Key Senate and House members agreed on a $31.2 billion state budget Tuesday over the next two fiscal years that relies on $1.35 billion in federal COVID-19 relief funds and a resurging tourism economy to help avoid massive cuts, furloughs and even layoffs of state employees.

“Going into session, we were expecting the worst,” House Speaker Scott Saiki told the Honolulu Star- Advertiser. “We weren’t expecting any federal bailout, and we were expecting to make drastic cuts in the state budget. There was a lot of uncertainty in January.”

Tuesday’s agreement by House and Senate conference committee members plans for a $15.905 billion budget through fiscal year 2022 and a lesser amount of $15.265 billion for fiscal year 2023.

By comparison, before the COVID-19 pandemic battered Hawaii’s economy, legislators passed a $31.32 billion budget for the 2019 through 2021 fiscal years that did not account for federal stimulus money.

Saiki promised upcoming details on funding for specific programs in the new budget.

But state Rep. Sylvia Luke, chairwoman of the House Finance Committee, said Tuesday that the budget restored needed funding.

In a statement, Luke said, “With the assistance of the federal government, we were able to restore devastating cuts to critical social service needs such as those addressing domestic violence and sex assault serv­ices, HIV, Hep-C, and TB support, and early intervention programs. We also retained funding for general assistance and homeless services while, at the same time, preserving our natural resources by funding rapid ‘ohi‘a death response and coral reef protection.”

The first two rounds of federal aid to Hawaii under former President Donald Trump provided no direct funding for states or counties.

Asked about the third round of federal stimulus to Hawaii — and the first under the administration of President Joe Biden — Saiki said the federal funds helped prevent furloughs and even potential layoffs.

“We’re just fortunate that the administration changed at the national level and the congressional leadership changed, as well,” Saiki said. “If those things had not happened, we might not be in this situation.”

The year and the legislative session began with Hawaii facing the worst economy in the nation and a projected $1.4 billion shortfall in each of the following four years.

By Gov. David Ige’s State of the State speech in January, economic predictions were not as bad as feared. But Ige still called for budget cuts of $402 million while the state was forced to borrow $750 million for the first time in history just to make payroll.

“In spite of these significant measures, we are still projecting that revenues will not fully recover to pre-pandemic levels until 2024,” Ige said in his speech. “Even with the most generous of federal assistance, it is a staggering deficit.

“Government will have to tighten its belt; our citizens will be asked to do more with less; and we will all need to help each other,” Ige said. “Unlike past years, our main budget initiative will be to find ways to cover the historic shortfalls. There are many paths toward that end. I know there will be disagreements on how we get there. No one has all the answers. But the best answers lie in the ones we arrive at together — not in spite of each other, but because of each other. More than ever, we need to lean on that collective effort to manage this fiscal crisis.”

And then hopes of a federal stimulus grew.

“The budget changed dramatically because we got all that money from the feds,” political analyst Neal Milner said. “Even with that money, since you have to balance the budget, government and the Legislature were appropriately cautious about it. Without the federal money, assuming there were no furloughs, there would have been a lot of cuts to programs. It would have been pretty dramatic.”

Colin Moore, a University of Hawaii political science associate professor and director of UH’s Public Policy Center, agreed that the federal stimulus and direct payments to state government played a critical role for Hawaii’s budget.

“We would be in a very scary situation without this federal aid,” Moore said. “I don’t think anyone would deny that. The state was hammered by the economic fallout from COVID. We went from the lowest unemployment rate in the nation to still the highest. We should count our blessings that this money appeared. Without it, unquestionably we could have had layoffs and certainly furloughs for public employees, which represent a big part of Hawaii’s middle class.”