Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2004

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 measure 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 (FB 2003-2005).

In December 2003, the Governor submitted to the Legislature a Supplemental Budget that set forth new spending limits for the Executive Branch for fiscal year 2004-2005 and beyond. As proposed by the Governor, including amendments requested on March 4, 2004, this Supplemental Budget increases annual state spending by approximately $311 million in tax dollars and creates two hundred seventy-one more permanent government jobs. Of that amount, $68.6 million are in new yearly general fund expenditures and 202.49 permanent positions are paid for by the same source. In addition, it includes approximately $258 million in borrowed funds to conduct statewide capital improvement projects.

In total, these new appropriations bring Executive Branch expenditures to over $7.9 billion dollars annually, or roughly a four per cent increase over the current fiscal year.

At the same time, the Governor also submitted to the Legislature her six-year general fund financial plan. At that time, the Governor was relying on revenue projections made by the State's Council on Revenues back in September 2003. The Council then had predicted tax revenue growth of 6.2 per cent for fiscal year 2003-2004 and 6.9 per cent for fiscal year 2004-2005. However, immediately after the submittal of the Supplemental Budget and the financial plan, the Council met again and on December 23, 2003, revised their revenue forecasts for those two fiscal years to 5.2 per cent and 7.9 per cent, respectively. This translated into a one-time drop of roughly $30 million in tax revenue for fiscal year 2003-2004.

At a joint briefing before the Senate Committee on Ways and Means and the House Committee on Finance held on January 6, 2004, the Director of Finance outlined both the Governor's Supplemental Budget and six-year general fund financial plan. The Director explained that the Governor's Supplemental Budget reflected savings in debt service due to debt restructuring and anticipated savings in contributions to the Employers-Union Trust Fund. The Director of Finance also described increases in expenditures in the areas of public health, human services, and public safety. While the savings derived from the restructuring of debt service was to be significant for a few years, the public health, human services, and public safety increases amounted to roughly $120 million in new general fund expenditures annually. The Governor's financial plan clearly demonstrated that total state general fund spending would outpace tax revenue collections for the current fiscal year and for the next two subsequent fiscal years.

In light of these facts, the Director of Finance outlined the four budgeting principles that this Administration adhered to in developing its spending plan. The Director of Finance stated, in part:

Your Committee generally agrees with these principles and developed its own Supplemental Budget and six-year general fund financial plan based on these shared philosophies. Your Committee took into consideration many factors, including the ever-changing economic outlook of the State, the nation, and the budget strategies adopted by other states.

At their March 10, 2004, meeting, the Council retained its forecast of general fund tax revenues for fiscal year 2004-2005 and beyond. Part of the reason for the Council's unchanged outlook was due to factors that drive the economy, such as visitor arrivals, construction, real estate activity, and consumer spending -- and all appeared very strong.

Although the Council provided your Committee with relatively unchanged projections, your 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 was roughly three per cent, an uncertainty that troubles your Committee.

The nation faced a number of economic problems over the past few years. The stock market decline from 2000 to 2003 was longer and steeper than a typical business cycle, corporate accounting scandals in 2002 shook investor confidence, the September 11, 2001 attacks, slow growth in other leading industrial nations, and the current War on Terror were all economic hurdles for the nation to overcome.

On the road to recovery, the national economy surged in the third quarter of 2003, indicated by real Gross Domestic Product growth climbing to an 8.3 per cent annual rate -- the fastest quarterly advance since 1983. It appears the fourth quarter will be robust as well. Nationwide, business and consumer spending is on the rise at nearly a 7 per cent annual rate in the third quarter, while federal government spending is in decline. Consumers focused on discretionary spending for new cars, as well as residential investment due to low mortgage rates. Residential investment rose to over 20 per cent in the third quarter, the fastest pace seen in a decade. Another strong growth indicator is the national unemployment rate. Unemployment fell from 6.3 per cent in June 2003 to 5.7 per cent in December 2003.

Although most states expect to finish out the fiscal year with only one-tenth of the budget shortfalls they carried at this point last year, only thirty states report that they should end the year with a modest surplus. At the same time, some states are projecting more than $35 billion in budget shortfalls for fiscal year 2004-2005. To fill these gaps, states have increased fees, tapped into rainy day funds, decreased government services, and have received some relief from federal action that provided $10 billion for state Medicaid expenses and $10 billion for other purposes.

According to the National Conference on State Legislatures (NCSL), including Hawaii, ten states: California, Colorado, Connecticut, Indiana, Kentucky, Montana, Nebraska, Oregon, and West Virginia have seen their fiscal health deteriorate since last November.

Seventeen states, Hawaii included, reported that medicaid or other health programs continue to exceed prior budgeted amounts. In addition, these states are facing another round of budget shortfalls.

Although budget shortfalls are less severe than in prior years, the shortfalls are occurring at a time when many states, including Hawaii, have already depleted reserves, exhausted one-time sources of funding, and imposed repeated budget reductions.

In total, sixteen states predict shortfalls above five per cent, with five having to resolve budget gaps above ten per cent. At least fifteen states are expected to consider tax increase proposals; nineteen states will examine gaming revenue proposals; and while a dozen other states will look at revenue generating measures such as changing tax due dates, imposing surcharges, or raising fees to survive, Hawaii does not seem to be headed in these directions.

Your Committee notes that it appears to be the practice of this Administration to rely heavily on funding from the Federal government for on-going programs. Your Committee agreed to allow the Governor the flexibility to continue this practice, but has done so with caution for the following reasons:

Your Committee examined every request contained in the Governor's Supplemental Budget thoroughly and conscientiously. However, contrary to the Governor's Supplemental Budget, the Senate's draft reflects a lower level of spending increases and a reduction to the Executive Branch workforce. In total, the Senate Draft of this measure restricts total increases to Executive Branch spending to $270 million a year versus $311 million proposed by the Governor. Of that amount, general fund expenditures increase by only $32.6 million a year.

Also a notable difference in the Senate's Supplemental Budget is a reduction to the Executive Branch workforce by over six hundred fifteen permanent positions. These positions are from selected departments that, in most instances, have been kept vacant for six months or longer. Previous legislatures have promoted the concept of reducing recurring costs by attrition -- in other words, not filling positions vacated for reasons of retirement, firing, or any other type of separation. Eliminating these positions and their concomitant funding helps to formally realize savings that have occurred due to attrition.

Your Committee also spent a great deal of time reviewing the outpatient and inpatient funding requests in two crucial areas: adult mental health programs and the Hawaii Health Systems Corporation. Your Committee would like to explain its actions in these areas in detail.

Since 1991, the State of Hawaii has been under a Settlement Agreement with the United States District Court to comply with various stipulations and orders that include the Hawaii State Hospital (HSH) Remedial Plan for Compliance. The HSH Remedial Plan for Compliance was made an order of the court on February 22, 2002. On January 23, 2003, federal Chief District Judge David Ezra accepted the Community Plan under an order of the court. This Community Plan was designed to ensure appropriate community services for individuals discharged, transferred, or diverted from the Hawaii State Hospital, and for individuals at risk of hospitalization at the Hawaii State Hospital.

The supplemental budget request for the Adult Mental Health Division's (AMHD) outpatient program for fiscal year 2004-2005 included fifty-four new permanent positions and $2.49 million in general funds for the various statewide Community Mental Health Centers (CMHC) due to caseload increases. This request further provided for contracted services to patients as required by the court-ordered Community Plan. In addition, the AMHD's outpatient program request included converting seventy-nine temporary positions to permanent status and $11.98 million in general funds for additional purchase of services contracts.

Your Committee affirms its support and commitment to the mentally ill population by providing $1.75 million for fifty-four temporary positions. During your Committee's fact-finding phase, the AMHD acknowledged that the original funding request was not required due to the length of time required to establish and fill some of these positions. With the assistance and consultation from the AMHD, on a case-by-case basis, your Committee provided funding for all the requested positions based on a phased-in period for these positions over the next fiscal year. Your Committee noted that the AMHD further acknowledged that due to the difficulty in hiring some of the positions, these positions would be filled on a basis exempt from civil service laws. As such, your Committee recommended that these new fifty-four positions remain on a temporary basis until such time when the AMHD is able to determine that these positions should be converted.

Your Committee did not approve the conversion of the seventy-nine temporary positions to permanent status due to the exempt nature under which these positions are being established and filled.

With regard to the purchase of service contracts, due to the lack of data and justification for several of these contracts, your Committee reduced the Governor's $11.9 million request by $3.5 million. Your Committee believes that the $3.5 million reduction should not impact the level of services provided, since these outpatient services are already being provided under the current fiscal year for the amount to which your Committee has reduced the budget request.

The increased demand for additional bed space to accommodate patients being transferred or diverted from the Hawaii State Hospital (HSH) resulted in the AMHD's inpatient program request for $4.03 million in fiscal year 2004-2005 to accommodate the overflow of patients at HSH. This request provides for a purchase of service contract for additional replacement beds at Kahi Mohala, a private psychiatric facility. The AMHD further requested the conversion of sixty-six temporary positions to permanent status for the HSH to meet its staffing ratios as required by the federally imposed Remedial Plan for Compliance. Your Committee, after carefully reviewing the request, saw fit to provide the AMHD with full funding of $4.03 million for the Kahi Mohala contract and the conversion of the sixty-six temporary positions to permanent status.

The supplemental budget request for the Hawaii Health Systems Corporation (HHSC) for fiscal year 2004-2005 is a carryover from the 2003 legislative session. Last year, your Committee grappled with the HHSC's biennium budget request of a $31.2 million general fund subsidy for each year of the fiscal biennium and determined that the HHSC could not adequately justify the need for such a request. Your Committee was frustrated by the HHSC's lack of clarity in explaining the purpose for which the funds were to be used. During its fact-finding, your Committee questioned some of the HHSC's procurement practices. In several instances, the HHSC was found to have paid for high-priced independent contractors for services that lower paid employees also perform. These poor procurement practices result in higher general fund subsidies that are borne by taxpayers. The State Auditor substantiated these concerns in its recent report to the 2004 Legislature. The Auditor's findings cited the HHSC's deficient procurement management practices, stating that the HHSC's lenient policies and a lack of oversight in facilitating discretionary contracts led to abuses and millions of dollars awarded in non-bid contracts.

At the close of last year's legislative session, the Legislature granted the $31.2 million general fund subsidy for only the first year of the fiscal biennium 2003-2005. Subsequently, the Governor accused the Legislature of submitting an unbalanced budget as a result of providing the HHSC with only a one-year subsidy. However, your Committee reiterates that providing the HHSC with only a one-year subsidy was an intentional fiscal decision because the Legislature did not receive satisfactory answers to many of their questions. In effect, this forced the HHSC to return during the 2004 legislative session and, quite simply, provide better answers -- answers that the Legislature and the general public deserve. By no means should the Legislature's actions be construed as irresponsible budgeting. On the contrary, the public expects this Legislature, the Board of the HHSC, as well as the Governor, to carry out their fiduciary oversight responsibilities to the fullest and to ensure that public funds are spent efficiently and effectively.

In scrutinizing the general fund subsidy request of $31.2 million for fiscal year 2004-2005, your Committee encountered similar frustrations. Your Committee asked the Department of Budget and Finance to explain how they, the fiscal watchdog of the Executive Branch, arrived at the $31.2 million figure -- especially since the HHSC's original budget submittal to the Governor was for a $44.6 million general fund subsidy. In fact, the HHSC insists that it can fully justify a need for a $44.6 million general fund subsidy. Your Committee finds it curious that, while the Governor has accused the Legislature of under-budgeting the HHSC, the Governor herself, at least by HHSC's account, has apparently short-changed them by at least $13.4 million. Regardless of this fact, the Department of Budget and Finance did not provide clear and useful answers to your Committee. Moreover, the Department of Budget and Finance acknowledged the difficulty in estimating the HHSC's general fund needs. So instead of gaining more clarity on this issue, your Committee was left to ask itself, "How much of a general fund subsidy is enough for the HHSC?"

Your Committee therefore decided to take a step back and review the situation on a macro level.

Established by the Legislature through Act 262, Session Laws of Hawaii 1996, the HHSC was created to assume the responsibility of the former Division of Community Hospitals under the Department the Health. At the heart of the creation of the HHSC was the fact that rapid changes were taking place in the health care industry. With the impending implementation of national and local health care reform, the Legislature acknowledged that an administrative structure of governance needed to be put in place to, among other things, "free the facilities from unwarranted bureaucratic oversight."

However, the HHSC was not given complete autonomy in the truest sense of the word. While the HHSC was granted administrative flexibility and many generous management tools, certain state laws handcuffed the HHSC from gaining full fiscal autonomy and impeded its ability to attain long-term solvency. Today, the HHSC still continues to be affected by mandates such as collective bargaining for certain employees and restrictive personnel rules. In addition, the HHSC is also the only community hospital in the United States that is ineligible for Medicaid Disproportionate Share Hospital (DSH) payments to help offset the high costs and low reimbursements. Under these circumstances, your Committee acknowledges that it would be unrealistic to assert that the HHSC should be self-sufficient and concludes that continual general fund subsidies to the HHSC are inevitable.

Your Committee believes that a review of the HHSC's current structure of governance is also warranted. Unless statutory changes are made and the HHSC improves its fiscal policies and management, the State will have to accept that general fund subsidies exceeding $40 to $50 million or more annually should be anticipated. Your Committee further believes that the increasing need for such hefty general fund subsidies will be exacerbated by the ever-decreasing rate of reimbursements from government payers such as medicare, medicaid, and QUEST payments.

Your Committee also could not help but take notice of how the HHSC responded to the House Finance Committee's proposed $11.2 million reduction to the HHSC's fiscal year 2004-2005 subsidy request. What was apparent, especially in the many form letters and petitions received, was that the community-at-large was led to believe that "life or death" hung in the balance with this $11.2 million reduction. Your Committee finds that scaring the public with threats of possible death is horribly irresponsible. Your Committee is unable to dismiss these actions undertaken by the HHSC and warns the HHSC against using fear and intimidation to solicit the public support in the future.

Still, your Committee thoughtfully considered the need for this general fund subsidy in what it believes to be the right context. Your Committee chose to temporarily set aside the HHSC's weak justification for the $31.2 million general fund subsidy, ignore the rhetoric, and quiet the fears of death or undue harm. Instead, it came to its decision by weighing what is uncertain against known facts. What remains uncertain is the true need for a $31.2 million general fund subsidy. But what remains clear is that the HHSC, specifically because of its operational structures mandated by law, legitimately requires a general fund subsidy to remain solvent. At this time, your Committee feels that it should provide the full $31.2 million general fund subsidy to the HHSC. Unfortunately, what should have been a simple exercise in budget analysis has turned into a two-year public relations battle. Furthermore, your Committee still remains uncertain of the legitimacy of the true level of general fund needs for the HHSC now and in the future.

Finally, your Committee has on-going questions on HHSC's rising corporate expenses. Your Committee notes that, from fiscal year 1998-1999 to fiscal year 2003-2004, corporate office expenses increased from $7.9 million to nearly $13 million, while salaries and wages increased from $2.8 million to $5.7 million during the same period. Interestingly, your Committee was informed that, while the HHSC expressed its concerns over the $11.2 million House Finance reduction, the HHSC saw fit to provide a few of its employees under its corporate structure with salary increases during this time.

Your Committee believes that all these concerns raised in this report are symptomatic of a larger problem within the HHSC. Your Committee also believes that many of these issues raised by the community and members of the Legislature are valid and need to be addressed. Your Committee wishes to acknowledge that the executives of the HHSC have recently made a good start in opening better channels of communication to address some of these concerns. Your Committee also recognizes the recent efforts made by the HHSC management to be forthright and open during its legislative fact-finding phase and your Committee appreciates the HHSC's efforts. Your Committee would especially like to acknowledge the dedication and hard work of those at the front line at our hospitals -- the doctors, nurses, and other staff.

Your Committee therefore recommends that the Legislature and executives of the HHSC, along with HHSC's board members, open a dialogue to resolve the issues and to develop a viable plan of action to lessen the HHSC's dependence on an annual general fund subsidy. Both the Legislature and executives of the HHSC should approach this open dialogue with a "clean slate". Specifically, your Committee recommends establishing an ad-hoc committee comprised of HHSC management, employees, clients, and legislators, to develop a plan of action to empower the HHSC with incremental increases of autonomy. With this increased autonomy, the reliance on large general fund subsidies should concurrently decrease, if not stabilize. Your Committee believes that providing a "cap" to the level of general fund subsidies should provide an incentive to the HHSC to increase the HHSC's revenue stream.

On March 25, 2004, the Governor, jointly with the President of the University of Hawaii (UH), members of the UH Board of Regents, and the University of Hawaii Professional Assembly (UHPA) announced that it had reached an unprecedented six-year collective bargaining contract between the State and UH professors. Among other things, the contract provided for pay increases equating to raises of over thirty-four per cent over the next six years, with the cost borne entirely by the State for the first three years, and then split between the State and UH over the last three. Total obligations will be $124 million to the State and $39 million to UH. Pending ratification, state law requires that this contract will only become valid when the Legislature appropriates the necessary funds to pay for these new cost items. Your Committee raises several concerns due to this agreement:

Your Committee feels that the Governor's actions in negotiating and finalizing the UHPA contract violate the Governor's own budget planning tenets.

On Monday, March 29, 2004, a three-member arbitration panel announced its final and binding decision on the two-year contract for six of the seven bargaining units represented by the Hawaii Government Employees Association (HGEA). The fiscal impact of the decision will cost the State $33 million in general funds for fiscal year 2004-2005.

Much has been said about the Legislature's reauthorization of final and binding arbitration for the majority of public employees. Your Committee believes that the use of arbitration as a means to resolve negotiation impasses is in the best interest of the State, its workers, and the general public.

But what your Committee finds disturbing is that the Director of Finance and the State's Chief Negotiator, on separate occasions, have both characterized negotiations with the HGEA as a "card game". This could imply that the Administration may not be bargaining in good faith. Again, the act of the Administration suddenly agreeing to spend $124 million with one union, which it states it did not have before, but continuing to argue that it cannot afford to pay anything to another union, brings into question the integrity of the Administration in all its collective bargaining negotiations. Your Committee notes that regardless of the various forms of impasse relief that the collective bargaining law provides, it is important to stress that no one method is designed to "stack the hand" of one party over another. Your Committee believes that a UH Regent, a key advisor and campaign consultant to the Governor who was involved in negotiating UHPA's latest contract, made a very poignant statement when the Regent was quoted as follows:

Your Committee believes that this spirit should be embraced for all public sector collective bargaining negotiations and that all public sector bargaining units should be treated equally.

During the course of this legislative session, the Legislature has been given the reports of three separate salary commissions -- those for certain executives of the Executive Branch, for judges, and the Trustees of the Office of Hawaiian Affairs. As of this report, your Committee was still considering the proposed pay raises made by all three panels. It would like to note however, that the Director of Finance stated that if the Legislature were to approve the pay increases for the Executive Branch, those increases would be silently absorbed by existing operating budgets -- thereby violating the Governor's aforementioned budgeting principles.

Your Committee shares the concerns of the Governor regarding the control and entry of any invasive species into the State. In response to various threats such as the Coqui frog and Salvinia Molesta, the 2003 Legislature established the Hawaii Invasive Species Council (HISC). The HISC was charged with protecting against threats to Hawaii's economy, natural environment, and to the health and lifestyle of Hawaii's people. To show its full support in combating invasive species, your Committee agreed with the Governor's request and provided $5,000,000 for fiscal year 2004-2005, subject to matching with non-state funds.

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 Committee believes an investment in Hawaii's state park system is prudent.

To this end, your Committee is providing $14 million for improvements to state parks to enhance park users' experience of Hawaii's special environment and to allow them to learn more about its unique history. Hawaii's state parks not only directly benefit the people of Hawaii through the direct use of the parks, but also serve as an economic development tool by providing a natural attraction for visitors to our islands.

In keeping with the vision of a creating a world-class institution of higher learning, your Committee approved the funds requested by the University of Hawaii (UH) to meet its near-term objectives. The approximately $4.7 million in general funds provided in this measure will allow the UH to establish a creative media program, open the new Kakaako campus of the John A. Burns School of Medicine, the new Health Sciences Library, and expand the apprenticeship training program at the community colleges.

The UH has been very fortunate to acquire the talents of Mr. Chris Lee, a former executive of a major motion picture studio. With his vision, the UH has already begun to provide a new and very exiting curriculum of digital film making. Mr. Lee's program has already aroused the interests of many students as well as seasoned professionals in the industry. Funds provided in this measure would help to formally establish this worthy, fledgling program.

With the UH's construction of the new campus at Kakaako proceeding as scheduled, your Committee appropriated $3.5 million in general funds to open and operate the UH's John A. Burns School of Medicine and the new Health Sciences Library.

Your Committee has also appropriated $369,000 in general funds to expand the apprenticeship training program offered at community colleges. This successful program increases the pool of apprentices for the Pearl Harbor Shipyard, as well as of skilled workers in the construction industry.

In order to enhance the learning environment for students at University of Hawaii campuses, your Committee approved $25 million for the repair, upgrade, and improvement of UH facilities and infrastructure. In addition, your Committee approved $2.5 million for other high priority health and safety projects, as requested by the UH Board of Regents, but left out of the Executive's budget recommendations. Moreover, your Committee has approved $17 million for other various projects to improve the University of Hawaii system.

Under the Reagan Administration, the United States entered into the Compact of Free Association with the Federated States of Micronesia (Compact). The Compact promised financial assistance to states providing services to citizens of this economically depressed region of the Pacific for a period spanning 1986 through 2001. Reauthorized by Congress in December 2003, the new Compact allocated $10.6 million to Hawaii for the next twenty years. These funds are intended to help the defray the costs incurred by the State for providing services to the citizens of the Federated States of Micronesia in areas such as health, public safety, education, social services, or related infrastructure costs. However, to obtain these funds, the State must first submit a written implementation plan to the United States Department of the Interior. Your Committee notes that to date, the Governor has not submitted such a plan. While the Governor requested $7.3 million in general funds to support programs providing assistance to citizens of Micronesia temporarily located in Hawaii, your Committee believes that federal funds in an equal or greater amount are available.

Your Committee affirms the obligation of the State to protect abused and neglected children. These children have the right to live in a safe home that provides adequate care and supervision, as well as basic living essentials, such as clothing, transportation to school, and medical care. Therefore, your Committee agrees with the Department of Human Services' request for $3.6 million in general funds for foster care payments for approximately seven hundred children.

Hawaii's rapidly aging disabled adult population is entitled to basic health services. The chore program provides these adults with in-home and community-based social, health, and protective services. Providing these types of services in the home is a more compassionate, less expensive alternative to institutionalization. Your Committee agrees with the Governor and has provided $767,850 in general funds to care for one hundred fifty individuals seeking chore services. Your Committee also allocated $200,000 in Emergency and Budget Reserve funds in S.B. No. 3068, S.D. 2, to ensure that an additional forty recipients will be provided in-home services. The supplemental request funds will be earmarked for the following specific services: in-home nursing facility level care, in-home companionship, grandparenting, crisis intervention, and community-based initiatives.

The Residential Alternatives Community Care (RACC) Medicaid program, established in 1983, provides home and community-based medical care services to persons with disabilities and chronic illnesses as an alternative to institutionalization. From fiscal year 1998-1999 to fiscal year 2001-2002, the RACC program has grown almost three hundred per cent. RACC will serve roughly eight hundred individuals this fiscal year and projects that it can serve roughly an additional seventy-four more in the upcoming fiscal year. Your Committee has provided $500,000 in general funds to place approximately seventy-seven individuals in community-based licensed residential facilities. An additional $1 million in Emergency and Budget and Reserve funds is allocated in S.B. No. 3068, S.D. 2, to place an additional sixty-three individuals.

Your Committee acknowledges the increasing number of uninsured childless adults and children who meet eligibility requirements for QUEST within the State. Your Committee finds that there are close to fourteen thousand uninsured children in the State. Your Committee believes that in this, the 21st century, the idea of individuals, specifically children, without health insurance is intolerable. Your Committee concurs with the Governor's proposal to provide the QUEST program with an additional $4.6 million in general funds to target eligible childless adults and children who lack adequate health insurance. These funds will provide health care services for roughly seven thousand individuals who currently lack medical coverage. Your Committee also agrees that insuring children is a cost-effective approach to stave off future medical costs borne by community health centers and emergency hospitals. Moreover, your Committee notes that insuring children, as described in the 2003 Coverage Report from the Hawaii Uninsured Project, contributes to better school performances, less serious illnesses, and a better-educated Hawaii workforce.

The Department of Public Safety's supplemental budget request for fiscal year 2004-2005 focused on the health and safety of those "inside and outside the fence".

Of paramount concern is the need to address overcrowding conditions within the correctional facilities, improving the physical condition of existing facilities, as well as the need to rehabilitate inmates before their release back into the communities. These challenges faced by the Department of Public Safety are well documented, and your Committee acknowledges the plight faced by the Department, given the State's limited fiscal resources.

Toward this end, your Committee provided $4.5 million in general funds for the transfer of additional inmates to out-of-state facilities and to the Federal Detention Center on Oahu. Your Committee also provided $1.25 million in general funds for increases in the basic daily costs for inmates already housed at out-of-state facilities and at the Federal Detention Center on Oahu. The transfer of inmates to out-of-state correctional facilities is one of the ways the Department of Public Safety is addressing the overcrowded conditions in our state correctional facilities. Current contracts with out-of-state correctional facilities require a basic daily fee increase of 2.5 per cent or by the percentage change in the Consumer Price Index for Urban Consumers, whichever is greater, each year. The contract to house Hawaii inmates in the federal Detention Center in Honolulu also specifies an increase by about 2.25 per cent each year for basic daily fees. Your Committee notes that the current contract with Corrections Corporation of America to house inmates in Arizona will expire on June 2004, and negotiations are currently underway between the Department of Public Safety and Corrections Corporation of America. The product of these negotiations will determine whether the State will realize savings on its future contracts.

In addition, your Committee provided $1.09 million in general funds for the operating costs of eight permanent new parole officers, six permanent new deputy sheriff positions, and the establishment of a new Inmate Release Unit.

Currently, the Hawaii Paroling Authority supervises approximately two thousand five hundred offenders daily. Of these, three hundred thirty-two require intensive supervision. For the Intensive Supervision Unit, the average caseload for parole officers is about fifty-five cases, while the national standard is thirty cases. For general caseloads, the average per parole officer is one hundred forty cases while the national standard is sixty-five cases. Your Committee has approved over $400,000 in general funds to create eight new parole officer positions.

Your Committee also provided $267,000 in general funds and authorized the creation of six new permanent deputy sheriff positions to provide needed security due to the expansion of the Kauai Circuit Court.

Your Committee provided $426,695 in general funds and authorized eight new permanent positions for the establishment of an Inmate Release Unit. The Inmate Release Unit has been created in response to a court settlement agreement that ensures all that all offenders under the care and custody of the Department of Public Safety are released in a timely manner in strict accordance with applicable court orders.

Finally, your Committee further provided $430,000 in general funds for service programs for parolees. Of that amount, $30,000 will be spent for sex offender treatment services and $60,000 for transition skills and job development services. The additional $340,000 will go towards substance abuse services, including clinical assessments, individual and group counseling, and alcohol and other drug education.

Your Committee believes that there were many areas of importance that the Governor failed to address in the Governor's spending plan. Some of these important areas are as follows.

Your Committee's version of the budget, as well as S.B. No. 3238, S.D. 1, and H.B. No. 2004, H.D. 2, S.D. 1, contain appropriations and statutory provisions that will help the Department of Education improve student achievement. In a first ever State of Public Education address before a joint session of this Legislature, Superintendent of Education Pat Hamamoto admitted that Hawaii's public education system "is not working as it should". However, the Superintendent also stressed that some of the ways to "reinvent our schools" include empowering school principals and holding them accountable, adopting the weighted student formula funding plan, providing parents and children with user-friendly feedback, and giving the Superintendent the "tools and the space to do the job".

Your Committee, in conjunction with your Senate Committee on Education, believes that it has effectuated those recommendations through these measures. Among other things, these bills provide:

(5) $2.2 million to reduce class sizes;

(8) $2 million for new textbooks; and

(9) Over $350,000 for school athletic programs.

Your Committee finds that 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 recognizes that facilities provide the centerpiece around which all educational activities exist.

The majority of capital expenditures your Committee provides invest directly in the State's educational infrastructure. Your Committee approved an additional $145 million for deposit to the State Educational Facilities Improvement Special Fund. Of these funds, $45 million is for the construction of new school facilities and for the improvement and upgrade of existing public school facilities.

Another $100 million is for major repairs to protect the structural integrity and aesthetics of school buildings by making aggressive improvements to the State's school infrastructural system, thereby enhancing the environment in which Hawaii's children will learn. Of this amount, $7 million of previously authorized funds are being transferred from the Department of Accounting and General Services to the Department of Education. Your Committee has also approved an additional $93 million to supplement this amount. This reassignment of funds will improve the overall accountability for the school repair program by the Department of Education.

At the close of the 2003 Regular Session, the Senate President and the Speaker of the House formed the Joint House-Senate Task Force on Ice and Drug Abatement in recognition of the need to address issues relating to the manufacture, sale, and use of crystal methamphetamine, commonly known as "ice". After conducting numerous hearings, listening to the testimony of hundreds of individuals, and conducting in-person site visits, the Task Force recommended that the 2004 Regular Session of the Legislature address the problem of combating "ice" with the following:

(8) Expand the State's Drug Court program;

As demonstrated by the findings of the Joint Task Force, our communities have spoken loudly and clearly on this issue, and they need the State's help now. Your Committee believes that in order to successfully combat the ice problem, the State needs to address all aspects of this drug crisis: treatment for those already on ice, preventing people from starting, and cracking down on those who make, import, and sell ice. Your Committee fully understands that a comprehensive and successful solution to the ice epidemic will require more than a "lock them up and throw away the key mentality". Inevitably, your Committee finds that more resources are needed to combat this statewide crisis.

Your Committee, in conjunction with the Senate Committee on Judiciary and Hawaiian Affairs, sought to effectuate the recommendations of the Joint House-Senate Task Force by providing appropriations and statutory amendments that are contained in S.B. No. 3233, S.D. 1, S.B. No. 3234, S.D. 1, H.B. No. 2003, H.D. 1, S.D. 1, and H.B. No. 2004, H.D. 1, S.D. 1. In total, your Committees provided for over $17 million in appropriations, tax credits, and capital improvement projects to implement the recommendations of the Task Force.

Your Committee believes that those in most need of government assistance are still being neglected. Most notably, the State's community health centers -- usually the only health care facilities for Hawaii's most rural areas -- are under continual fiscal distress. While much has been said about the funding shortage of the Hawaii Health Systems Corporation, operating subsidies for the State's community health centers were excluded in the Governor's Supplemental Budget. Community health centers not only serve those in hard to reach areas, but also those who sometimes have the lowest ability to pay. Your Committee recognizes the need to provide these centers with operational subsidies and has done so with various appropriations in S.B. No. 2068, S.D. 2, and H.B. No. 2796, H.D. 2, S.D. 2. This measure provides close to $10 million in funds from the State's Emergency and Budget Reserve Fund, otherwise known as the "Rainy Day" fund, for various public health and human services programs.

Your Committee believes that, for much of the past decade, circumstances outside of the State's control have contributed to fiscal setbacks that seem to have temporarily delayed the Legislature's plans for a vibrant, healthy, and productive economic future for Hawaii. However, through these lean economic times, the diligence and commitment of your Committee and the entire Legislature toward providing the resources necessary to meet all of the State's critical needs has been of paramount concern. As such, your Committee believes that the appropriations contained in this measure, in combination with the many others that comprise the Senate's total spending plan, reflect a balanced and thoughtful approach to addressing the most important priorities of our community while sustaining the necessary fiscal foundation upon which the State may build to achieve its goal of long term economic and societal success.

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.