Gov. David Ige’s administration has made a series of closed-door presentations to the public worker unions in recent months warning that the state’s record-setting $1 billion budget surplus is essentially spent, a message apparently meant to tamp down expectations as the unions negotiate for new contracts and raises.

According to the presentations made to the unions by the state Department of Budget & Finance, the state closed the books on the last fiscal year on June 30 with a $1.027 billion general treasury budget surplus, but immediately drained those funds by spending $1.311 billion in July.

That PowerPoint presentation, which was obtained by the Honolulu Star-Advertiser, also warns Hawaii is due for a recession. It argues the state has experienced an economic downturn every decade since the 1930s, and the presentation sketches out some possible impacts to the state treasury if a recession were to hit in 2018.

The Ige administration initially proposed that at least two public worker unions accept no raises for the next two years — the Hawaii Fire Fighters Association and the University of Hawaii Professional Assembly — but one union official said the state’s alarming budget claims during contract negotiations this year have been greeted with “disbelief.”

UHPA Executive Director Kris Hanselman said the union views the state’s budget presentation as “sleight of hand.” The state Legislature must appropriate money from any state budget surplus before the administration can actually spend it, she said, and the Legislature has been out of session since May.

“I think it is calculated to diminish expectations for public employees,” Hanselman said of the budget presentation. “I believe it is an attempt to significantly dash the hopes of employees for receiving an appropriate compensation increase.”

Ige seeks ‘balance’

The union negotiations and the debate about the true financial state of the state will provide the backdrop Monday when Ige publicly presents his new two-year proposed budget for fiscal years 2018 and 2019.

The administration has not disclosed any major details yet, but the proposed spending plan will likely be on the order of $28 billion over two years when federal funds, special funds and other cash flows are figured in.

By ordinary reckoning, the state is on solid ground financially. Bond rating agencies Moody’s Investor Service and Standard & Poor’s both upgraded their credit ratings for the state in September, offering the best combined overall reviews and outlook they have ever given the state.

State tax collections this year are expected to be the highest ever, and the state has projected that tax collections will continue to grow for at least the next five years.

“I feel good about where we’re at, and I think we’re going to move forward with a good budget,” Ige said in an interview last week.

He also said he expects the administration will negotiate a fair wage package with the unions.

“It is about balance,” Ige said. “It’s about being respectful and assuring that our public servants, who really work every day to improve the lives of (people in) our community, should be compensated fairly. So, it really is about balancing all of those things, it’s a fair wage, it’s about making strategic investments in those areas that are important, it’s about making sure that we fund the liabilities already accrued.”

As for the seemingly gloomy budget presentations to the unions, Ige said it is “a little oversimplification” to say the state has already spent the surplus because the presentation to the unions was “a snapshot in time of the state’s checkbook.” There was more than $1 billion in the general treasury on June 30, but the state had ongoing costs that quickly reduced that amount, he said.

Those costs included more than $725 million in advance payments the state made in July toward its future pension and health care obligations for public workers. Traditionally the state has spread those payments throughout the year, but this year the state opted to make those payments at the start of the fiscal year in July and August.

Ige said paying those costs at the start of the year will save the state money in the long run, but it reduces the balance in the general treasury during the first months of the fiscal year. Once those payments are made, the fund balance can be expected to grow later in the year as the state collects more taxes and other revenues.

When asked if that meant the presentations to the unions were misleading, Ige replied, “But it is factual. We did make those payments in July.”

The Ige administration also shifted more than $201 million to the state’s Emergency and Budget Reserve Fund or “rainy day” fund earlier this year as part of an administration effort to build up cash reserves. By law, the money in that fund cannot be used to pay for public worker raises.

‘No-raise’ proposal

According to the presentation by the administration to the unions, a 1 percent wage increase per year in fiscal years 2018 and 2019 for all 14 of the public worker unions would cost the state general treasury a total of about $86 million.

Hanselman said a representative of the administration said in a bargaining session on Oct. 31 that the budget surplus had dwindled to a mere $38 million, and in meetings earlier this month the no-raise proposal remained on the table.

“At that point, obviously, the UHPA bargaining team did not greet that with anything but disbelief,” Hanselman said. “It has been an exceptionally strange situation that I think we have found ourselves in.”

The last time the state had a budget surplus was under former Gov. Neil Abercrombie, when most public worker unions won a 4 percent wage increase, Hanselman said.

“I can tell you zero-zero is not making my members particularly comfortable,” Hanselman said, referring to the administration proposal for no raises for the next two years. “We have a relatively large group of young faculty in our bargaining unit, and this does not give them confidence that this is a good place to work. We’re already hearing about that from a number of our faculty, and it is of concern.”

Robert “Bobby” Lee, president of the Hawaii Fire Fighters Association, said contract negotiations have been “very, very slow,” and his union has now turned to binding arbitration to try to reach an agreement with the state.

No raise for two years would not be acceptable to his members, because it won’t allow them to even keep up with the cost of living, he said.

“You look at the cost of living over here in Hawaii, and a lot of people live paycheck to paycheck,” he said.

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