, will expand medical, dental, and behavioral health services for the uninsured and provide additional funding for the 11 community health centers throughout the state. The funds appropriated are in addition to the $2,100,000 already budgeted for the same services in DOH's base appropriation level.

In addition, your Conference Committee acknowledges the enormous progress made by the Child and Adolescent Mental Health Division in meeting the mandate of the Felix Consent Decree for children and youth with severe mental disorders.

Your Conference Committee thoughtfully considered the need for the Hawaii Health Systems Corporation’s (HHSC) level of general fund subsidy for FY 2004-2005. After much deliberation, your Conference Committee saw fit to fund HHSC’s supplemental budget request of $31,220,000 in general fund subsidy to support the State’s twelve safety-net healthcare facilities. This general fund subsidy is in addition to the $65,000,000 increase in special funds also approved by your Conference Committee. Your Conference Committee readily acknowledges that the constraints placed on HHSC, coupled with the low reimbursements from payors and the absence of Medicaid Disproportionate Share Hospital payments, make it unrealistic to assert that HHSC should be self-sufficient. Furthermore, these factors and others have hampered HHSC from attaining long-term solvency.

HHSC recently acknowledged that it "needs to continue to pursue opportunities to improve its policies and practices to increase revenues and reduce expenses wherever possible and appropriate, and will do so." Your Conference Committee appreciates HHSC’s acknowledgement of its shortcomings and the Legislature looks forward to reviewing HHSC’s progress in meeting its fiduciary responsibilities.

Your Conference Committee believes that great strides have been made by HHSC in resolving the myriad concerns and issues concerning HHSC that have plagued the Legislature the past few sessions. Looking forward, your Conference Committee is optimistic that a viable plan of action can be developed in the near future through the collaboration of executives and board members of HHSC, and other stakeholders. Your Conference Committee further believes that before the Legislature provides HHSC with any incremental increases of autonomy, HHSC needs to articulate its own vision for its future. Your Conference Committee hopes that this vision will lead to HHSC incrementally reducing its dependence on a state general fund subsidy and achieving greater autonomy.

Toward this end, your Conference Committee recommends that the executives of HHSC provide the Legislature with a draft blueprint outlining HHSC’s plan and including measurable outcomes. For example, in anticipation of increased autonomy, HHSC should indicate the mechanisms that it will have to implement to address anticipated changes to its current structure. The plan should also address issues relating to collective bargaining for certain HHSC employees, and HHSC personnel rules. Once this draft blueprint for change has been outlined in detail, it should serve as the roadmap for HHSC.

Your Conference Committee further recommends that HHSC's executives and board members collaborate, develop, and present to the Legislature within the next few months, prior to the 2005 legislative session, this detailed strategic action plan outlining HHSC’s vision for its future. Your Conference Committee agrees with HHSC that the recommendation to establish an ad-hoc committee is innovative, and supports the creation of such a committee.

Your Conference Committee embraces the notion that the time for positive change is at hand. The Legislature looks forward to working with HHSC’s management, board, patients, physicians, and other stakeholders in developing a viable plan of action that will empower HHSC with incremental increases of autonomy that will benefit both HHSC and the State.

In addition to the funding appropriated for educational reinvention, the Legislature provided funding to help improve all aspects of a child’s experience in Hawaii’s public schools, including:

• $1,000,000 for school restroom supplies for statewide;

• $2,500,000 to meet increased costs of transportation;

• $3,464,418 for the A+ Afterschool program;

• $1,324,779 for coaches’ salaries, athletic trainers, and school athletic programs; and

• $1,000,000 for additional library books and materials for 51 public libraries statewide.

The DOE serves over 180,000 students and is tasked with the mission of making quality education available to all of Hawaii's children. Your Conference Committee recognizes that facilities provide the centerpiece around which all educational activities exist.

Your Conference Committee approved an additional $180,000,000 for deposit to the State Educational Facilities Improvement Special Fund. Of these funds, $80,000,000 is for the construction of new public school facilities and the improvement and upgrade of existing facilities. The remaining $100,000,000 is for major, bond-financed repairs to protect the structural integrity and aesthetics of school buildings. Of this amount, $7,000,000 are previously authorized funds that are being transferred from the DAGS to the DOE. These new and reassigned moneys will be used to make aggressive improvements to the State's school campuses and enhance the environment in which Hawaii's children learn. Placing these moneys under the control of DOE will also improve the overall efficiency and accountability of the DOE school repair program.

Your Conference Committee recognizes the University of Hawaii (UH) as an important component in transforming and diversifying the state’s economy. Your Conference Committee believes that UH will play a vital role in the current and future economic health of Hawaii and appropriated the funds necessary to achieve this goal.

Recent international instability has caused filming in Hawaii to increase due to U.S. production companies electing to not film in foreign countries. To capitalize on and further increase film production in Hawaii, your Conference Committee provided funding to create the Academy for Creative Media, which will help establish UH’s film school and generate a new source of revenue for the State from the film and television industries.

To position Hawaii as a world-class leader in medicine and medical research, your Conference Committee provided an additional 36 positions and $3,525,019 to open and operate UH's John A. Burns School of Medicine (School) and Health Sciences Library. One goal of this new campus, located in Kakaako, is to attract additional research funding and grants for UH’s biomedical department, which has steadily gained international attention. This appropriation will cover the facilities’ core operating costs to allow a reasonable start-up phase and will prevent any negative impact on the School’s core educational programs or on the current high growth rate in its extramurally funded research and training programs.

Furthermore, your Conference Committee provided an additional $368,097 to expand the apprenticeship-training program offered at community colleges to increase the pool of apprentices for the Pearl Harbor Shipyard as well as the statewide pool of construction workers.

To enhance the learning environment for students at UH's campuses, your Conference Committee approved an additional $25,000,000 for the repair, upgrade, and improvement of UH facilities and infrastructure. Your Conference Committee also approved an additional $2,500,000 for other high priority health and safety projects requested by the Board of Regents but excluded from the Executive’s budget recommendations. Moreover, your Conference Committee approved an additional $54,000,000 in FY 2004-2005 for various other projects to improve the UH system.

The paramount concerns of the Department of Public Safety (DPS) for FY 2004-2005 include the need to address overcrowding conditions within correctional facilities, improve the physical condition of current facilities, and rehabilitate inmates before releasing them back into the community.

Your Conference Committee worked to accommodate DPS's request for funds to transfer additional inmates to out-of-state facilities and the Federal Detention Center (FDC) despite fiscal constraints that were exacerbated by the increasing demands of other executive departments.

Your Conference Committee understands the constraints under which the department operates as it works to mitigate the overcrowding in our prisons. Your Conference Committee provided an additional $4,500,000 for the transfer of additional inmates to out-of-state facilities and to the FDC. In making this appropriation, your Conference Committee kept abreast of weekly prison population statistics provided by DPS and notes that the populations at out-of-state facilities and particularly at FDC consistently remained below the level appropriated to DPS. For example, at FDC, the average population remained at just nearly half the number of beds appropriated. While your Conference Committee recognizes that this discrepancy is the result of a change in management at the FDC and its strict screening of inmates prior to their acceptance, DPS should continue its work to reconcile this difference.

Your Conference Committee has also provided an additional $1,250,000 to address increases in the basic daily costs for inmates currently housed at out-of-state facilities and at the FDC on Oahu. Existing contracts with out-of-state facilities stipulate an annual increase in the basic daily fee by the greater of either 2.5 percent or the percent change in the Consumer Price Index for Urban Consumers. Accordingly, the contract to house Hawaii inmates in the FDC on Oahu specifies an annual increase in basic daily fees by approximately 2.25 percent. Your Conference Committee notes that another contract with Corrections Corporation of America to house inmates in Arizona will expire in June 2004, and negotiations that are under way between DPS and Corrections Corporation of America could determine whether the State will realize future cost savings or face increases in the cost of housing inmates out-of-state.

Your Conference Committee also provided $934,407 to:

• Hire seven new permanent deputy sheriff positions for the expansion of the Kauai Fifth Circuit Court and Kauai section of the Sheriff Division; and

• Create a new Inmate Release Unit in response to a court settlement agreement that ensures that all offenders under the care and custody of DPS are released in a timely manner in strict accordance with applicable court orders. For the establishment of this unit, your Conference Committee provided $264,329 and five new permanent positions, which include one Inmate Release Administrator and four legal assistants.

Too often, inmates and parolees are released from prison only to return again. Your Conference Committee also appropriated $500,000 for treatment programs for inmates and parolees to help break this cycle.

Your Conference Committee believes that funding both housing and treatment for inmates will contribute markedly to the achievement of DPS's main objectives, which include tackling prison overcrowding, providing adequate inmate treatment and job development services, and most importantly, ensuring public safety.

Your Conference Committee recognizes the important role of the Department of Defense (DOD) in providing safety, welfare, and defense statewide. To help fight the "War on Terror," your Conference Committee has provided DOD with key personnel and funding to continue the defense of these islands.

The Hawaii Air National Guard (HIARNG) protects Hawaii’s people and provides combat-ready units that can respond to any national contingency such as war, peacekeeping missions, or nation building operations. Your Conference Committee recognizes the importance of supporting military units that must maintain a high level of readiness. Therefore, your Conference Committee provided an additional $633,000 for increased utility and operational expenses for various HIARNG facilities.

Your Conference Committee has also approved the addition of four personnel to maintain and upkeep the Regional Training Institute for the Hawaii Army National Guard at Bellows Air Force Station in Waimanalo. Your Conference Committee believes that well-maintained military sites are necessary for the vigilant protection of our state.

Hawaii’s unique, isolated island environment makes it a potential target for terrorist attacks. To keep our nation safe, the United States Coast Guard enacted tougher security regulations for ports and harbors across the country. Your Conference Committee approved approximately $700,000 in additional funds to enhance security at various harbors to comply with these regulations. In preparation for heightened security due to a terrorist attack or other event, your Conference Committee provided an additional $3,500,000 for extra security measures.

A clean environment is very important to our island community. In the past, our state harbors have been dumping grounds for waste and chemicals. To protect our environment and keep our waters clean, your Conference Committee provided an additional $280,000 for hazardous waste disposal for Honolulu Harbor and Kewalo Basin.

Your Conference Committee provided $4,000,000 for the implementation of the Hawaii Invasive Species Council (HISC), a statewide pilot project coordinating invasive species prevention, control, research, and outreach programs. The Department of Land and Natural Resources (DLNR) will be the lead agency in this partnership that includes other state departments, as well as federal, county, and private entities, all working together toward this vital goal of preserving and protecting Hawaii’s resources and natural beauty. HISC will assist in preventing new invasive species from entering the State as well as preventing the spread of existing invasive species. In addition to protecting Hawaii’s fragile ecosystem, this program will save millions of dollars that would have been spent on the eradication and control of pests entering the state.

Your Conference Committee provided for the conversion of the operations of the Bureau of Conveyances from general to special funds. Act 125, Session Laws of Hawaii 2002, amended the amount of document recording fees deposited into the Bureau of Conveyances Special Fund for this purpose. The Legislature will closely monitor the program to ensure that excessive expenditures of non-general funds do not occur.

Your Conference Committee recognizes the need to promote the safe and responsible use of Hawaii’s natural resources, which is also the mission of the Division of Conservation and Resources Enforcement (DOCARE). Your Conference Committee provided an additional $100,000 to cover the overtime expenses of DOCARE officers. This will ensure that even our isolated and remote areas are patrolled during holidays and weekends.

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. As such, your Conference Committee believes an investment in Hawaii's State Park System is prudent. To this end, your Conference Committee provided an additional $14,000,000 for improvements to state parks to enhance park users' experience of Hawaii's special environment and allow them to learn more about its unique development. 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.

In preparing the budget for DAGS, your Conference Committee has sought to facilitate efficiencies in the use of state resources, focus on core programs, and provide for basic needs and services.

Your Conference Committee has provided additional funds for the operation of the No. 1 Capitol District Building. These funds are for increases in utility costs associated with the No. 1 Capitol District Building.

Your Conference Committee also increased the ceiling for the Surplus Federal Property Fund to take advantage of cost savings associated with the purchase of vehicles from the federal government’s Fleet Sales Program. This increase will allow the department to adequately meet the needs of state and county agencies, eligible nonprofit organizations, and eligible 8A minority-owned businesses.

Your Conference Committee also provided funds for the DAGS Physical Plant Operations and Maintenance Program, which supports the DOE by providing administrative, technical, and trades support to keep school buildings and facilities in good condition. The funding provided is for increases in maintenance contracts for air conditioning maintenance, elevator maintenance, and refuse pickup for eleven new schools that have opened since 1998.

Your Conference Committee also provided an additional $2,200,000 for increases for risk management mitigation services and coverage to ensure the protection of the State against catastrophic losses.

Your Conference Committee has provided adequate appropriation levels for the Department of Commerce and Consumer Affairs (DCCA). These levels greatly exceed the levels formally requested by the Administration but are consistent with DCCA's reported requirements.

To determine an appropriate funding level, your Conference Committee asked DCCA to provide a list of spending requirements for FY 2004-2005. Despite not receiving formal requests approved by the Administration, your Conference Committee has granted all funding appropriations informally requested by DCCA, including all increases in spending.

The methodology used by DCCA and your Conference Committee to determine appropriation levels was to take the recently completed FY 2002-2003 appropriations as a base spending level. Your Conference Committee then added to this base all of the new spending initiatives that DCCA documented. For example, in FY 2002-2003, the Cable Television Division spent $397,456. By using FY 2002-2003 as a base, your Conference Committee then added on all spending increases that DCCA identified. This included authorization for increased spending for personnel ($75,593), I-NET ($500,000), consulting services ($100,000), the public, educational, and governmental (PEG) pilot project ($800,000), and other expenses such as supplies, telephones, and advertising ($18,389). The total appropriation of $1,891,438 for the Cable Television Division for FY 2004-2005 is well above the amount authorized last year in Act 200, Session Laws of Hawaii 2003. When the DCCA was unable to document planned expenditures for programs up to the authorized levels for FY 2004-2005 provided by Act 200, Session Laws of Hawaii 2003, your Conference Committee converted the means of financing from special funds to general and did not reduce the appropriation, despite the lack of justification for the appropriation levels.

Below is a table that shows the FY 2002-2003 actual expenditures for each program and the corresponding FY 2004-2005 general fund appropriation:

It is the hope of your Conference Committee that DCCA will exercise fiscal discipline to ensure that expenditures are not excessive and remain in line with revenues collected. In addition, your Conference Committee hopes that in the future DCCA will be more cognizant of the fact that if spending is contained then fees can be reduced accordingly.

Your Conference Committee has allocated the limited available resources of the State to meet its most critical needs, namely the reinvention of our education system, ice use abatement, and affordable prescription drugs. The appropriations contained herein comprise a thoughtful spending plan that reflects a balanced approach to addressing the important priorities of our communities without any tax increases.

As affirmed by the record of votes of the managers of your Committee on Conference that is attached to this report, your Committee on Conference is in accord with the intent and purpose of H.B. No. 1800, H.D. 1, S.D. 1, as amended herein, and recommends that it pass Final Reading in the form attached hereto as H.B. No. 1800, H.D. 1, S.D. 1, C.D. 1.