Honolulu, Hawaii

, 2002

RE: H.B. No. 1800

H.D. 1

S.D. 1

C.D. 1



Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii


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 Changing Economy

In the second half of the year 2000, economic growth decelerated sharply, nationwide. Manufacturing production declined, the Nation's payrolls grew marginally, and the unemployment rate was rising. In response to this slowing economy, the Federal Reserve reduced the federal funds rate by 2-3/4 percentage points during the first half of 2001, the largest reduction in such a short period since 1984. Federal fiscal policy also shifted to stimulate the demand. In June, the President signed the Economic Growth and Tax Relief Reconciliation Act of 2001, which reduced personal income taxes by $44 billion during the second half of the year, the first installment in a multi-year permanent reduction in income tax liabilities.

Although the nation's economy slowed during the 2001 Regular Session, Hawaii was finally experiencing its long-anticipated economic rebound from a decade of recession. General revenues from tax collections toward the end of the third quarter of fiscal year (FY) 2000-2001 increased at a rate of 7.8 percent, exceeding the Council on Revenues' (COR) projection of a 6.0 percent increase. The lowered Federal Reserve rates encouraged growth in mortgage lending, mortgage refinancing, and construction activities. Airline flights were full, hotel occupancy, as well as, visitor spending was on the rise. These positive economic indicators were balanced against the fact that eastbound tourism remained unchanged, as Japan remained in recession. Economic indicators pointed to the strength and resilience of Hawaii's economic recovery. Factors that precipitated this situation are the enactment of tax law changes, including lowering of the individual income tax rate, de-pyramiding of the General Excise Tax and granting of hotel renovation construction tax credits.

The Legislature recognized its newfound additional resources and made education its top priority. For the first time in many years, the Legislature had the ability to make wide-range improvements to the public education system. The Legislature provided fair wage increases to public school teachers and university professors, understanding that first-class instruction deserves first-class compensation. In addition, the Legislature provided much needed resources for additional teachers, textbooks, and equipment for both existing and new facilities of the Department of Education. Furthermore, the University of Hawaii got a tremendous boost with a $6 million, one-year lump-sum appropriation. Finally, as it set out to literally "fix the schools", the Legislature approved over $180 million in new construction projects to repair, upgrade, and improve public school facilities. It also provided $80 million for construction costs to improve and expand facilities of the University of Hawaii system.

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

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


Although the 2001 Legislature planned Hawaii's economic recovery, the normal channels of transmission linking economic policy and economic performance never had the chance to operate. The terrorist attacks of September 11th temporarily shattered consumer and business confidence. Faced with a highly uncertain and increasingly risky economic environment, consumers, businesses, and investors for a brief time became much less willing to undertake the purchases and investments that are needed to achieve sustainable growth.

At the start of 2001, hardly any forecaster expected that the State economy would slip into recession within a few months. None did, or could, anticipate the shock to the economy from the terrorist attacks later in the year. Consequently, the Council on Revenues’ September 5, 2001 growth forecast was well above the actual outcome.

After the attacks, Hawaii’s economy immediately fell into rapid decline. Tourism activity declined swiftly, as did our retail and restaurant businesses. There was a sudden 26.1 percent drop in international visitors—a major component of the tourism industry. Unemployment rates increased as businesses either closed or reduced the level of their service, resulting in both small business and large corporate lay offs. The ripple effect of the attacks was both immense and immediate and sent our State and our Nation into disarray.

The Legislature immediately responded in an emergency Special Session by passing measures to address the most immediate and pressing needs of Hawaii's citizens. Emergency food and housing assistance, extended unemployment benefits, and temporary health insurance were provided to assist individuals and families. Tax relief and waivers of assessments were made available to businesses suffering from the effects of September 11th. Emergency powers were given to the Governor to provide businesses and private citizens with a broad-range of financial relief. In addition, funds were appropriated to stimulate economic growth by increasing government capital improvements program (CIP) project spending and promoting Hawaii as a visitor destination.

On November 14th, the Council on Revenues reduced its September 5th estimate of general fund revenues from 4.1 percent growth for FY 2001-2002, to a 0.7 percent decline in the same period, a reduction of almost 5 percent. Based on models derived from the State’s economic reaction to the Gulf War and Hurricane Iniki, coupled with the State’s pre-event trajectory, the Council believed that the economy would react with a sharp decline, but follow with a quick and strong rebound. This led the Council to revise its forecast to reflect a sizable reduction in revenue for the remainder of fiscal year 2001-2002, a 0.7 percent decrease instead of a 4.1 percent increase. However, it retained a strong forecast for the ensuing five fiscal years. On March 14th the Council on Revenues reaffirmed its November projection and held to the strong out-year growth estimates.

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

With these new projections, the Governor was forced to take quick action. He immediately imposed a 1 percent spending reduction on the discretionary budgets of all departments including for the first time in many years, the Department of Education (DOE) and the University of Hawaii (UH). All executive departments were then instructed to revise their budgetary plans for the remainder of the fiscal biennium. All departmental discretionary funding was to be reduced by 2 percent, and once again, the DOE and UH were not spared, as the Governor proposed to cut a combined $20 million from their budgets.

While these options appeared unpalatable, it was well noted that Hawaii was clearly not alone in facing tough budget decisions. This current fiscal year has at least 40 states facing a total budget shortfall of $27 billion. Whereas some states may have large "rainy day" funds as a result of the prosperous economic times in the 1990s, many others like Hawaii were forced to look at a combination of tax changes and cuts to essential services.



Budget Strategy

It is important to keep in mind the balancing act between revenues and expenditures that exists in any budget. With the projected $315 million reduction in revenues, other sources of revenues were identified and expenditure reductions were also considered. On the revenue side, many options were presented to and considered by your Conference Committee: the Governor's proposal to use the Hawaii Hurricane Relief Fund and increase the liquor tax; the transfer of excess non-general fund balances to the State general fund; the Senate President's proposal to balance the budget; transferring a portion of the Emergency Budget and Reserve Fund, or "rainy day" fund; and increasing the cigarette tax. With regard to expenditures, numerous strategies were examined, including attrition; across the board reductions; consolidation of departments; and removal of deputy director positions. In weighing the various options and strategies, your Conference Committee carefully scrutinized all government services to ascertain essentiality to the public.

From Opening Day of the 2002 Regular Session, public sentiment continued to be generally opposed to the Governor’s proposals to increase State revenues. Your Conference Committee therefore believed that the public sentiment was to reduce government spending. However, the magnitude of these reductions must be put into perspective. To cover the expected revenue shortfall, it would take the complete elimination of the 12 smallest departments (of a total of 19) to generate a savings of $160 million a year. In another scenario, if the entire revenue shortfall were to be covered by across the board cuts to each department, it would require 7 percent budget cuts, resulting in a $50 million cut to the Department of Education, and a $20 million cut to the University of Hawaii.

Your Conference Committee dedicated considerable effort to reallocate resources to fund high priority items while reducing the overall budget. Toward this end, your Conference Committee seriously entertained the policy of attrition – that is, the elimination of vacant positions and funding and redistribution of the workload to the remaining employees. From 1994 to 2001, however, the Executive workforce decreased by 2,277 positions to 43,327. Despite the overall reduction, the Department of Education's workforce increased by 3,106 due to mandated needs. These numbers demonstrate that responsibilities within Executive departments have already been redistributed at higher levels than ever to remaining employees and continue to be redistributed each year with the imposition of vacancy and turnover savings.

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

The assumption that large budget cuts can be made by eliminating vacant positions is flawed. The State already budgets its payroll under the assumption that all positions will not be filled all the time, and implements this assumption through the budget. Payroll for all general funded positions is currently under budgeted by $49 million to account for vacancies that inevitably occur throughout the course of the fiscal year. Over the years, the level of under funding has increased with vacancy or turnover "savings" imposed by the Legislature. This budget imposes another $5.9 million for "vacancy savings", which will force agencies to further delay the filling of positions in FY 2002-2003.

Your Conference Committee's review of general funded vacancies indicates that a large percentage exists in the core programs in the Departments of Education (DOE), Health, Human Services, Public Safety, and the University of Hawaii (UH). Moreover, many of these positions are not being filled in order to meet turnover savings assessments, unbudgeted accrued vacation payouts, unbudgeted payroll for workers’ compensation claimants, as well as filling of essential positions with emergency hires until qualified applicants can be found.

Your Conference Committee used a combination of revenue generators and expenditure reductions to create this supplemental budget. Your Conference Committee agreed with the Governor’s two percent across the board reduction and exercised ten percent vacancy savings in many departments. While this supplemental budget represents a general fund reduction to all executive expenditures by $96 million, your Conference Committee believes that sufficient resources have been appropriated to allow departments to continue to provide required levels of needed services. Your Conference Committee cautions however, that the demand for services and the corresponding funding level commitments have reached a critical point. No longer will departments be able to absorb across the board reductions. Your Conference Committee stresses that if funding to departments is to be reduced below the levels recommended in this budget, then this Legislature must also reduce the responsibilities placed on those departments.

In addition to these savings, your Conference Committee also investigated various new sources of revenues to compensate for the current budget shortfall. A four-bill approach was undertaken to balance the State financial plan. The most controversial of these bills is SB 706, CD 1, which transfers $29 million to the general fund from the Hawaii Hurricane Relief Fund in order to provide for essential services that will otherwise be significantly reduced or deleted. Beyond providing essential financial support, this bill also outlines economic incentives to homeowners to reinforce their homes before the next hurricane. The second bill integral to the state financial plan is HB 2827, CD 1, which transfers $140 million in excess funds from various non-general funds to the general fund. The third bill is HB 2741, CD1, which raises the cigarette tax by one cent in 2003 and an additional half-cent in both 2004 and 2005. Finally, HB 1245, CD 1, transfers $10 million from the "Rainy Day" Fund to the General Fund specifically to provide for our health and public safety. The passage of these bills provides approximately $185 million of critical funding to maintain essential services. With these three bills, in conjunction with the expenditure reductions taken in this measure, you Conference Committee is confident that the State can maintain our essential services despite the $315 million budget shortfall.

Throughout its deliberations, your Conference Committee's priority has been to develop a fiscally responsible balanced budget and financial plan that protects the most vulnerable and fragile of our population, while still paying heed to the current economic plight.

Fixed Costs

Debt service represents the amount the State owes as a result of issuing bonds for capital improvement projects. Just as an individual may have mortgage, rent, or car payments, the State must make payments on capital it has borrowed. The total debt service payment for fiscal year 2003 will be $432.2 million. This represents approximately 12 percent of the entire general fund budget for the State. Your Conference Committee understands the importance of capital improvement projects, but urges caution, as bond issuances do not come without some type of cost.

To illustrate how debt service costs can build up, your Conference Committee needs only to discuss the executive’s $900 million CIP supplemental request. This request would result in an additional $1.593 billion in total debt service. Combined with the $600 million already appropriated by this legislature last year in its Regular Session and Third Special Session, the total debt service for this biennium would total in excess of $2.6 billion. Your Conference Committee believes that judicious use of construction projects is the prudent solution for short-term gain without creating a long-term burden for future generations.

Other mandatory costs include health fund premiums for State employees. These costs are the portion owed by the State as the employer of all State employees. Total health fund premium payments for fiscal year 2003 will be almost $280 million, or about eight percent of the entire general fund budget for the State. Reducing this amount would decrease the benefits received by State employees and their families, which would result in making civil service positions in State government less attractive.

The State also must provide for the retirement of its workers. For fiscal year 2003, the State’s portion for pension accumulation is $157 million and social security payments are $139 million, totaling $296 million. Social security is a requirement of the federal government and must be paid. Not paying into the Employees’ Retirement System (ERS) would greatly reduce the amount of pensions that would be available to future retirees and could potentially endanger current retirees’ pensions.

The preceding three items alone total more than $1 billion, or nearly a third of the State’s general budget. Your Conference Committee wishes to comment that these are non-discretionary expenditures. The State has little choice than to pay its debts and provide mandated costs for its workers. Once these mandatory costs were taken care of, your Conference Committee began to examine the services the State provides.

Lower Education

Education remains the State’s top priority, but the State’s current fiscal crisis demands that your Conference Committee carefully scrutinize the Department of Education’s (DOE) FY 03 budget to ensure accountability as well as the judicious use of available funding and resources.

Your Conference Committee followed two paths in its evaluation of the Department’s budget. The first path taken by your Conference Committee, via this measure combined with revenue generating measures such as S.B. No. 706, H.D. 1, S.D. 1 C.D. 1, was to fund critical needs of the DOE by restoring very important and needed educational programs targeted for reduction, as well as appropriate additional funding for Board of Education (BOE)-approved initiatives that failed to receive Executive approval.

The second path taken by your Conference Committee was to provide sufficient resources to cover all major fixed costs, to facilitate compliance with all legal mandates, and provide funding for additional critical educational programs. While the funding for mandated costs is viewed as critical, the requirements of special needs students and regular education students have been treated equally.

Critical needs of the DOE

Your Conference Committee continues to recognize the need for sufficient school-level resources and has approved an addition of approximately $700,000 for equipment and textbooks for new special and regular education facilities for five schools. Additionally, your Conference Committee has added approximately $6.1 million in funding for New Century Charter Schools, which takes into consideration the per pupil allocation amount as determined and amended (memorandum dated March 27, 2002) by the Auditor.

Although your Conference Committee had preferred to rely entirely on other additional revenue generating legislation, your Conference Committee has determined that reductions to the Department’s FY 03 biennium budget base can not be avoided. Your Conference Committee notes that its budget includes a majority of the Governor's two percent and additional department-dictated percentage-based budget reductions.

Your Conference Committee agonized over almost every program reduction, each of which was individually reviewed and evaluated for its projected impacts to students, faculty, school, and ultimately, to the public at large. With much reluctance and after intensive deliberation, your Conference Committee agreed to numerous educational program reductions, which may appear to be benign, but in most instances, will negatively impact some child, teacher, school, and/or community. Examples of these hard-to-cut programs targeted for reductions include:


These base budget reductions total approximately $29 million. However, your Conference Committee, through the passage of various new revenue generating bills, such as S.B. No. 706, H.D. 1, S.D. 1 C.D. 1, has provided additional revenues which allows not only the restoration of approximately $15 million of the reductions reflected in your Conference Committee’s budget, but also adds approximately $1.2 million in additional DOE-related priorities. Critical educational programs that have been subsequently restored include:

Additionally, your Conference Committee has funded important BOE-approved requests that were denied by the Governor. These requests include:

In its consideration of revenue saving strategies, your Conference Committee determined that reducing the Department’s vacancy savings by 10 percent would free up funding not being used to pay employee salaries in a manner that would not devastate critical programs and/or interfere with the Department’s ability to provide essential educational services. By reducing the Department’s vacancy savings by 10 percent, your Conference Committee has succeeded in creating a budget windfall of approximately $3 million.

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

Your Conference Committee also considered the critical needs of our Hawaii State Public Library System and its patrons and has provided 5 permanent positions and approximately $270,000 in funding to staff and operate the Kapolei Library in Kapolei, Oahu. Library patrons on the Leeward side have long anticipated the opening and use of the Kapolei Library; therefore, your Conference Committee believes that it is appropriate and timely that operating funds and staff be approved for this library at this time.

With regards to the overall budget of the Hawaii State Public Library System (HSPLS), your Conference Committee was again placed in an exceedingly difficult position. Your Conference Committee is convinced that our public libraries provide sought-after and needed services. However, your Conference Committee, especially in light of the State’s current financial situation, must equally ensure fiscal restraint on the part of the HSPLS. As such your Conference Committee has reluctantly reduced HSPLS’s budget by two percent, or $424,504, and has taken an additional $12,390, which reflects a 10 percent vacancy savings. Your Conference Committee believes that the approved reduction of HSPLS’s budget will not interfere with the libraries’ ability to provide essential services to the public. Most importantly, critical library functions such as children’s and young adult programs will be retained, library services to correctional and long-term care facilities will continue, bookmobile services will continue, and access to library facilities, books, and materials will remain generally unaffected.

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

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

Your Conference Committee has sustained this commitment to education by providing an additional $110 million for the repair and maintenance of public schools for fiscal year 2003. Another $100 million has been provided for various improvements to public education facilities. These new authorizations bring total funding of public education construction projects to over $465 million, representing an unparalleled commitment to the State’s public education system.

Teacher Positions

Your Conference Committee has carefully deliberated on the Governor's request to reduce regular and special education teacher, as well as educational assistant, positions. The Governor requested a reduction in 162 regular education teacher positions, 63 special education (SPED) teacher positions and 63 educational assistant (EA) positions. Determined that the number of teacher and educational assistant positions should be based on actual workload and need, your Conference Committee intently evaluated the Department’s re-assessment of the number of teacher and EA positions proposed for reduction.

The Department recalculated and determined that 79 regular education teacher positions, 52 SPED teacher positions, and 24 SPED EA positions could be eliminated for fiscal year 2003 without compromising service. Your Conference Committee accepted the Department’s determination and, accordingly, trimmed the number of teacher and EA positions to reflect the department’s re-assessment. By imposing the aforementioned teacher and educational assistant position reductions, your Conference Committee has generated a departmental budget savings of approximately $4.5 million, without impacting the Department’s ability to provided instructional services to its students.

Felix Consent Decree and the Contempt Order

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

Felix costs-Department of Education

Consistent with the legacy of the Joint Senate-House Investigative Committee to Investigate the State’s Compliance with the Felix Consent Decree (Felix), your Conference Committee reviewed the Department’s Felix and Special Education-related requests with an eye toward greater cost-effectiveness and accountability, while continuing to adequately meet the needs of special needs children. The Governor requested approximately $8.1 million to supplement the $65 million appropriated for the DOE’s Felix Response Plan (FRP) and School Based Behavioral Health (SBBH) services in each year of FB 01-03. Additionally, the Governor requested permanent FTE status for the 1,686.50 temporary employees currently employed by the Department to implement the court-mandated FRP priorities and SBBH services.

Your Conference Committee carefully evaluated the Governor’s requests for $8.1 million in additional funding and 1,686.50 permanent positions for the FRP and SBBH programs and determined, based on the information provided by the DOE, that the additional funding and permanent positions could not be justified. Your Conference Committee decided that there was insufficient information to accurately determine the appropriate number and type of positions needed within the FRP and SBBH programs to meet student needs. As such, your Conference Committee contacted the Department and notified the Superintendent of the Conference Committee’s pre-determination not to provide the additional funding nor grant permanent status to its 1,686.50 temporary FRP and SBBH employees and requested additional input from the Department. In two meetings with the Superintendent and other Department staff, the Superintendent acknowledged that the Department could not justify the additional funding and agreed that providing 1686.50 permanent positions within the evolving FRP and SBBH programs would be premature.

Your Conference Committee applauds the forthrightness of the Superintendent regarding the Department’s inability to currently justify the requested increase in funding and permanent positions for the FRP and SBBH programs within EDN 150. The Department’s newfound openness and transparency has certainly been underscored by the Superintendent’s recent response to the Legislature, which has resulted in the denial of all the Department’s supplemental requests for Felix-related costs as well as all of EDN 150. The Department’s demonstrated transparency is a result of increased legislative scrutiny of the Department’s execution of Felix and other court-mandated services and professes increased cooperation between the Legislature and the Department with regard to the substantial public education budget.

Although your Conference Committee has exercised increased scrutiny over the Department’s Felix and special education related costs, your Conference Committee is equally committed to providing sufficient funding and resources to meet the U.S. District Court’s Felix-related benchmarks. Your Conference Committee has approved the appropriation of approximately $223 million in general funds to support the Department’s efforts to comply with special education requirements and specific court mandates. Your Conference Committee believes that current special education funding is sufficient to provide adequate services to special needs children.

However, your Conference Committee and the Legislature, as a whole, is open to evaluation of requests for additional resources needed to meet these special needs. For example, despite disapproval of the requested 1,686.50 permanent position counts due to insufficient information, your Conference Committee is mindful that future court decisions relating to the Felix Consent Decree, could substantively affect current Department estimates. Therefore, your Conference Committee has included a budget proviso directing the DOE to complete a comprehensive assessment of its efforts to meet and maintain compliance with the Felix Consent Decree and associated federal statutes.

In the same vein, your Conference Committee has also evaluated a late Governor’s request to provide approximately $9.2 million for autism services. In its evaluation, your Conference Committee has been informed that, at the time of this writing, the DOE and DOH continue to disagree on the total amount of funds that are necessary to provide services to autistic students, the high-end students. Although DOE staff maintain that the entire $9.2 million would be needed to provide autism services, the Superintendent, during her recent meeting with Conference Committee members, stated that the DOE may be able to provide autism services for a lesser amount and could possibly absorb some of the autism costs within the DOE’s current FY 03 base budget. In view of the uncertainty that currently shrouds the projected costs of providing care for autistic students within DOE’s organizational structure, which have been projected to be as high as $22 million, your Conference Committee has chosen to take a cautious approach to the Governor’s request for increased funding for autistic services. Your Conference Committee has therefore decided not to approve the Governor’s requested supplemental funding. However, your Conference Committee certainly encourages the DOE, if it discovers that additional funding is required to adequately meet the needs of autistic students, to again request the Legislature to provide the needed, additional funding.

Funding for the Felix and Special Education-related programs in the Department of Education generally has been maintained. Concurrently, your Conference Committee has chosen to reduce or eliminate those appropriations that are no longer necessary. FRP fiscal year 2003 appropriations were reduced by $250,000, which targets unnecessary expenses for the Felix Court Monitor.

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

Felix Costs-Department of Health

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

By the end of this current fiscal year, CAMHD expects to serve approximately 2,143 registered children and youth. This represents a decrease of over 81 percent from CAMHD’s previous population of 11,479 youth registered with CAMHD prior to the November 2001 transition to School Based Behavioral Health (SBBH) services in the DOE. As such, your Conference Committee, after reviewing CAMHD’s 100 administrative positions, reduced the number of administrative positions within CAMHD by 10 percent. This represents a more acceptable level given CAMHD’s adjusted number of Felix youths requiring mental health services through the Department of Health.


Your Conference Committee acknowledges the Department of Health’s efforts over the past several years to "right size" government by restructuring various programs internally to become more effective and cost efficient. This entailed abolishing various administrations within the Department of Health (DOH) and merging the functions within remaining administrations.

Prior to the 2002 Regular session, the only programs showing increases in the DOH over the last few years are those under a settlement agreement or court order. So with these increases, come the growing concerns that more legislative scrutiny is required to ensure proper accountability for the use of public funds for these mandated costs. Your Conference Committee carefully reviewed the department’s supplemental request for mandated services and provided for only the necessary funds to maintain essential services for the Adult Mental Health Division.

Your Conference Committee is also cognizant that outside of these court mandates, there is a need to maintain essential services to benefit the people of Hawaii. In regard to maintaining the health and safety of the public, your Conference Committee has provided funds to meet the needs of the Emergency Medical Services (EMS) ambulance services by providing collective bargaining increases totaling $1.64 million for the City and County of Honolulu and for the counties of Hawaii, Kauai, and Maui.

Your Conference Committee further realizes that the scope of the Health Insurance Portability & Accountability Act (HIPAA) compliance activities is expansive and has appropriated $178,250 to support the DOH’s intent on meeting the initial compliance deadline of October 2002.

Finally, your Conference Committee commends the Developmental Disabilities Division for making strides in taking individuals out of institutional settings and moving them into community programs with more self-directed goals.

Department of Justice Settlement Agreement and the Adult Mental Health Division

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

Your Conference Committee affirms its full support of and commitment to the seriously mentally ill population residing in Hawaii by appropriating $3.55 million for outpatient community-based services. Your Conference Committee is keenly aware that the original supplemental request for fiscal year 2003 included an additional $8.4 million for outpatient community-based services and infrastructure support for the AMHD. The additional funding was not provided as your Conference Committee had concerns as to how the AMHD justified its requests for the purchase of outpatient community-based services as well as the need for the additional division infrastructure. As such, your Conference Committee provided partial funding of the total supplemental request pending AMHD’s review of its actual expenditures.

Your Conference Committee is concerned that the AMHD’s basis for all its funding and expenditure requests is tied to two reports; namely, the "Implementation Plan for Service Development (IPSD) for Fiscal Years 2002–2005 dated March 15, 2001" and the "Hawaii Needs Assessment Project" report dated November 2000. While there is nothing intrinsically wrong with adhering to these reports, your Conference Committee is concerned by the absence of explanations and details as to how the requested amounts were calculated. Moreover, what further concerns your Conference Committee is whether the IPSD is in effect a "court accepted" plan.

Repeated requests during the legislative session by your Conference Committee for specific answers relating to outpatient community-based services were returned with responses that referenced these two reports as the basis of its funding requirements. In responding to the Legislature’s various written inquiries, the AMHD’s justification for requesting funds were based on the notion that the "Settlement Agreement requires such expenditures…" and "If the supplemental budget request for community-based services was not approved, the Special Master may view this as an indication that the State is unwilling to fully commit to developing a system of services…."

Your Conference Committee assures the Special Master that the State is and has been committed to the plight of the mentally ill population residing in Hawaii. This is clearly evidenced by the fact that the Legislature has provided for the mentally ill population over the last few fiscal years resulting in an on-going annual base appropriation of over $91.41 million (including funding for administrative support positions) for the AMHD.

Since all of AMHD’s requests are tied to the IPSD, the logic that follows is that all requests for funds, including infrastructure support, are based on these projections rather than on actual caseloads. Noteworthy is the fact that in a recent presentation made by the various AMHD administrators and managers, as late as last week, the numbers used to further justify its supplemental funding requests for fiscal year 2003 were still based on and tied to projected numbers of the mentally ill population to be served rather than actual caseloads.

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

Your Conference Committee is also unclear as to how the IPSD’s $122 million amount (over a four-year period) was derived. Your Conference Committee contends that the basis for AMHD calculations to justify its requests thus far is based on "backing into" the numbers found in the IPSD. To place this in proper context, if your Conference Committee agreed to the AMHD’s request for funding in the next fiscal biennium, the funding requirement would require a total of an additional $64 million (including an administrative infrastructure support base to support the community-based services) over and above its current base appropriation of $91.41 million for a total of $155.41 million annually.

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

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

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

Your Conference Committee reassures the people of Hawaii that the Legislature remains fully committed to ensuring that individuals suffering from serious mental illness are provided with the required quality care that they deserve.

Higher Education

Your Conference Committee is aware that the John A. Burns School of Medicine has lost 30 full time equivalent positions due to budget cuts in the 1990’s. To create a world-class research intensive medical school that can help to diversify the economy through biomedical research and biotechnology at the new Kaka’ako campus, your Conference Committee has granted six full-time positions and $983,900.

Furthermore, your Conference Committee recognizes that the Institute for Astronomy (IfA) in Hilo is the premier establishment for the research and development of advanced technology in the areas of telescopes, large-format semiconductor detectors and instrumentation. Your Conference Committee also realizes the potential to obtain extramural funding in these areas is enormous and that the IfA has already secured more than $25 million in research funding over the next 3 to 5 years. To continue the excellent work being done at the IfA, your Conference Committee has approved four full-time positions and $410,561.

In addition, your Conference Committee has provided seven full-time positions and over $1 million to the Office of Mauna Kea Management to continue the implementation of the Mauna Kea Science Reserve Master Plan. The Master Plan being implemented is a comprehensive guide for the overall management of Mauna Kea, mandated by the Board of Regents and approved by the Governor.

Your Conference Committee understands the major role that the Community College faculty plays in the educational scheme of the State of Hawaii. Therefore, $1 million has been provided for lecturer replacement funds to provide assigned time for Community College faculty to engage in non-instructional activities.

Human Services

Your Conference Committee recognizes the efforts of the Department of Human Services (DHS), to provide services to those least able to provide for themselves. It is especially in these tough times that these services are needed the most. Your Conference Committee sought to balance additional services desired by the Department with the fiscal constraints present in all State departments.

In recognizing the needs of the Child Welfare Services Division, your Conference Committee appropriated over $450,000 for a centralized statewide intake unit and a Title IV-E Eligibility Determination Unit. The centralized statewide intake unit will allow Child Welfare Services to better serve the approximately 20,000 calls per year it receives. With the creation of a stable and well-trained staff, and the use of a single telephone number for 24-hour statewide coverage, your Conference Committee feels that the Department will be able to better allocate its resources to handle these cases of child abuse and neglect. The Foster Care – Income Maintenance Title IV-E Eligibility Determination Unit will help the Department maximize federal reimbursements to the State of Hawaii as it handles complicated foster care regulations.

The Health Insurance Portability and Accountability Act of 1996 requires health care providers to meet stringent federal regulations regarding privacy, security, and transactions and code sets. Your Conference Committee, in recognizing the importance of meeting federal deadlines, has provided for a department-wide HIPAA coordinator for the Department of Human Services. Previous State legislatures have provided for compliance for the different divisions of the Department, but there has been no department-wide oversight for HIPAA compliance. Your Conference Committee believes that oversight on a departmental level is critical to ensure that resources are allocated properly and that the department as a whole achieves compliance.

Child placement board and related payments is once again a cause of great concern for your Conference Committee. Costs are continuing to rise even faster than projected amounts. The Department can not control the number of child abuse cases that are reported, necessitating action on the part of the Department. Not providing for payments for those who care for foster and adopted children would be callous, however, in light of the current economic situation, careful scrutiny of any rising costs is warranted. Your Conference Committee is especially concerned with the increasing additional average monthly costs for difficulty of care payments. In spite of this, your Conference Committee appropriated an additional $3.125 million across all means of financing for these increasing payments.

The Department of Human Services provides benefits and services to disadvantaged individuals throughout the State, and your Conference Committee recognizes the importance of these services and acknowledges the role of government as a provider. Although it may appear easy to find excess in the DHS's billion dollar budget, your Conference Committee found that reductions to the Department's budget would either reduce payment levels themselves or reduce the positions that serve to administer these benefits. Accordingly, the reductions made are those that have minimal impact directly to the Department itself and indirectly to the thousands of people it serves.

Public Safety

The Federal Aviation Administration has mandated increased security requirements at Honolulu International Airport (HIA) as a result of the fatal events of September 11th. To comply with these new requirements, and to keep one of the nation’s busiest airports and key point of entry for visitors to our islands protected, your Conference Committee has provided an additional 36 deputy sheriffs to operate eight new posts at HIA.

Your Conference Committee has noted that it has taken nearly 15 years to obtain compliance with the Spear consent decree, which obligates the State to maintain prison facilities in accordance with federal incarceration standards. To maintain the State’s accreditation with the National Commission on Correctional Healthcare and avoid further legal entanglements your Conference Committee has provided over $3.2 million to route an additional 150 inmates to out-of-state incarceration facilities.

Your Conference Committee is impressed with the results of the Department of Public Safety’s sex offender treatment program and has approved $215,498 to identify problem offenders who should not be released on parole and ready those inmates whose success in treatment may significantly reduce their likelihood to re-offend after release. Since 1988, the number of sex offenders paroled from prison has doubled to an average of 58, while the number returning to prison on new sex crime convictions has steadily decreased to a recidivism rate of zero in the past three years.


Your Conference Committee has provided for new positions at the Department of Defense to coordinate and plan State anti-terrorism activities and oversee Civil Defense communication systems. Your Conference Committee also provided funds to maintain the Department of Defense’s funding of Civil Defense, Hawaii Air National Guard, and the Hawaii Army National Guard at the appropriate levels.





Your Conference Committee in consideration of the Department of Agriculture’s general fund reductions has restored and preserved essential programs. Understanding that the agricultural community has suffered significant reduction in operating funds, your Conference Committee is committed towards supporting the State’s agricultural economy by preserving vital agricultural programs.

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

Realizing the importance protecting Hawaii’s consumers and private industries, your Conference Committee restored funds for the measurement and standards program that will protect our consumers, businesses, and manufacturers from unfair practices from the use of inaccurate commercial measurement devices. The use of accurate commercial measuring devices ensures that the public and businesses are protected from incorrect pricing and saves millions of dollars for the people and businesses in Hawaii.

Land and Natural Resources

Your Conference Committee believes that further reductions to the land and natural resource programs will seriously impact natural resources held in trust by the State. Accordingly, your Conference Committee has appropriated funds necessary to ensure that these resources are conserved and protected. To protect and enhance Hawaii’s forest watershed and unique native plant and animal species, your Conference Committee has appropriated over $5 million in state and federal funds to support the natural area partnership, watershed management, youth conservation corps, and endangered species programs. These programs will protect and improve the condition of forests that benefit Hawaii’s water supply as well as enhance the ecosystem of Hawaii’s threatened and endangered species.




Your Conference Committee encourages the economic development of commercial fisheries and an environmentally responsible aquaculture industry by providing an additional $150,000. These funds will benefit the people of Hawaii by conducting research on the restricted fish areas for bottomfish species and a survey on the impacts of shoreline fishing on marine sea turtles. Your Conference Committee further provides an additional $250,000 for the detection and eradication of invasive species to prevent future economic and ecological damage to Hawaii.

Your Conference Committee understands that our State parks are a vital resource for residents and visitors alike, offering educational opportunities, as well as a diverse coastal and inland experiences. Your Conference Committee believes it prudent to reinvest in and maintain the State park system. To this end, your Conference Committee restored over $600,000 to maintain and preserve these vital resources for the present and future generations of the people of Hawaii.


Following the events of September 11th, one of the greatest areas of concern became our airports and air safety. Your Conference Committee understands the importance of security and has appropriated an additional $17.7 million to the Department of Transportation to assist in addressing security concerns at airports statewide. Maintaining safety on our State’s runways is a paramount concern to your Conference Committee, which has appropriated $3 million in all means of financing for specialized fire trucks to replace the current aging fleet. This will ensure compliance with federal regulations to keep our airports open for travel.

While your Conference Committee recognizes the service Vanpool Hawaii provides to the citizens of Hawaii, it expresses grave concerns over accountability and responsibility for the program. The Vanpool Hawaii program was started in 1994 with the understanding that the State would provide funding for only a few years, after which the counties would pick up the local cost. However, it is now 2002 and the Department of Transportation is still using State highway funds to subsidize the program. Your Conference Committee has provided funding for the continued use of Vanpool Hawaii for one final year and demands that the State Department of Transportation obtain county funding for this program. In addition, your Conference Committee requests the Department of Transportation to provide performance indicators for the Vanpool Hawaii program.

Attorney General

In response to the need for information technology support personnel in the Department of the Attorney General, your Conference Committee has allowed for the more efficient use of existing personnel with the transfer of personnel and resources for the purposes of a Data Processing User Support Technician and an Information Accuracy Analyst.

Your Conference Committee recognizes the need to combat healthcare fraud and has provided funds for the continuation of efforts towards the prevention and prosecution of fraudulent and abusive billing practices that contribute to the expanding cost of not only the State Medicaid program, but other health care insurance programs.

Labor and Industrial Relations

The Department’s Office of Community Services (OCS) utilizes contracts that provide basic assistance to those most in need in our society – particularly the economically disadvantaged, the immigrants and the refugees. Your Conference Committee has made a conscious effort to maintain funding of these contracts at the uppermost levels and deflect any reductions that would adversely affect the Office of Community Services (OCS).


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

Accounting and General Services

For the Department of Accounting and General Services (DAGS), your Conference Committee has sought to facilitate the efficient use of State resources, focusing on core programs and activities, and providing only basic needs and services. Consequently, this supplemental budget contains a minimal number of new appropriations for high priority programs and services.

In this light, your Conference Committee has provided for the care and upkeep of the historic No. 1 Capitol District Building, allowed for grounds maintenance personnel and supplies from the Department of Land and Natural Resources to be transferred into DAGS, and also allowed for the payment of maintenance and custodial costs to DAGS from the Department of Commerce and Consumer Affairs.

Your Conference Committee has allowed for the payment for services provided by the Information and Communication Services Division to maintain and service the licensing system for the Professional, Vocational, and Licensing Division of the Department of Commerce and Consumer Affairs.

Your Conference Committee believes in protecting the State’s assets and has accordingly authorized an additional $2.7 million ceiling for risk management mitigation services to provide protection to the State from catastrophic losses. This enables the purchase of property, crime, and liability insurance for the State, and the continued coordination of loss control measures to minimize the cost and reduce losses to the State.

Your Conference Committee has also sought to provide the best fit of program resources in transferring funding for the Hawaii Disability Rights Center to the Office of Community Services.

Capital Improvements Program

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

In addressing the Governor's additional $900 million dollar CIP request, your Conference Committee considered the impacts that a potential $1.5 billion in new construction projects may have on the State's economy. Expending too large an amount in capital improvements at one time has the potential to saddle the State with too much debt, as well as create artificially high demand, which may in turn cause project bids to increase. Your Conference Committee also gave careful consideration to the correlation between the construction of new facilities and increases in operating costs.




While public funded construction may serve as a means to stimulate economic growth, there are some indications that privately funded construction projects are on the rise. Providing additional tax credits as incentives for such projects may be the more appropriate method to stimulate growth in this sector. However, your Conference Committee recognizes that opportunities exist where it makes sense to invest in the State’s physical infrastructure. As such, your Conference Committee finds it reasonable to authorize an additional $475 million in new expenditures on construction. Your Conference Committee views any stimulative effect this additional authorization of construction may have on the economy as an added benefit of sensible investment in the State’s infrastructure.

Over half of the additional construction expenditures your Conference Committee authorizes invest directly in the State’s educational infrastructure. Your Conference Committee sets aside $210 million for the repair, maintenance, and improvement of our State’s public schools. An additional $56 million is also provided by your Conference Committee for the repair and upgrade of University of Hawaii facilities. Much of the remaining new construction expenditures your Conference Committee provides are for the health and safety needs of various facilities and institutions statewide.


The nation-wide recession and world-wide sense of fear and apprehension, which arose from the September 11th terrorist attack, contributed to the decline of Hawaii’s economy and brought about a predicted $315 million decline in revenues for fiscal years 2002 and 2003.

Faced with the predicted two-year revenue shortfall, your Conference Committee, as well as the rest of the State Legislature, considered numerous revenue generating alternatives and cost-cutting options in order to ensure a balanced State budget. Your Conference Committee was instrumental in the movement of various revenue generating legislation, which included an increase in the tobacco tax, the transfer to the General Fund of interest generated in the Hawaii Hurricane Relief Fund, and the conveyance of approximately $140 million to the General Fund from various special and revolving funds.



Your Conference Committee recognizes that government cannot be all things to all people, but has crafted a budget that, although not comprehensive, will provide sufficient resources to allow State agencies to maintain essential public services. In light of the State’s financial situation, your Conference Committee respectfully submits this budget with guarded optimism, as it believes that the worst is behind us. Your Conference Committee believes that this budget will balance the State’s revenues and expenditures for the present until the expected upswing of the State’s economy in the upcoming years.

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.

Respectfully submitted on behalf of the managers: