House Standing Committee on Finance

We're going to convene the Committee on Finance for our first hearing. This is an informational briefing for 2025. So because it's our first one, what I'll do is maybe have the members introduce themselves because we have new people on this committee. My name is Kyle Yamashita, and I'll be serving as Chair. Vice Chair.

Hi everyone. Good morning. Jenna Takenouchi, Vice Chair, House District 27.

Good morning. I'm Lisa Kitagawa. I represent District 48, Kaneohei to Ka'a'awa and will be overseeing CIP.

Good morning. Daniel Holt, District 28, GIA manager.

Good morning. Dee Morikawa, representing the Island of Kauai, South and West Niihau.

Good morning. Matthias Kusch, District 1, Hilo, Hamakua, Kona, Ka'u.

Morning. Tina Grandinetti, District 20, Kapahulu, Kaimuki, Kahala, Diamond Head.

Good morning. Shirley Templo, District 30, Kalihi, Kalihi-Kai, Keehi, Lagoon, and Hickam Village.

Morning. Ikaika Hussey, Kalihi, Kahuku.

Morning. Mike Lee. Kailua to Kaneohibe.

Aloha. Happy New Year. Sue Lee Loy, House District 2, Hilo, Waiakea-Uka.

Good morning. Tyson Miyake, District 10, Wailuku Maui.

Aloha and Happy New Year. Rachele Lamosao, District 36, Waipahu.

Hey, thank you very much, everyone. Okay, first up is our economic outlook, and we'll start with Reed, Department of DBEDT, and we have Dr. Tian this morning with us to give us a presentation of the economic outlook of the state. Please proceed.

Thank you. Chair Yamashita, Vice Chair Takenouchi, and members of the committee, Happy New Year. First, I think I submitted my presentation last week, Friday, but what I added today is actually a summary. First, I want to give you a summary of what I'm going to present.

So to summarize what's happening, most of the data available up to November 2024, and what's happening in 2024 for the first nine months and what we will see in 2025, there are several areas we are in good shape. The first one is construction.

Construction, it is in historical high level both in terms of construction completed as measured by the contracting tax base and also the construction workers is historical high at over 40,000 workers on a monthly basis. Real estate is catching up. We had a great sales in 2021 and we decreased in 2023.

But 2024, the first nine months is increased by about 18% in terms of volume of home sales and price also increase. And labor market is stabilizing our unemployment rate at 2.9% for six months in a row. So it's lower than the U.S. The U.S. is about 4.2%.

For the first 11 months, for the state level unemployment rate at 3%. So we were the 11th lowest among all the state. Initial unemployment claims is even down below the 2019 level. So the last week, even including Maui, we are below the 2019 level. And we do have challenges. The challenges first is the inflation. Hawaii have high inflation in 2024.

So we were average about 4.4% in 2024 while the nation is about 3%. So we were 1.4 percentage point higher than the nation. We lost the labor force or labor force shrinking. So compared with the third quarter 2019, we lost about 15,000 labor force. We also decreased in employment in 2024 compared with 2023.

With the industry for the first 11 months it was still a decrease in terms of expenditure decreased by 0.8%. In terms of arrivals, decreased by 0.2%. This is in nominal dollars. If we include inflation, the visiting expenditure will decrease more. What happened according to the data?

We see the future potential, including this year, the industry growth will be coming from healthcare, will be coming from professional services, will be coming from construction, and will be also coming from the recovery of tourism. And also will be coming from diversified economies such as renewable energy, aquaculture, creative and technology.

So now I'm going to more details. This slide shows the economic forecast for the world. It is done by 50 top economic forecasting organizations, mostly in the U.S. So you can see the U.S. economic growth for 2025 at 2.1%. 2.1% is very strong. The average for the last 20 years is 1.9. So the economic growth for the U.S. is still above the normal growth.

And the good thing is we see the tourism market countries, the Canadian economy, Japanese economy, will increase, especially for Japan. It was negative last year and will increase 1.2%. And we also see the Euro areas, especially the UK and Germany, they will increase. And we'll see the Oceania, Australia, will increase.

So that's good news. Although this is economic condition for those countries which send a lot of visitors to us, economic wise they are doing good but in the supply side, I'm going to report to you it doesn't look significant increase in terms of the flight and air seat.

So in terms of the economic recovery where we are, we have--the economy has fully recovered since the third quarter 2023. But the recovery is slow, as this chart shows that the U.S. compared with the first three quarters 2019, Hawaii, we ranked the second lowest. Our recovery is only about 1.5% higher than the level of 2019.

So the only state below us is North Dakota. The U.S. real GDP is 12.6% higher than 2019 level. So it's mainly because our tourism industry has been impacted a lot by the COVID and also by the Maui wildfire. So this chart actually shows the non-tourism has recovered as of the first--the third quarter 2024 is 3.9% higher than the 2019 level. But a tourism sector which include transportation, include retail, include hotel and food services and entertainment, the recreation entertainment, the recovery is only 94.5%.

So we still need a few years to be fully recovered. In terms of jobs, yeah, this is the economic structure I presented last year. As you can see, this is the first three quarters of 2024 data. You can see the U.S. economy and Hawaii economy. We have four industries overlapping among the top five industries.

But among the top five, Hawaii is actually--two thirds of the economy is coming from the top five industries. The U.S. economy is also coming from the top five, but they only about 55%. Hawaii is 67.5%. So our economy is more concentrated. The USA's economy is more diversified. The main difference is actually you can see is manufacturing.

The U.S. economy is 10.2% from manufacturing, but Hawaii is 1.7%. Another significant difference is government. The second from the last row you can see government in the U.S. is 11.2%, but Hawaii is almost 20% is coming from the government. Also hospitality. The U.S. is 3.9%. Hawaii is 10.7%.

So those all indicating that Hawaii is more concentrated in a few industries historically. But we look at it the last 20 years, 2005 and 2024. This is the latest data from the Bureau of Economic Analysis. The top industries is increasing in their importance, which means its share in the economy, including real estate, rental, and the leasing is because of Hawaii's high price of housing.

Healthcare, professional services, and transportation warehousing, they have been increasing which is part of the tourism. Finance insurance is flat, but we have many sectors are declining. This chart shows the--one of the summaries I presented is the unemployment claims. The unemployment claims you can see from 2019. The state level is about 1176, and the 2024 overall we are below. Only Maui is above. But December 28, the data, the latest week available, you can see all the counties including Maui is lower than the 2019 level.

So this indicating that our labor market has been stabilizing. So from the unemployment rate, from the unemployment claims, and from the the other, I will show you that in terms of the hiring and the QUID separations. We are kind of stabilized, but in the small base. So in terms of job growth, this is payroll jobs.

Only Hawai'i County has fully recovered. They actually increased by 200. The negative means is an increase. Increase 200 jobs compared with 2019. But all the other counties is still recovering. For statewide, we still lost about 21,300 jobs. Maui County lost the--the recovery is only about 88.2%. It's the lowest among all the counties.

It's mainly because of the wildfire. And this shows the job openings. So you can see the job openings--even we compare with 23 and 24--the job openings is declining. So the declining--the level of declining is actually is even below the 2019 level. Our industries are not hiring in, you know, compared with last year, 2022, 23.

So the hiring rate is lower. And in terms of hires, you can see the green line is declining, but the separation is actually is increasing. So there are two period, the one I showed in the last 15 years. 2020, we have more separations because of layoffs and retirement, but 2024, we did show more separations than hires.

I think the separations is mostly is due to more retirement, not only from the state, from the government, but also the private sectors. There are more people retiring. So that is part of the reason for separations. And also we do see an increase in layoffs during the second part of the year.

And this is another summary I provided. Construction industry has been booming, and this is the--we are talking about the contracting tax base is increased by 19.6% based on our estimate for the first nine months. My estimate for the full year 2024 is above 13 million. 13 million for the construction industry.

So you can compare with tourism is about 13 billion. You can compare with tourism is about 20 billion. So the construction industry is increasing. You can see this is the construction payroll jobs in the first 11 months. The average is 41,500. So this is historical high. Even during the COVID period, the construction jobs is pretty much flat.

We have a small decrease in the first few years after the COVID, but it increased a lot in 2024. This is the building permit value is accepted value. We tabulated for the first 11 months. We compare with the first 11 months 23 and 24. We do see 18.9% increase.

So it indicating that next year, this year, 2025, the construction industry will be busy statewide, but it will be concentrated on Honolulu and Hawai'i counties. Maui County, Kaua'i County shows a decrease in the value of building permit. It takes about a year from the time the building permit issued to the start to pay for the construction activities.

So this is a leading indicator for 2025. That means the construction industry citywide, it will be still good--statewide, but it's not even. And this shows the home sales. We have home sales from the Title Guaranty including all the home sales.

And about 82% of the home sales is through multiple listing, is about 18% of them is sold by Facebook, Craigslist, or by developers. So the number here including all of them, you can see 2021 is the peak historical high. The total sale for that year is about 26,000.

But this data presented here is the nine months and the increase is 18% is increased from all--for all the counties. So you can see because 23 was a decrease, even it is a decrease at double digit. But it is still far below the 2021 level. And the price here, it is the price--this is different from the multiple listing.

Multiple listing is only through the whatever--through the realtors listing, this including all the sales. You can see single-family price. They all increase in all the countries. But for condo prices, is a little mixed. We do see an increase in Maui and Kaua'i County and we see small decrease in Honolulu and Hawai'i County.

If you look at the data, there are some interesting fact because if you look at the single-family prices, you can see Honolulu is actually more affordable than Maui and Kaua'i.

And if you look at Maui, is actually the condo sales price is higher than the single-family prices. And we did do a study on the crowd needs of the residential homes. Maui County is the most crowded among all the counties. So this shows our tourism industry. And as I reported, we are still weak in 2024.

The first 11 months, we are down by 0.2% in arrivals, but the U.S. market is still increase. Compare with 23-24, the U.S. market was a decrease, but it's still higher than the 2019 level. For the U.S. West is 8.2% higher than the 2019 level. For the U.S. East is 3.5% higher.

But at the Japanese market, the recovery rate is only 45.1%. The Canadian is less than 80% and on our other market is about 82.4%. But we do see a growth in the cruise industry. It's increased by about 13.5% as compared with 2019. Looking into the first half year, 2025, we don't see a great increase in terms of the air seat.

This is the air seat. It's pretty much flat. So you can see we still have an increase from Domestic, namely U.S. West and U.S. East, but we do see a decrease from International, especially from Japan and Canada. There was a flight called ZIPAIR, is a low-cost airline has stopped operation.

I think it's a suspension of operation at the end of October and it plans to resume in the middle of March. But I think the merge of Alaska Airline and Hawaiian Airline is actually result in a net increase in flights and also the air seat. Alaska will decrease flight and seat, but Hawaiian will add more.

But overall we see the first half month is flat in terms of the air seat. But in 2024, it was a year with a leap day in February. If we take out that one day, one day equivalent to about 162 flights. If we take out that one day, the increase is about 0.7%.

And we also have higher inflation rate is driven by the--primarily by the rental. And Hawaii Island, inflation rate for overall 2024 is about 4.4%. The U.S. is 3%. So while we are 1.4 percentage point higher than the U.S. and our inflation rate is mainly driven by the housing price--the rental price and as well as the price for services. The services also increase more than the average. Our forecast--we done this forecast in the beginning of December.

And we actually forecast as you can see in many indicators, especially visit arrivals. In 2019, we have 10.4 million. So you can see the recovery in tourism we projected will be recovered in 2027. And in terms of the job count, it's called non-agricultural wage and salary jobs, will be recovered in 2027 as well.

It's mainly is they are side-by-side tourism related. We lost more jobs in the tourism industries. So when tourism recover, the job will recover. But we do see some differences in the top population. The new data came out about two weeks ago. The Census Bureau revised the 2011 to 2019 that we call intercensus data.

In the past we--the data shows that Hawaii started to decrease in population since 2018 and five, six years in a row, but now the data shows that we did decrease population in 2019 but we had an increase in 2023 and we have an increase in 2024.

But regardless of the increase, the small increase, in the population side we do have see some challenges and one is Hawaii's aging our population. I think we are the seventh oldest in terms of 65--people 65 and above. And also we have about a little over 2,000 difference between birth and death.

So we have 2,000 more births than death, but in the next few years, the trend will reverse. We'll have more death than birth. So the population growth in the future will be mainly coming from in migration. Big Island already, we have more death than birth. Hawaii is not alone. In the whole United States, there are 19 states.

They have more death than birth. But on the mainland, it's easier. They can move from other state. But In Hawaii, the U.S. census data shows that we stop the night migration in the last two years because we get more in migration from international. I think that concludes my presentation.

Okay. Thank you very much, Dr. Tian. Okay, what we're going to do is we'll do questions at the end, so we'll take a short break and let Dr. Bonham set up, and then he'll do his presentation. So, short break.

[In Recess].

Okay, we're going to reconvene the Committee on Finance, our informational briefing on the Economic Outlook. Next up is UHERO Executive Director Dr. Carl Bonham. Morning.

Hello, Chair, Vice Chair. Sorry for that small technical delay. And to compensate, I'll keep my remarks brief. Eugene shown almost all the data, and we have a few differences of opinion on what the data show, but by and large, I say that our overall view of Hawaii's economy for 2025 is better than 2024.

Lots of risk on the horizon, and I'll talk some about that. Actually, the title of the talk comes from our fourth quarter forecast report, and the word 'uncertain' is a key, a key piece of the outlook for 25 and 26. Longer term--and by longer term, I really mean, you know, 26, 27, 28, and beyond, our outlook is pretty sanguine and nothing to get excited about.

It's--I wouldn't call it bleak, but it's--and actually, Dr. Tian spoke to some of the issues, primarily demographic issues, so let's just kind of jump right in if I can get the page to move. Wrong way. All right, got to go back to the top.

There we go. So the uncertainty, a lot of it is coming from the new Administration, and so rather than me talking about every one of these bullets there, basically in order to do a forecast of Hawaii's economy--or any economy in the world for that matter--you have to make some assumptions about what the new Administration is going to do, and those assumptions will be wrong.

You know, we've just seen in the last couple of days, there was a Washington Post piece this morning about supposedly we were going to walk back some of the tariff promises from during the campaign, and then President Elect Trump immediately posted in social media that, 'no, that's not true.' He wasn't walking these back at all.

And so, you know, we don't know. I think the highest probability is that we will get an extension of the Tax Cuts and Job Act, and almost in its entirety. Whether we'll get any of the other tax cuts that were promised is very much up in the air.

And the sort of disputes that we've already seen around extending the U.S. debt ceiling tell you that the very slim majority in the House is going to be a challenge. And there are House members that are genuinely very concerned about U.S. debt and deficits, and these matter a lot. And so my guess is we will not see.

And when we did our forecast, we did not assume that we would get all the other tax cuts that were discussed on the campaign trail. Immigration: we also don't know what the outcome is going to look like.

We'll know a lot more in January and February and so we'll be--obviously we'll be updating this in our next report. The combination of the tariffs, of potential for broad tariffs across the goods that are imported into the U.S. and significant deportations lend themselves towards a world where inflation is higher than it would have been otherwise.

So I'm not talking about inflation going back up to 9%, but I'm talking about inflation that maybe hits 3.5% instead of 2%. And so what that means then is higher interest rates, and again, not interest rates jumping 200, 300 basis points, but interest rates staying higher than we would have expected just five or six months ago.

And an important combination of these things in Fed policy as well creates some headwinds for Hawaii. The interest rates are obviously, are a challenge for the housing market. They're a challenge for people, particularly consumer revolving debt, where you have sort of the most immediate impact of short-term interest rates, and then it's a challenge for the value of the dollar--well, the value of the yen.

And you know, actually a lot of the visitor recovery that we saw in 2024, one of the reasons that the overall visitor numbers in 2024 weren't worse than they were was because we did see continued recovery in the Japanese numbers, although it has stalled throughout the year. And so these policies directly--I mean, the reason I'm spending so much time talking about the U.S. is basically in today's visitor industry, where the U.S. goes, that's where the industry goes.

They account for roughly three quarters of all visitor spending in the state. And so it's incredibly important. Deregulation is probably the one bright spot in some of the potential for the new Administration. There's always good reason to revisit regulations that have piled up over the years.

Those can make a difference. They aren't likely to make much of a difference in 25 or even 2026. These are more long-term, long-term factors. I didn't include in here--excuse me--DOGE or other cost-cutting ideas, and obviously there's some risk to support for all kinds of programs that operate in Hawaii that could act as a drag, but we just simply don't know where those are going to materialize.

So I mentioned inflation, and this comes from--really from a focus--not just on what we're paying for our goods and services, but Fed policy. And the Federal Reserve is unlikely to change its policy significantly out of, say, expectation of tariffs or tax cuts or any of these things. They're very data-driven, and so this is one of the data points that they look at. This is the five--it's called the five-year breakeven inflation rate.

And it's basically an estimate--it's a measure of what the bond market thinks inflation is going to be over the next five years. And I could go into how it's calculated, but it doesn't really matter. This is what financial markets think.

And so what you can see is that basically from September of 2024, right after the Democratic convention and as really as betting markets started to put higher and higher probabilities on a Trump victory, the bond market started increasing its expectation of inflation.

So I'm talking about this move from the low point in September to where it is now, and I'm not, you know, it's not that it's gone through the roof, but it has stabilized at little bit under 2.5%, right. So higher than the Fed's target, and it's stabilized at that level, a level we haven't stayed at for any extended period of time over the last four or five years.

And so it's, it's showing an indication of rising inflation expectations. And this is before the policies start to come into effect. And I'll mention one other risk. So, let me pause for a second. Overall outlook, I think, for Hawaii is pretty decent: continued recovery of tourism, rebuilding on Maui, the construction industry. I don't know if Dr. Tian mentioned this, but in 2024, the construction industry added roughly, if I remember right, it was over half the jobs created in the state. The construction industry is firing on all cylinders.

Those are all positive, but there's all these risks that we're facing that sort of cause me to lose sleep at night. And the one that seems to be growing and it's showing up in some of the data is--I'm not sure I want to mention the risk now since I know it'll be the headline--is bird flu.

And the way it's showing--and the reason I'm talking about that right now is because it's showing up in the data. Over the last year, poultry and egg prices went up, I think, 19% year over year. No, that's not right. The 19% increase is basically what farmers are getting for their livestock.

So all livestock. Poultry and egg were up over 40%. And those are bird flu effects, right? Those are the results of culling herds, culling, you know, eliminating your poultry farms. And so that's a--there are some risks to the inflation front which sort of pile on to the other policies, and there I would say there's the effects in Ag from something like bird flu and there's also energy concerns. We've recently seen some spikes in natural gas prices that could also be a source of higher inflation going forward.

Sorry for the sidetrack there on risks but--so one of the reasons that we think there's not only a risk of higher interest rates but also some likelihood that things will be challenging in Congress to pass some of the proposals, particularly the tax proposals, are the situation for the U.S. federal debt.

And we know that many House Republicans are very concerned about the debt, the debt ceiling, the deficits, and this is just a graph of debt as a percent of GDP. This is from the Congressional Budget Office. And we were basically at 100% of GDP in 2023 and heading for numbers we've never seen before.

And this forecast assumed that the Tax Cuts and Job Act would not be reinstated or renewed, right, because when they do their forecast, they do them under current law, and under current law, the Tax Cuts and Job Act will expire sometime near the end of 2025.

And so when you put the Tax Cuts and Job Act re-upping back on the table, this picture gets worse. And you know, we've been talking about this for a long time. There's nothing particularly new. I mean, the surge of pandemic spending and Great Recession spending contributed to to making this more of a problem, but this is a problem for long-term interest rates.

That is really a sort of a risk of the bond market vigilantes showing up sometime in the next year or two and driving up borrowing costs in a way that significantly impairs the U.S. fiscal--not only U.S. fiscal health, but also the ability of the government to act and has a direct impact on investment.

I'm not as pessimistic as I sound. So having said that, these are our forecasts for interest rates going out to 2026. Basically, we still think the Federal Reserve--the blue line is the Fed Funds Rate--so we think we're going to get two cuts in the Fed funds rate this year. We'll probably get one early.

And then when the Fed doesn't know what's going to happen, or they don't know what the policy situation is going to look like, what they should be doing is pausing, and I think that's what's likely. I could very well be wrong.

We may not get a cut at all in the next meeting, but essentially heading towards a Fed Funds Rate of about 3.5%. And you'll note, the gray line, the 10-year Treasury, we basically have that completely flat. We're about 4.6% today. We think we're going to be at about 4.6% for the foreseeable future.

That's roughly what we think of as sort of the equilibrium on the 10-year bond rate. So mortgage rate's coming down very little. What's really happening there is that the spread, right, so the 10-year bond rate is used in setting 30-year mortgage rates and the spread between the mortgage rate and the bond rate has been abnormally high for an extended period of time. And that will begin to go away over time and get closer to historical levels.

But essentially, we've got 30-year mortgage rates sort of stuck at 6%. So there's no salvation for affordability coming from financial markets. The only way to deal with affordability is to build more homes, stabilize prices, and raise people's incomes. Oops, sorry, I keep hitting the wrong button. What happens when you use a...okay.

So last slide about the U.S. So as I said, if you're going to do a forecast at this point in time, you have to make assumptions about the incoming Administration's policies. We did that. The blue line was our forecast pre-Trump Administration. It was really the pre-election, almost the pre-election forecast.

And so that forecast had a real GDP growth for the U.S. of about 2%. So we raised that forecast for 2025 partly because we were, we were originally sort of betting we would see the tax cuts early. And the idea there is that they're going to have to do that through reconciliation.

They need to get on it right away because it's a really complicated--it's going to be a challenging lift for Congress to pass these along with the debt ceiling. And so we expected that they would get on that very early and it would raise optimism.

And we've already seen business confidence and consumer confidence go up post-election, I think in anticipation of--mostly anticipation of tax policy. But then you'll notice that as we get out into 2026 and 2027, our forecast brings us real GDP growth down to as low as 1%, real GDP growth.

And that's the effects of tariffs and immigration policy primarily. And you know, we're not talking about recession territory or anything like that, but weaker growth than we would have had otherwise. And so that's--those are the assumptions we made and the inputs that we used in our, in our model. So let's turn and focus specifically on Hawaii.

The reason we spend so much time on the U.S. is as the subtitle here mentions, three quarters of all the visitor spending in the state and roughly three quarters of the visitors are U.S. visitors right now. So this is one of those graphs that we have the quiz on at the end of the lecture, and what it shows is the recovery post-pandemic.

So we index everything to 100, right? So we line all the visitor numbers up because they're very--obviously they're very different sizes, and so what it's really showing you is, you know, if we were at 100 in January of 2020, well, then we went to zero.

So we lost all of our visitors during the pandemic, right, and then you can see in the summer of 2021, when the only rental car available on Maui was a U-Haul truck, you know, U.S. visitors soared to almost 130%--excuse me--almost 30% higher.

Right, if they were at 100 in January and 30 a year later, then they're 30%--excuse me--130 a year later, then they're 30% higher. And the U.S. visitor really stayed at that level until early 2023 when they sort of begin--the revenge travel sort of ended and we were getting back to sort of pre-pandemic levels of visitors.

And then you can actually see some of the spikes associated with the wildfire. And you know, the U.S. visitor arrivals are--I think Eugene mentioned the number--it's 8 or 9% above pre-pandemic levels right now.

And so basically, if it weren't for the U.S. visitor, we would be in a world of hurt right now. Canadian visitors and other international have largely hovered in the roughly 80% recovery. This is basically telling you the same thing, some of the tables that Eugene was showing when he was mentioning the extent of the recovery, and Japan still hovering around 45% of pre-pandemic levels.

So in our forecast, we don't have Japanese visitors recovering to pre-pandemic levels this decade. And I don't see why we should expect that. If you look at past episodes of severe disruption in Japanese visitor travel, whether it was the first Gulf War or SARS or the Great Recession or the Asian financial crisis, take your pick, you rarely--there are occasions where you get sort of V-shaped recoveries. Obviously this is not one of them.

And in many cases you never recover to--right--so we never recovered to pre, to say, 1990 levels of Japanese visitors. So if you look across a bunch of different indicators, and I'll start in the top left, the top row is all about tourism.

And it basically--the point is that the vast majority of the economic weakness that Hawaii experienced in 2024 is really Maui wildfire related. So the blue line is the state without Maui. So it's all the other counties combined. The green line is the state. So if you look--and this is another one of those index charts.

So this starts right before the wildfire. So it's indexed to June of 2023. So basically statewide visitor--this is average daily census--so statewide average daily census is essentially the same as it was pre-wildfire state. That's because the other counties have added average daily census while Maui is still roughly 15% below pre-wildfire.

And same kind of story for spending. This is measured slightly differently. It's the growth--excuse me--it's the year to date growth compared to 2023 and Maui, again, down roughly 15%, state less Maui is down slightly, and then the state as a whole is down almost 5%.

But that's primarily--so essentially if, if the wildfire hadn't happened and Maui was performing on essentially the same as all the other counties are right now, we'd be flat as opposed to being down 5%. If you look at labor market--so the bottom row is about jobs and labor force. Same kind of story.

The dark blue line--so these are, that's not indexed, that's just the level of the labor force--so the dark blue line is the state less Maui. So labor force basically flat. Now notice the longer term trend right from well before the pandemic till now.

I think Eugene mentioned about a 20-something thousand drop in population and that's the same thing in labor force. These numbers are going to get revised upward, so I'll take a pause and talk about the population. No, I'll talk about those later.

But these numbers are going to get revised upward because census revised their population figures for 23 and 24 and the labor force and household survey data is all benchmarked to those population estimates. But you can see that the market drop in labor force on Maui and that's really, again, where the weakness is.

Same kind of story for jobs. The one thing that's different about--so these are payroll jobs and in this case I'm indexing them to January of 2022--but really the story for jobs is very similar. The overall economy: almost no growth. Very, very, very little growth.

So I think our forecast or our estimate for 2024 job growth was 0.7 or 0.8%. Very, very limited. And the only county that's really added--Big Island, Dr. Tian had mentioned that the Big Island is the only county that's recovered to pre-pandemic levels of jobs, and that is true.

And that's partly because the Big Island is one of the only economies that has added population and labor force. Oahu, of course, has many more jobs in terms of adding up to the state total, and so the gains on Oahu and primarily the gains in construction are what have held this together, right.

If you took the construction numbers out, it would look pretty bleak. And a lot of those construction jobs are showing up on Oahu even though they're working on Maui. It's just because their home base, the corporate headquarters, might be on Oahu.

So speaking about construction, the story for construction is not that we're out building a whole bunch of homes. The blue line--so these are our history and forecast of real building authorizations, and the blue area, shaded area, are residential building permits. And so we are forecasting some increase there, but relatively small.

Still, you know, way, way fewer homes than we were building during the subprime lending bubble and all the building on the neighbor islands and not a whole lot more than we've been building for the last decade. Same thing. After you've looked at the blue wedge, now you can't look at the height anymore so much.

You have to look at the thickness of the next wedge and you'll notice that the green wedge maintains a pretty standard--so not a lot of growth there in the non-residential space. All the construction activity is in the government space and it's primarily federal. Now our forecast doesn't have a stadium.

We have not, you know, we have not put--it did get a boost from the latest contract for completing rail, but these numbers basically are Pearl Harbor, a bunch of the money in the Infrastructure and Jobs Act and other federal dollars, obviously some state building activity, any government contracts that have already been let, and rebuilding on Maui.

And so essentially in our forecast, we have an elevated level of total building activity all the way out to 2028 when we get sort of back to sort of normal levels, and that's because of the timeframe on the federal contracts that have already been let and the sort of peak building activity in rebuilding on Maui.

So where do we go sort of once--so in 2025, we're going to continue to have a boost from a combination of some continued recovery of Japanese visitor arrivals, assuming that the yen doesn't drop another 10%, and rebuilding on Maui. And so 2025 is going to look pretty good, but where do we go beyond that?

And the, the outlook is--so this is where I get to that part where the medium term outlook is for relatively weak growth and declining growth rates. That's partly because even when you have growing arrivals, historically, real visitor spending doesn't grow on par with those real visitor arrivals.

So visitors end up spending less per person per day in real dollars and that's kind of what our forecast reflects. The gold line is real visitor spending. Historically, you go through these downturns associated with crises and then you recover. It doesn't matter what the crisis is.

The Great Recession took a little bit longer. You get a recovery and then it sort of stagnates a little bit. And then over 40, 50 years you have essentially flat real visitor spending. And so that's where our forecast goes and that contributes to a weak overall economic growth picture going forward.

But the long-term prospects, the medium to long-term prospects depend on creation of good paying jobs, more affordable homes, high-quality schools, everything that would keep people in Hawaii, keep them from leaving.

They've got to have opportunities that will tell them, 'no, I'm not going to move to Vegas because I can find a good job here and I can qualify for a house that I can afford,' all the things that would either keep people here or attract people to come home.

And the reason I'm talking about that right now is this chart is showing something else that Dr. Tian referred to was natural population change. So this is births minus deaths for all counties, and 2024 is an estimate based on nine months of data.

But basically you have Maui and the Big Island in negative territory with more deaths than births. So the only way the Big Island has been adding population is in migration, right. It's not coming from a bunch of babies being born. It's because people are moving there. Oahu has a little bit higher natural.

So Oahu is measured on the left axis, but all of them--the trends are very similar. So Oahu, measured on the left axis, was at about 7,000 natural population change in 2010 and has now declined to close to 2,000.

And what that means is that the only way you're going to stabilize population and stabilize labor force is through migration. And that's going to require that we create good jobs. We're almost last in the country--actually, I think what Eugene showed was--so the goal line here is Hawaii.

And I think he was comparing, I think he was comparing it to all the other states. He was just showing you the endpoint where as a percent of, say, pre-pandemic job counts, where do we stand? And I'm showing you the same thing, but I'm just showing you the whole time series of the recovery.

This is also an index graph, right, so Hawaii out here at roughly 95, might be 96, is 4 to 5% below pre-pandemic levels of job counts. These are payroll jobs. There's only three other states plus D.C.--no, two other states plus D.C.

There's a total of four regions in the country that haven't recovered their job counts. Hawaii is one of those. And we're almost last, not quite last, and there's a reason for that. One of them is that the people aren't here to work, right. So you lost 21,000 people.

I don't know if that's the old estimate or the new estimate. I think that's--anyway, we lost population from 2020 to 2024, even with the census revisions. We lost labor force. So the people aren't there to hire. So that's part of what's going on here.

But the other--and they're not there to hire for a combination of reasons. One is demographic. People are simply aging out of the workforce. That's not a new phenomenon, but it's continuing at a rapid clip. I don't know if we've passed the peak yet of people transitioning to sort of retirement age. I don't think we're quite there yet.

And then the other one, of course, is people leaving. I'm going to skip that slide, sorry, because I want to talk about the population numbers for a moment. So this slide was done before Census updated their data. And it shows the decade leading up to the pandemic, it shows population growth by county and the state as a whole.

The state's in the middle. And then it showed what our forecast was from 2020 to 2029 for each county in the state. And so you can see that our forecast for the state was population decline. For Honolulu was population decline, for Maui, it was small population decline.

And that Maui number reflects sort of a less pessimistic view of how many people might have left the island post-wildfire than in previous forecasts. But as I said, these don't reflect the new census data. Now--so the new census data says that we grew population in 2324.

Now, I--so we're going to use those numbers, but I caution you not to think of that as any kind of reprieve from the idea that we are facing pressure for people to leave the state to find good jobs and affordable housing. And the reason I say that is because, honestly, I'm not sure I believe the census numbers.

So what they did was they--let me rephrase that. I'm not sure that they accurately reflect what's happening in Hawaii. And it's just simply because of the methodology. What they did was they spent a lot of time working on getting good estimates of immigration, right.

So we've seen a wave of migration across the southern border primarily over the last two years. It's largely ended in 2024 with changes in policy, but we saw many millions of migrants coming across the southern border who were entering the country and were able to work.

So humanitarian migrants who are able to get driver's license and apply for work. Well, so what Census does is so they--and if you look at the increase in population nationally, virtually all of it, all of the revision to their population estimates for 2023 was from that in migration. But then they take that national number and they distribute it out to the states. And the way they distribute it out to the states is based on existing--actually trailing demographic makeup.

So if Hawaii has a--and I don't know the exact numbers, I should--if Hawaii has a Hispanic population that is some fraction of a percent of our overall population or so many percent of our overall population, then that would be how they--or a fraction of the national Hispanic population--they would distribute those new migrants using that historic data.

Now those new migrants are--if they're coming across the southern border and they have to, it takes time for them to get a driver's license and a work permit and so on, I guess I'm just skeptical that they are getting on a plane and coming to Hawaii, right. If they have family here, sure. That's a real possibility.

But my guess is that's significantly overestimating what we are seeing from migration. And I say that without proof. It's just looking at the methodology, my gut is that it's probably overestimating.

So you combine the long-term demographics, which is basically flat to declining labor force without--unless you see a reversal in migration, we're going to be faced with a labor force because it's aging because of limited to low numbers of in-migrants, we face a long-term drag on our economy.

That combined with the sort of historical trend in our biggest industry of tourism tells us that we're headed for growth rates. After that sort of cautious optimism for 25 and 26 where we see GDP growth rates that are elevated 2.5 percent, actually a little bit more than that in 25, we see the longer term outlook as heading for sub 1% real GDP growth. This is per capita.

I should say one other thing about the GDP numbers. DBEDT and UHERO use the GDP data differently, BEA estimates of real GDP. And that's fine. But the way that the Bureau of Economic Analysis calculates real GDP for states, GDP numbers that they give us, we deflate them using the Honolulu CPI.

And so what that tells us is that in 2024, real GDP growth was flat. Zero real GDP growth. The only reason this number is positive is because population declined. The per capita number is--and so we're coming from a slightly different perspective. In our view, Hawaii's economy was pretty much stagnant in 2024.

Very, very little job growth and no real GDP growth. And so we think 25 is going to bounce back from that mostly from all the construction building and some of the continued--excuse me--continued recovery post-wildfire. And I will leave it at that. Mahalo.

Thank you very much. Okay, at this time it would be Dr. Tian. If you can come back up and we'll move on to questions from the committee. Okay, members, questions? Go ahead. Representative Lamosao.

Thank you for your presentation. I had a question in regards to the top five industries slide. I wanted to know, like, what is the makeup of the manufacturing percentage?

Yeah. The manufacturing is mainly--we are small, like 1.7% of the economy. It's mostly is the--including a whole bunch of industries. The petroleum refining, food processing, so they are manufacturing. Then, because Hawaii is mainly is food processing and the refinery. Those are.

So it's food processing and then refinery?

Right. There are others, simultaneous.

Okay.

Like we--macadamia nut processing, chocolate production. Those.

Okay.

You know, so there's a difference between the manufacturing that we do here, right, and the manufacturing that happens nationally. So we don't--we're not doing, you know, heavy manufacturing. No steel production or anything like that.

Thank you.

Okay, thank you. Any further questions? Chairman Kusch.

Thank you. It's for Dr. Bonham. You passed over the rental slide and--on your presentation--and do you--I mean, I've noticed that rental rates and reflected in your presentation here have been flattening out maybe as a result of more housing production.

And then the kind of ALICE, classic Alice renter has decreased a little bit into the upper 20 percentiles. Do you see that trend line continuing flattening or turning around? You know--any insights on that?

That's a really good question. I will say that--so the rental data is challenging at best. There is no one sort of definitive source of rent prices. And the data we follow does show that it flattens out. It's not consistent with the data that Bureau of Labor Statistics--excuse me--Bureau of Labor Statistics publishes, but like the Zillow data, and we scrape rents from Craigslist, and really outside of Maui, particularly on Oahu, we have seen those rents stabilize.

I don't think that's because we've suddenly built a whole bunch of properties. I mean, obviously, it's from both sides, right. It's from a combination of less demand. We went through this boom in demand during the pandemic when everybody needed to move out of their auntie's basement and find a place for themselves so they could--they could zoom for work or whatever it was. There was an expansion of household formation during that time period that drove rents and drove home prices.

And that ended with a combination of rising rents and rising mortgage rates. And then you also have out-migration. So there's the demand side of it and then some additions to supply, obviously. I don't know if anybody's seen the new Kobayashi Project done in Kapolei. It's really awesome. It's adding--so there is supply coming online and coming online in good price points as well. So I can't tell you which one is dominating, but they're both at play.

Do you think that trend will continue or do you think this is up like your housing production graph?

Well, so I don't--so basically, in our forecast, what we're saying is that sort of the rate of building of all types of properties, all types of residential properties, will continue at roughly the same rates, a little bit elevated, and so that would continue to drive sort of stability in those.

Allow for incomes to kind of catch up.

Yeah, I mean, that's what has to happen, right, is that basically--now, you were talking about rents. There's so much going on in the housing market right now from the lack of inventory, that--much of it is--the average mortgage rate for a homeowner in the state, someone who already owns a home and has a mortgage, is probably 4%.

Maybe--I used to have a slide to that effect--but it's so low that it really makes it challenging for people to put their homes on the market and move. And so the lack of inventory in the single-family market suggests that those prices are going to be rising more rapidly than they would otherwise.

In contrast, the condo market has been largely stagnant and inventories have risen to numbers we haven't seen in--what time period--but inventories have risen a lot associated with people unable to take out mortgages for new condos because of lack of insurance.

And so as that gets resolved--and we've also seen the prices of condos stay relatively stable because of that, because inventory levels have gone up in order to sell the condos. You're seeing price reductions. As the insurance challenge is not going away, those prices aren't going to come down a lot, they're seeing some decreases, but they're sort of known now, right. So we now know that we're all going to be paying higher insurance for forever, but that shock piece is gone.

Condo associations will be able to get insurance and that will loosen up, which will then unleash some of that inventory and also help to hold down condo rentals. That's an awfully longwinded answer to say. I think we're talking about continuation of relatively the same trend we had over the last few years.

Thank you.

Okay, thank you for the questions. Representative Grandinetti.

Thank you for your presentation. I think my question is for both of you, but Dr. Tian, you talked about the real estate market recovering as indicated by the number of sales and rising sale prices, but for a lot of our constituents, they experience rising sale prices and rising rents as a hardship. So how do we as legislators kind of reconcile that contradiction as we're trying to understand the data?

Yeah, I think you did a good job in terms of developing the affordable housing and we do see the increase is actually--when we look at the building permit, I did check the big construction building permit, over 20 million, and many of them they are affordable housing unit.

Actually the residential building permit, the value increase for the first 11 months increased about 34.6% and there are about 14,000 affordable housing units in the pipeline for the next three years.

So I think building more affordable housing will be the key to reduce the price of rental because the price of rental also impact the homeowners, the value of homeowners. That's why we see the real estate section, you'll see the industry going up in the state is mainly caused by the increase in the housing price.

Okay, thank you. Any further questions, members? Okay, I got a couple questions. Okay, so the uncertainty that, Dr. Bonham, that you talked about, both of you, with the incoming Administration, when the September Core came out--and I know it's coming up in two days and you probably don't want to comment too much on it--but the biggest change since the September one is this, right?

So you have any--can help us understand what we may see as far as revenue because what we're hearing nationally is year one should be okay, it's year two, three, four that is of concern and then--right--so that plays out in the out-years and then I don't know if you're starting to think about those things.

So, yeah, good question. But that, this is not the--so the new Administration is not the only thing that's changed since our last meeting. The other thing that's changed is revenues for this year jumped, right. So we got a big month in--was it September? I can't remember which, but--

October we had a big jump, but that was, you know, one-time infusion--

No, I understand that, but that rate--so where the core is going to get bogged down in this is that raises your, you know, this fiscal year, and so we may very well--it wouldn't surprise me--and I don't want to guess what the council will decide--but it wouldn't surprise me if the growth rate, say next year, is lower because of this one-time effect in the--

Yeah, those kinds of things cause distortion in the out-years.

They do and they cause a distortion in the decision making at the council as well. And so I think you're right that this fiscal year should be fine. Maybe even next fiscal year I think is probably just fine.

But then as you go out, we're essentially looking at a really, really dirty crystal ball and there's a lot of uncertainty, right. So we don't--no one knows at this point. So what is the council going to do? My guess is they're going to punt and they're not going to change things that much.

I would be a little surprised if we saw big changes in the out-year growth rates because those are--once you get out past the first couple of fiscal years, they just tend to sort of converge on what we think of as a steady state growth of the economy.

So for this committee, I think that's a little concerning because it--right--we have to still consider what the impact may be in the out-years when we're dealing with the current biennium. Right?

So I'm looking for insight as to how we should proceed this coming session because I think there's optimism from the Administration saying there's surplus, but I'm not sure that that is true from a sustainable perspective.

Well, I mean, the surplus for this year...

And I don't know if it's a surplus, but go ahead.

Yeah. Whatever you want to call it--yeah. So I understand where you're coming from. My--I can tell you that when UHERO, when we updated our forecast after the election and what we did was we took what we considered a relatively modest new Administration effect, right.

So we, like I said, we didn't assume that there were going to be no taxes on tips. We didn't assume that Social Security wasn't going to be taxed. We didn't assume all--we just took sort of the Tax Cuts and Job Act extension, a fraction of the deportations that were promised, and sort of a fraction of the tariffs that were promised.

So we took a modest slice at those new policies and they changed the U.S. economy and they do have small impacts on the Hawaii economy. They're not that large, right? It's not like we're I think there are other risks out there that make, you know, 27, 28 even more uncertain.

Okay. Further questions, members? Okay. Thank you very much. We look forward to, you know, before we bring you in and for other--I know that the Senate is having their briefing and I'm sure your conversation may change when you have it with them because that'll be after the Core and things like that. So we'll be monitoring those kind of things. But thank you very much and for briefing us this morning. Okay. We're going to take a short recess and we'll bring the B&F up.

[Recess].

Okay. We're going to reconvene the Committee on Finance, our informational briefing. At this time, we're going to have Budget and Finance brief us on the financial plan.

Good morning, Representative. I seem to be having a little bit of an echo on my thing here. Okay. Okay. Good morning, Representative, Chair, Vice Chair, and representatives of the committee. My name is Luis Salaveria, your Director of Finance. I'm here to present to you the fiscal biennium 2025-27 as well as the multiyear General Fund Financial Plan.

Now we'll go back. Sorry about that.

Is it affecting you, Chair? I seem to be the only person affected by it.

Yeah, go ahead. Let's see what happens. Go ahead.

So I'll go ahead and start, Representative. So this Executive Budget, I'll just go through a simple kind of synopsis of what we have here. All of the information that you have and that I will be presenting is really in the budget and brief that you guys all have, really to go over the Administration's budget priorities in developing this, Governor Green's first biennium budget, as well as the budget and fiscal considerations that we went through in developing it, some of the budget transparency issues that we were dealing with in preparing this upcoming biennium budget, and an overall synopsis of the budget itself.

So as you can see, when the Administration approached the development of the upcoming biennium, we really looked at what the last two years has been done by both the Legislature and the Administration. And really, we felt that improving the overall quality of life for Hawaii's people was always going to be a top priority for us, and as well as enactment of the historic tax measures that the Legislature passed last year.

We are continuing to address the ongoing recovery efforts for the Maui Wildfire disaster. We want to continue increasing housing opportunities, improve access to healthcare and mental health services, expanding opportunities for educational equity, protecting our environment and natural resources, as well as improving government responsiveness and transparency. In developing the budget, there were certain budget and fiscal considerations that we have to address.

First of all was fiscal responsibility and constraint to address potential challenges that we have coming forward. And the biggest challenge that we have is to really kind of address and take into account what we expect are going to be revenue changes going forward, especially with one: the uncertainty with regards to the upcoming Federal Administration as well as the enactment of the tax cuts that were put into play last year, the first of which we'll start seeing--actually we should start seeing now this month with the change of the withholding tables of individual payrolls.

The next is also continued consideration for the state's reserve policy and our Emergency Budget and Reserve Fund, which is at the highest level that it has ever been.

We have continued funding concerns of our unfunded liabilities, which is our ERS and our EUTF and our continued amortization schedules, federal budget uncertainty, of course, because of the Administration changes, international concerns that you heard during the previous Administration--during the previous presentation with regards to interest rate volatility, as well as escalating tensions that could address or impact issues such as supply chain as well as the cost of living here in the State of Hawaii, and again, lastly, the economic concerns that are brought on by a lot of more external issues here.

In developing the budget, the departments were instructed to review their 2025 base budget amounts, and these are the amounts that were appropriated in the previous fiscal year. We took and we reduced nonrecurring appropriations and we added second-year appropriations for recurring expenses that weren't included in the base. We did look at conversion of unbudgeted and underfunded positions through the process of trade-offs and transfers as well as base budget adjustments to delete underfunded and unfunded FTEs.

We began the process of eliminating long-term vacancies. We looked at FTE counts that were vacant for longer than four years and we were allowing departments to reprogram in the funding back into the areas where they felt that they were using it.

I would say that this was--this Administration--and in my opinion, and I've been doing this for quite a long time--probably the most concerted effort to take a look at long-term vacancies--I think this is the first step and it's probably going to keep on continuing going forward.

And we did ask departments and we will be requesting some neutral emergency appropriations to address issues that came up in Q3 and Q4 of this fiscal year 25. And this is due, necessary--this is necessary due to a lack of a special budget provision to authorize the transfers between same funding within the same expending agency.

So this is a synopsis of the 2025-2027 fiscal biennium. As you can see, it is an overall increase. The total budget of all means of financing for fiscal year 26 is 20.5 billion dollars and 20.4 in FY27. In 26, it represents a percentage increase of about 7.4% and about 6.9% in fiscal year 27.

Vast majority of those increases are in non-general funds. As you can see, general funds is increasing moderately by 1.5% in FY26 and 2.1% in fiscal year 27 based upon the FY25 budget base.

A big number to basically bring to your attention was we did increase our Special Fund allocation in order to meet and pay for the collections of special funds that the state is collecting on behalf of the City and County of Honolulu for the rail project. So there is an increase in special fund ceiling for that amount.

This next slide represents a basic breakdown of all of the departments and FY25 budget. As you can see, the vast majority of the appropriations are really within two major departments, and that's the Department of Budget and Finance and the Department of Human Services.

Department of Education follows, as well as the Department of Health, Transportation. In terms of non-general funds, the University of Hawaii Department of Accounting and General Services, and every other department left in the State of Hawaii roughly translates into about 10% of the overall operating budget of the state. And that really doesn't change in both fiscal year 26 and 27.

The next slide basically shows the departmental general funds that are appropriated, which is 10.47 billion in 26 and 10.54 billion in 27. As you can see, the vast majority of General Fund appropriations does go to the Department of Budget and Finance, which you will see in the next slide what it's for.

The next largest pie of general funds goes to the Department of Education, next, the Department of Human Services, Department of Health, University of Hawaii, and once again every other department in the State of Hawaii roughly gets about 10% of all General Fund appropriations. This next slide is a breakdown of where those general funds go to.

As you can see, a vast majority, you know, basically almost a little more than half of General Fund appropriations goes towards non-fixed costs. These non-fixed costs are essentially our debt service and our entitlement programs that we have to pay for. The retirement system, the Health Fund, and Medicaid and Medicare--these are vast majority of the items that we really have no control over. And then our non-fixed costs, like I said, it's a little bit over half is what's left for ongoing operations for the State of Hawaii.

So if you take a 10 billion dollar operation, half of that 5 billion really goes towards OPEX related expenses for departments. The next slide shows the breakdown of our CIP projects coming up. Fiscal year 26, we expect and we are requesting 1.3 billion in capital improvement projects, and in FY27, it is $601 million for CIP.

CIP is a little bit different because usually what happens is in the supplemental year is when you end up filling in the latter half of the CIP projects going forward forward, and as you can see, a big majority of the General Fund appropriations for actually for the GEO appropriations is going for the Department of Education as well as the Department of Business Economic Development and at the University of Hawaii.

That significantly increases in FY27--not significantly because it's a lower number--but the allocation does increase for the Department of Business and Economic Development, and primarily that's for the infusion of money that we are putting into the Rental Housing Revolving Fund as well as DURF.

The next couple of slides, Chair, is an overview of the General Fund Financial Plan as well as a synopsis of what's happening with the Council on Revenues and some statutory requirements with regards to the General Fund expenditure ceiling, Article 7, Section 5, which is addressing the 5% carryover for the state, and then lastly, the state's debt limit.

This next slide is the multi-year General Fund Financial Plan, Chair. As you can see, where we are at right now is, in FY26, we expect revenue to be under--expenditures to exceed revenue by $32.8 million. We estimate right now that for FY27, the second half of the biennium, revenues will exceed expenditures by 239 million based upon the executive budget that we presented to you two weeks ago.

As you can see, we have relatively healthy carryover balances right now, but as I have continued to express in the past, these carryover balances will--do not take into consideration collective bargaining expenditures that need to be negotiated. At this point in time, we only have two bargaining units that currently have contracts for the next two years.

That is the Hawaii State Teachers Association contract as well as the most recently approved contract with the University of Hawaii Professional Assembly. So all other collective bargaining units are currently in negotiation right now, and once we have better--and once we have an agreement or at least a settlement, then we will be plugging those numbers into the financial plan. So these numbers and these carryover balances will change dramatically once those settlement numbers and negotiation agreements are codified.

This next slide basically shows where we were on the Council on Revenues projections over the last year. As you can see in September of 23--and these are one of the reasons why we have the carryover balances where we are at--in FY20, in September of calendar 23, actually, the Council on Revenues projected that we were only going to have 1.3% increase in General Fund revenues.

That significantly changed, as you can see in January 24th when the number bumped up to 4%. And that ended up being what ended up forecasting, and then in May, when we finally got the actual numbers, the number came in at 3.3%. So whenever these numbers and whenever these changes in terms of the Council on Revenues happens, what that does, it has a corresponding effect into the state's bottom line and our carryover balance.

And so what I've done here is basically show over the course of the past year what has changed in the Council on Revenues projections and where we are and the impact that it is having on the Financial Plan. So in September of FY23, these were the projections that we were looking at.

And this is before the enactment or even before discussions of the proposed tax revenue break and plan. And so you can see in September 23, these were the numbers that we were working on. January 24, numbers started looking really good. You see green across the table here. March in 24, basically no change. They kept it relatively fat.

In May of 24 is when, right before the end of the legislative session, Council on Revenues made a couple of other adjustments with regards to the revenue projections. As you can see, it went down. But in September, when they finally took into consideration the effects of the tax reform package that was passed, the revenue is no different than in September of 23, when that wasn't even in consideration.

So the impact that it is having is that the revenue picture is the same before the tax revenue adjustments, the tax revenue, income tax changes, to where we are right now. So I think one of the issues--and what we've been talking about with regards to the Financial Plan is the continual buildup in the carryover balance and what that, what that eventually had an impact on, and that's where you saw those big balances start growing over time.

And so what you're seeing now is that that number is going to basically start to whittle down and then we will have a little bit more of what I call a structurally balanced financial plan. And that is a financial plan that has 15% in hard reserves and a little bit under 5% carryover of General Fund revenues of the state. The next slide is basically statutory requirement.

This is the General Fund expenditure ceiling, and as a Director of Finance, I can report that, right now, the way that the appropriation and the way that the budget has been presented to you from the Administration, that we are well within the General Fund Expenditure Plan right now. The state's growth rate for General Fund expenditures for fiscal year 26 is at 4.3. We are well below that.

In fiscal year 27, it is 5.25, and we are well below that as you can see in the numbers that was presented above. The next slide, basically, is what the Legislature will have to address in this upcoming session, and that is Article 7, Section 5, which requires when the General Fund Revenue--General Fund balances exceeds 5% of the previous year's General Fund revenues, the Legislature has to come in and authorize one of three actions.

One: it's a tax refund, second is a deposit into the Emergency Budget Reserve Fund, or third is a prepayment of certain costs such as increasing our debt service payment, our ERS pension, or our ETF, other post-employment benefits.

And because if you look in FY22, 23, 24 and 25, our carryover of balances continue to be well above the 5% number, and so the Legislature will be facing that requirement in this upcoming session, and I believe we will be presenting a bill in order to have that addressed.

Lastly is the state debt limit, which again, is also included in the testimony that I provided to you, and that is a calculated amount of principal on interest on all bonds issued and outstanding, all bonds authorized and unissued, and all bonds being proposed in the Executive Budget.

The total amount of issued and outstanding general obligation bonds in the State of Hawaii is 8.8 billion dollars. So this is actually what we have issued and what is outstanding right now. We have 5 billion dollars of authorized but unissued general obligation bonds, and this upcoming Executive Biennium Budget is asking for an additional authorization of about 1.9 billion dollars.

Our projected debt service for the Executive Biennium Budget for FY26 is 1.28 billion and 1.32 billion in FY27, and based upon the declaration, the State of Hawaii is still within the state's debt limit. And with that, Chair, that concludes my presentation, and I'll be happy to answer any questions that you may.

Okay, thank you very much. Okay, members, we're going to open up to questions. Anybody? Representative Kusch.

Can you just talk a little bit more about the unissued general obligation bonds? I know Chair showed us a presentation with a bond sitting around 10% with a threshold of 18 and a half, I think, by a constitution. How do these play into that number and what exactly are they?

So this is based upon the Capital Improvement Budget that the Legislature passes. We do not issue bonds based upon the projects that you do. We issue bonds based upon how you how the state spends the money because what we do not want to do is we do not want to issue bonds and sit on proceeds and pay debt service and pay interest on money that we're essentially not using.

So if you were to take a look at all of the projects that have been authorized by the Legislature, again, the 8.8 billion that has already been issued, for a lot of that, those projects are probably done and complete already, and then the projects that are currently on the books, what we'll do is we will issue debt based upon our expenditure plan and not based upon what was budgeted and appropriated.

So that outstanding one, those are essentially, basically bonds that we can still issue in order to cover the existing projects that are on the books. That being said, projects also lapse. So if a project lapses, technically what we need to do is we just need to balance out what we have outstanding, what we have authorized, what's lapsing, so that we kind of continue going down a more structured debt program for the state.

Okay, thank you. Further questions? Representative Kitagawa.

Hi, Director. Quick question. I guess the governor has been talking about a surplus and a budget surplus and there's all this extra money, and I'm looking at your slide 13 where you showed the Council on Revenues and the amounts seem to be the same and the two presenters before Dr. Bonham talked about kind of stagnant fiscal outlook, so I'm wondering where this idea of a surplus is coming from and how he anticipates having this sort of positive surplus outlook.

So I will say that a definition of a surplus means that you have no use for that money. Technically, there is uses for that money, but what we're trying to do essentially is maintain a financial plan that has, again, a carryover balance in order to address that.

So where we are in the Financial Plan--and I would say that instead of using surplus, I would use a carryover balance--is that we have enough carryover balance in order to address this current fiscal biennium as well as what we think are going to be projected expenses going forward, and the most important one and the one that we know that we're going to have to address, is collective bargaining increases.

So I think when you look at slide 13, which is the Council on Revenues projections, and the slide right before that, which is the General Fund--the multiyear General Fund Financial Plan, the expectation is that as we continue to go forward in this, if the Council on Revenues maintains their existing forecast, we should be gradually kind of moving into what I'm calling that structurally balanced financial plan again. 15% hard reserves, 5% carryover balance.

That being said, I think what you've heard from both Dr. Tian as well as Dr. Bonham and what you're hearing from myself is that there's still a lot of uncertainty. One of the things that we are continually monitoring right now is, again, the impact on revenues that's coming forward.

We absolutely expect that revenue collections are going to change coming this--actually starting this month, we're going to start to see revenues start to go down because our income tax withholding on every single paycheck in the State of Hawaii is going to be lower because of the change in the tax tables.

So when you look at the Council on Revenues projections and what Dr. Bonham said is like, we're hovering pretty high right now. In fact, I think the last Council on Revenues or actually the last preliminary report from the Department of Taxation has us as about at about 13% right now, granted that there was some major like one-time charges that happened inside there, but that number, when you take out that one-time charge, you know, we need to be at a higher clip right now based upon the Council on Revenues projections so when that, when that income tax withholding on payroll continues to go down, that we end up at what we hope is going to be the Council on Revenues projection of 3.5. A lot of ifs.

Yeah, well, thank you for kind of explaining that because of news articles or things that had come out at the end of last year.

And thank you. If I can just add a little bit to the analogy that I've been using and been talking about, it is that right now the Financial Plan is in good shape if we maintain a degree of fiscal constraint and if we kind of work down a plan. You know, plan your work, work your plan.

And that's what we're proposing to do with Budget and Finance is that we want to continue to just drive us down into that area where we get into that structural kind of like, you know, equilibrium of where we want to get to. So I wouldn't categorize us as like in, in like--we're not in bad shape but it's not like, you know, there's like this windfall that all of a sudden that we can do a whole bunch of stuff.

Thank you.

Thank you. Further questions, members? Okay. You have something? Okay. So you know, two years ago, you came in and there was a 1.2 billion dollar need in deferred maintenance, and now it's--according to your numbers, now it's like 1.7. That's preventive maintenance, those types of things. That's the--a funded part.

That's the things that maybe the work doesn't last the life of the bonds and then you have additional GEO appropriations in R&M that you also need. In your plan to try and bring down this--because it's obviously growing-it was 1.2 two years ago and now it's 1.7--the Legislature two years ago, when we thought we had a lot of money, the House put in one billion dollars to bring it down, and in the end, we actually appropriated 200 million dollars to try and bring it down and we appropriated it to you.

And the purpose was to try to start to chip away at this, right, so if we don't do it, additional R&M will continue to grow. The guess is anywhere from 50 to 75, maybe more, is new things that will always come up every year, but based on the growth from 1.2 to 1.7 in just two years, it's growing a lot faster. Does your plan or will your plan start to address that issue?

I think that there have been a lot of conversations between myself and the comptroller with regards to how do we start whittling down the deferred maintenance issues. We did put in some money for it. Granted, a lot of that is general obligation funded.

I think when we look at the Financial Plan and when we look at where we have carryover balances, those types of expenditures for deferred maintenance, that actually makes a lot of sense in terms of bringing us back down to that structural. That's because you do two things: you bring your financial plan and your carryover balance into structural--into some more structural equilibrium, but then you're also addressing what could eventually be larger expenditures down the road.

So--and I know you gave the 200 million dollars to us. Unfortunately, the 200 million dollars went to Maui, as well as a couple of other things, too, as well, but I think that it would be an appropriate discussion with the comptroller to take a look at where we are in the overall condition of government facilities and with the Legislature's indulgence, take a look at what kind of investments would need to be made in the fiscal--

I think that over the years, it's always been the one area where, when times get difficult or when other priorities are before us, that this is where we kind of grab money from, and then it's at the expense of this growing problem that we have.

And I just think that it would be good if the Administration would take the lead and kind of tell us what would be an appropriate plan to start chipping away at this. Like I said, the House has tried to put money there, but to get consensus from everybody, it's been difficult.

But I think if the Administration would start taking the lead and telling us how to--what's the long-term plan, I believe it won't get rid of it overnight, but at the same time, there has to be a plan of how we're going to bring this down because, like, to your point, if we do take care of these types of preventive maintenance issues, it could save us money on the bigger fixes later in the future.

I will talk to comptroller and we will come up with some discussion points for you.

Okay. Thank you very much. Members, any further questions? Okay. Thank you very much. We're going to--thank you for coming in, and we're going to--we continue this afternoon at 1:30 or 2:00? 1:30? Okay. Recess. Thank you very much.

Okay, we're going to reconvene the Committee on Finance for informational briefings. Next up is the Department of Corrections and Rehabilitation. Welcome, Director.

Welcome. Good afternoon, Chair Yamashita. Vice Chair, members of the committee, I'm Tommy Johnson, as you know, the Director of the Department of Corrections and Rehabilitation. I'd like to do some quick introduction before I get into my testimony. Sitting behind--sitting to my right in the red dress, red jacket, is our Deputy Director of Administration, Melanie Martin.

Our Deputy Director for Corrections, Pamela Sturz, couldn't be here. I sent it to Saguaro because we had an incident there. I wanted her to take a look at it and take care of it. She's on her way back now. Sitting next to Deputy Director Martin is our Deputy Director for Rehabilitation Services and Programs, Sanna Muñoz.

And then we have Gordon Wood from DAGS to provide information regarding the cost of some of their ongoing projects. We have HPA Administrator Gene DeMello and--excuse me--HPA Chair Gene DeMello and HPA Administrator Corey Reincke here. And then hiding in the back here is Pam Ferguson-Brey, the Director of CVCC on my left.

So with your permission and in the interest of brevity, because you have a long day, I'd just like to summarize our six-page testimony. We have 25 tables. We can get into the tables. Is that okay?

Okay. Please.

Okay. Thank you. So we have four short-term goals listed and some long-term goals. So we want to reduce overcrowding and improve our living conditions for the folks in our custody and care and working conditions for our inmates. We want to fill our vacancies and we can get into what we've done to fill our vacancies, expand our mental health services, which the Legislature did provide us funding for that, so we will be expanding our services, and we want to update our Correctional Master Plan.

Our long-term goal is of course to relocate the Kauai Community Correctional Facility, plan to build a new jail, 120 to 130 bed jail, in Kona. As you know, ACCC is severely overcrowded.

We plan to relocate the Maui Community Correctional Center, plan to relocate the Hawaii Community Correctional Center, and plan to bring back our inmates from out of state. At present, we simply don't have the room, but we have started some initiatives to bring them back sooner, which I'll get into later.

We also want to take this opportunity to discuss what we've done with respect to staff shortages. We reduced our overall vacancy count from 30.4% to 24%. That includes emergency hires. We've done that by providing six recruit classes during 2024 as opposed to three during 2023. In 2023, we put 56 officers on the floor.

In 2024, we put 135 officers on the floor--136--excuse me. As you know, our jails are severely overcrowded, in particular HCCC and the Maui--excuse me--ACCC and Oahu Community Correctional Center, and we have major projects at each of those facilities.

As you know, in our budget, we requested 30 million dollars to complete the planning and design for the new OCCC with respect to population management. There's very little we can do with respect to population management except to try to expand our work furlough and extended furlough programs.

I don't have jurisdiction over 95% of the population that comes to us. Our pretrial population is fastly approaching our sentence felon population here on Oahu. To give you an example, our sentence felon population here on Oahu is 912 females, 130--excuse me--912 males, 139 females.

But our sentence misdemeanor pretrial and pretrial misdemeanor population respectively is over 900. That's about 87% of our total population. With respect to federal funds, we received $55,539,109.43 in federal OPERA funds. We expect to expand all of those funds by 31, December 2024. We had 12 major projects.

So if you'd like, I can go into those later on in the testimony to break down. We did provide a link to our General Fund Non-General Fund report. Our budget request for the biennium for 25-26 request additional 5,274,228 in fiscal year 26 and 4,547,494 in fiscal year 27.

That'll be--information will be on Table 6 when we get to it. With respect to our operating budget funding needs, we requested $4 million for reentry services, $100,000 to help inmates reintegrate with respect to documentation, ID cards, birth certificates, replacement Social Security cards for American born citizens, and $112 million for mental health technician program for level one trauma-informed training for our non-uniformed staff.

With respect to the Oahu Community Correctional Center, we requested 210,494 to increase the refuge collection contract, $400,000 fiscal year 26 to increase coverage on security surveillance contract, 125,000 for fire alarm maintenance contract, 180,000 in fiscal year 26 and additional security equipment for radios that are aging out, and $146,794 in fiscal year 26 to replace in-cell toilets and sink combos.

In addition to fiscal year 25-27, we had 2,216 proximate positions, and 43 of those are temporary positions. We requested 320,555,674 in fiscal year 26 and 319,828,888--excuse me--$880 in fiscal year 27 from all means of financing and several capital improvement projects.

I have a listing of nine projects here on the page you can take a look at. Okay. That is my summarized testimony, and then we can get into the tables, if you like, or any of the breakdowns.

Anything in the tables you want to highlight?

Yes. In Table 6, you'll see there what our budget request was versus what we received. We can provide the form A's if you need them and the form S's that provides justification. The $4 million we're asking for for reentry services is a complete array of services.

We're talking about housing, substance abuse treatment, case management services, warm handoff to case management services, and services in the community from the prison. The $100,000 is for the documents that I indicated before and then I already explained the 210,000 and the 125 and the 112.

So I just wanted to highlight that because those are some of our budget requests. Our primary request, though, for the $30 million for the--to continue the planning and design for the Oahu Community Correctional Center, I wanted to explain that a little bit.

We have about $14.5 million that we're working off of now that will be expended by 30, June. That 14.5 million is part of the 4.5 million we requested for release from the Governor last year and the Legislature was kind enough to give us $10 million last year.

We requested the release of the funds or recently got those funds released. The $30 million will take us through the planning and design, the RFQ, RFP, and bridging documents process. So that's why the $30 million is there. And so we need that money to continue to the planning and design.

We did request a 250 million, but that was pushed--that was not granted, and we will be coming back and requesting that for fiscal year 2028. And that 250 million represents what would be approximately 25% of the cost of the facility.

Okay, thank you. Anything else?

Okay, thank you very much. Okay, members, any questions? Representative Kitagawa.

Nope.

Hi, Director. Quick question just to follow up on the relocation and the $30 million for the OCCC. So can you kind of give us a little bit more information about, I guess, the plan for relocating? And I know it's the animal quarantine section. What's the conversations happening? Is it likely to happen? What's the time frame? Can you just give us a little bit more detail?

So the animal quarantine facility is looking at relocating with funding, I believe, they requested this year from the Legislature. I don't know if it's in the Governor's Budget. However, the $250 million ask for us in 2028, part of that would be the demolition of the current animal quarantine site because we need those kennels to be demolished in order to get the heavy equipment in. So our timeline is basically the same, but the animal quarantine facility does need to move.

So it's my understanding that they are either going to--they had a $60 million ask. I think they're going to reevaluate that ask and either look for a current facility that they could modify to fit their needs or try to come up with something less costly than $60 million.

So if the Legislature were not to provide adequate funding, just per se, to the animal quarantine, what is the plan then? Or what happens?

Then our plans get pushed back and the cost of the facility due to construction escalation costs are 5 to 8% each year. So you're looking at 50 to $80 million increased cost for every year we delay the building of a new OCCC. Case in point, the estimates in 2017 was 535 to 537 million.

At one point, the construction escalation cost was--is now stabilized out. It was 8 to 12%. That's how we got up to $937 million. So every year we delay, we increase the cost of the facility.

But I think critically, more important than that is the fact that we have people living in substandard conditions, we have staff working in substandard conditions, and it's only a matter of time before the Department of Justice comes and knocks on the door, and then the state may lose some autonomy with respect to what it spends, how it spends, and when it spends.

I think the $30 million in the budget would show the DOJ that the state is serious about replacing the OCCC and improving the working conditions and the living conditions of the inmates, and it also shows them that we're on a timeline at the state--at the state's choosing--that the state can handle with respect to resources.

So there is agreement that with the Department of Ag that animal quarantine would move?

Yes.

That's already agreed upon? They're just waiting for a location.

They're waiting for funding. I believe that the Governor awarded them $3 million last year to do the site selection and to find a place. Yes.

Thank you.

Okay. Vice Chair.

Hi, Director.

Hi.

Hi. Since you brought up Saguaro, what's the current population of inmates in Saguaro? And I saw you had mentioned a little bit in the testimony about measures, I guess, that the Department was working on to be ... then that a little bit also?

Yes. So first the, so ... location to bring them here so we could fill some of those beds in our medium security facility and in our minimum security facilities at Waiawa and Kulani on the Big Island.

How's--sorry. I'm also, you know, because we're already having like capacity issues, hence trying to build these facilities, how--is that going to become an issue, you know, understanding that we want to streamline people to be able to come back on that new schedule, but is that going to be okay?

Yeah, because we--when you look at Kulani, they're currently--Kulani Correctional Facility is only at 38% of the capacity. It's a work camp.

There's enough capacity.

Right. And Waiawa Correctional Facility is only at 47--46.7% whereas ACCC is at 132%, Halawa's at 33%--excuse me--73%, Maui's at 65%, OCCC is at 99%, and Women's is at 98.5%.

Thank you. One more question? Sorry. And then thank you for the department's attention to some of these reentry services, you know, and giving people going back into community support they need. I did notice that Governor chose not to fund the three program specialists for Reentry Coordination Office. Are there--were these additional positions or are we going to--if we are able to get these critical--the money for these services, are you guys going to be able to expand it and get people to people in community without these positions?

Well, we--so we're clear, I want to explain, the Reentry Coordination Office has four professional positions and one clerical position. Right now only one position is filled and we're actively recruiting for the other three. We needed the other--we wanted the other three positions so that we could assign the one reentry specialist almost to each facility, two to the small facilities, one to the larger facilities.

We will go in next year and ask for those three positions again, and we will go in and ask for the 20-case manager positions that we'd also asked for, we didn't get. We asked for the 20-case manager positions because we believe that the current caseloads in the facilities are too high for the case managers to do any real integrated case management. They're supposed to be doing counseling and redirection. And so we need them to work more closely with the inmates.

By lowering the caseloads down, we believe it's being more manageable for them. They could then work with the Reentry Office and with our community partners and we'll get better outcomes. Okay, you're welcome.

Sorry, one more? Just last one. And then also, I was just curious, the IT position for the centralized statewide criminal pretrial justice, is that the work that you guys are doing with Criminal Justice Research Institute?

That's part of it. That's with Dr. Erin Harbinder, I believe.

Okay, but you guys are doing your own--you're looking to do your own work in addition to the work that you have to do reporting with them?

We have a statistician on board, but it's one person and it's not enough. If you look at the legislative requirements of 353H, it's a lot. So we do need a full time position to help us there. So we will come in and ask for that position again.

Thank you. Thank you, Chair.

Okay. Thank you. Chair Belatti.

Thank you, Chair. Thank you, Director. Thank you for the questions because they were all of my questions. So I have fewer questions to ask. Really appreciate the focus on reentry services for the $4 million ask in fiscal--both fiscal years. You know, your department is going to have a lot of ask in terms of also CIP request.

What I'd like to know--and because this is a subject area new to me, you know, you're the Department of Corrections and Rehabilitations--in the $30 million that you want us to invest in the new OCCC facility, the replacement, can you speak to a little bit about what the rehabilitation services that you're going to be looking at, the kinds of maybe things that you're going to be building out in this proposed new facility, that's going to complement and work parallel to the $4 million you're asking for for reentry services?

So right now the OCCC population, so we're clear across the board, the jail population is very--it turns over quite a bit. So right now we provide limited services to sentenced misdemeanants which--it was for up to one year.

We don't provide a lot of services to those, what we call frequent fliers, that come in for 30 days at a time and those that may be with us for seven or 10 days before they bail out and/or those that are there for temporary parole violations or probation violations that are then released back in the community to continue on parole or probation with modified terms and conditions of those jurisdictions.

So for those that frequent fliers we have, we provide limited services. You want to try to provide some kind of referral services for them, and for those that are with us up to a year, we want to try to provide some type of abbreviated substance abuse treatment, case management services, and referral services because if we do, I think we'll have better outcomes. And I want to make it clear: DCR is not the answer. We need the other departments to come to the table. DOH needs to come to the table.

DHS needs to come to the table. We need the prosecutors to come to the table and we need police to come to the table so that we can work to improve the system as a whole, meaning we do deflection up front from the point where the person is arrested before they come into my jurisdiction. If at all possible, they should be deflected to community-based services.

If they do, if they're not deflected, then if they appear before the court, then the court should have the opportunity to do diversion at that point and divert them to community-based services. Right now we pay $308 a day to keep somebody incarcerated. That's soup to nuts.

That is a lot of money for somebody with a $15 to $20 bail and that's a lot of money for someone whose needs can be met in the community for 20,000 or $30,000 a year instead of paying $100,000 a year.

So it's going to take all the stakeholders to come to the table to fix the system as a whole. Once they come to me as the Department of Correction and Rehabilitation, I only have jurisdiction over 5% of the population. I have over 4,000 people in custody. That's nowhere near enough to make a dent in the population to bring down the jail population or the prison population.

So we want to provide as much services and connectivity as possible to benefits and services in the community as we can to those people who are in our custody and care, whether they're with us for a year or a month or 15 years or 10 years. The $4 million is only--it's going to scratch the surface, but we will be able to show proof of concept with some of the contracts we do by linking, by having performance measures on those contracts, and being able to show improvements in that population that we served.

By doing that, we come back to the Legislature, and after we show proof of concept, then we can say, 'okay, now that we've shown that this is going to work, can we do it on a larger scale?' Because ideally, you want the prison population to reduce. That's where your greatest cost is going to be.

Not keeping people in the community. If you keep people in the community and provide services that are including housing, substance abuse treatment, counseling services, it's not going anywhere near 300.

No. Just one quick follow up. So again--

...system was time-driven, meaning if you got a misconduct and it was 18 months for our greatest misconduct, then you sat 18 months. To me, that didn't make sense. There should be a review process every six months and then if the person did okay for six months, we move them downstream.

What we found so far from Dr. Danny Davidson's review is that one, on the ORAS, the jail instrument, we're doing okay. But for the LSIR, level of service inventory revised, questions were changed in the early 2000s that changed the outcome of the assessments.

So therefore, we could be holding people at higher levels of custody longer than we should. So one of the things we're looking at doing is when we get the final report is then redoing our classification instrument to move people downstream faster and make it event-driven as opposed to time-driven.

We think that'll help us move people down from maximum, medium, to minimum, to community custody faster. And if there are hiccups along the way, we do the reassessment. So one of the things we planned in this new OCCC facility is a transition center. Right now, we lack a transition center.

So the transition center would deal with 250 beds for people on furlough, extended furlough, living in the community, probation and parole violators who have hiccups. So instead of putting them back in a hard bed for $307 a day, we bring them back to the transition center, we reassess them, figure out what the issue was, and try to get them back out in the community before they lose their job, before they lose that tenuous connectivity with their families, providing that that doesn't pose a risk to themselves or others.

So that's part of our the vision, if you will, for DCR. The other thing I'd like to do is as part--when we do the assessments up front, we should come up with a case management plan and put the person through sequential phasing process through the evidence-based programs we have prior to the end of the minimum term.

The challenges we face is some corrections officers aren't coming to work so we can't run those programs in a timely manner, so people end up staying past their tentative parole date, which means we're wasting money. We're keeping people in custody that shouldn't be.

And then two, we want to be able to reduce recidivism by providing those evidence-based programs to them and then having performance measures attached to those so we can go back and look and see what's working and what's not.

So one of the things I ordered was us, for the department to go back and look at our substance abuse treatment because the curriculum is 30 years old, to look at our educational program to see if it's updated and if it's still evidence-based or not.

The criminal today is different than the criminals and the values of someone 30 years ago. So I think we need to review the system soup to nuts and just come up with a better, more efficient system. Now I want to make it clear: if someone doesn't want to change, we can't make them change.

But we have a duty to help those people that want to change the trajectory of their lives. And we should make every effort to do so. And even those that don't, we should still try. That's all I have.

Thank you, Director. Thank you.

Thank you. Any further questions? Representative Kusch.

Just a quick one. Sir, I imagine when you, you know, it sounded like just one of the jails was pretty overcrowded at 130%, and then it seemed like there was availability at some of the other jails. Is there a reason there's not more shifting around because I would imagine overcrowding results in overtime and manpower strains at an individual--kitchens, the whole thing?

Because the majority of the jail population is pretrial, there's a lot of motions filed. They have to go back and forth to court. So it's hard for us to fly someone from the Big Island here and then turn around and fly them back a week later. It becomes more expensive because we have to provide two armed deputy sheriffs whenever we send someone.

No, 100%. And second thing was just, you talked about deflection at the front end of the incarceration process. Any thoughts on what that might include? Part of your office or is that outside of your jurisdiction?

I believe Dr. Michael Champion out of the Governor's Office is working with the judiciary and the other stakeholders on deflection. He's trying to look at the Miami-Dade County model to see if that can be done. I think one of the challenges he faces is, when you have that off-ramp, it does no good if you don't have the programs and services available for the person.

So I think his--he has to work with the stakeholders and then get those services and programs in place because otherwise the off-ramp is not an off-ramp. You're just releasing someone without services and you're going to see them again if you don't. So that's why I said earlier it will take all the stakeholders to come to the table, all the policymakers that come to the table. You're welcome.

Thank you. Further question? Vice Chair.

It's good to hear that, you know, the plans for the new OCCC might have a lot of these other kind of things involved rather than just strictly incarceration. I think I saw a statement somewhere already from the Hawaii Correctional System Oversight Commission that they were already planning on sending us another letter trying to kind of halt the funding plans again.

I guess my question is more--I know when I was able to follow their meetings a little more closely, you and the department are really good about participating and attending that. Has there been any additional collaboration with the commission to kind of, you know--because last time they sent the letter, it eventually--it essentially did stop the funding for that year.

So what kind of work has the department done with the commission to kind of, you know, address some of their concerns or have they been more involved in some of the work or giving, I guess, maybe insight into some of the things they'd like to see that maybe could have been done so that they're not going to come out and, you know, ask for that to be halted again?

Well, I think I did receive a copy of a letter that the commission plans to send the governor, if they haven't already, to request halt to the funding again this year. The problem with the commission's position, as I see it, is twofold.

One: no one on the commission has run a correctional jurisdiction, so they don't know what it takes to run it and all the nuances. And I think--and I pointed this out to the coordinator--that some of the recommendations they make clearly show they don't know the operations.

So as an example, the commission made a recommendation that the Waiawa Correctional Facility should give excess food and excess fruits and vegetables that it grows to the--to the homeless pantries, which I don't disagree with. But the problem is it doesn't produce that much food.

The food that it does produce, the extra goes to Women's Community Correctional Facility Community Center. It doesn't grow enough to help Hawaii, to help Halawa or OCCC. So those are some of the things where I think the commission, they make recommend--some of the recommendations is not made on a solid foundation. Now, other recommendations are. The system needs help.

The system has been neglected for decades and so I'm willing to work with the commission, but it's hard to work with the commission when they want to, again, request a halt to the continued planning and design because the taxpayers will pay 50 to $80 million more while we halt it.

Some of the recommendations that the commission makes also have nothing to do with my jurisdiction. Like for pretrial diversion, I have no say in that. That's with the courts. So I've asked the commission, go to the judiciary and talk to the judiciary. Talk to the prosecutors. If you want, I'll sit down with you with them, but those are things outside of my purview.

So I'm willing to look at the recommendations that the commission makes as they pertain to the things under my jurisdiction. I just responded to the commission and provided them with a 13-page response to a reentry study report.

They just finished the draft report and also provided them with a 10-page response to to some other recommendations they made pointing out that some of these things are outside of our jurisdiction. So I have no problem working with the commission. I do have a hot and cold relationship to be honest with you because of sometimes of the recommendations.

I did agree with Christian Johnson when they come forward to the Legislature to put the reentry to have a--if the Legislature grants them a hearing on the reentry report, I will sit next to them and provide information and context to some of those requirements or why we haven't done some of those things and why we can't do some of the things there.

Thank you.

You're welcome. Thank you.

Follow up? Comment, if possible. I just want to thank the director for saying that and for Vice Chair for bringing that up because I think this relationship between the commission and DCR is important and I think we need to get on the same page and I think, I think this is a new year, time for a fresh start.

And hopefully, I will take your suggestion up because I'm very interested in the reports. We can conduct those informational briefings in the PSD Committee and then hopefully follow up with information to this committee as needed because I think we all need to be on the same page about making sure we get rehabilitation, but we need a facility.

We need a facility desperately, and we actually need facilities on all islands. We didn't even scratch the surface of some of the other CIP requests for the other islands. So those are things that we'll be certainly following up with you, and I appreciate the fact that you're honest with this committee and that you do want to bridge the relationships and build relationships with the commission. I'm looking forward to that work. Thank you, Director. Thank you, Chair.

Thank you. Any further questions, members? Okay, so slight follow up. So you know, and I agree that, you know, we need to build some of these facilities. You know, now there's going to be like five and then if you want to move people back to--from Arizona, then it's six. Then it's very expensive for us.

So it's difficult, but at the same time, you know, it's a need and we have to kind of look at how we're going to deal with it. But also we, you know, as far as working with judiciary and the commission and whoever to be able to adjust what's happening with pretrial because, right?

You--and it's been like this for a while that pretrial is over half your population or at least half. And it's always been my belief that, you know, part of the discussion should happen--should be where--as we build courtrooms, that it should be in coordination with you that we build facilities for pretrial next to the courtroom.

And so there's operational savings that could help us. There's, you know, because at the end of the day it just comes down to how it all pencils out. There are--not that I want to say that this is an option, but there are places throughout many cities that the jails are in the urban court, in the middle of the city close to the courthouses and things like that.

Have those discussions happened? Because I've been bringing this up for a while and I think...right. For the longest time it's--we've heard that, you know, to take them to trial even currently where it is and it's, you know, at the current OCCC site it's fairly closer, but if we take them to Halawa it's going to be a little further.

And then there's, right, they drive over in the morning when there's traffic and they take them back in the afternoon when there's traffic the other way. And so then you deal with overtime and you deal with other issues. Have you started discussions with everybody on this? Because I think it's important.

At the end of the day, I think we got to build a facility to deal with different programs that you want to put in for the inmates, but at the same time, if it's just pretrial and just detention until trial, then that's a different kind of service.

So since the pretrial population are the ones that have the most court appearances, I've had discussions with Rod Maile, Administrative Director of the Courts, and with Chief Justice Recktenwald, and so I agreed to put in one to two courtrooms in the new OCCC and support their request for staffing.

And the court will also be able to--the courtrooms will also be able to operate electronically as well. Because they're in the jails, the security force would be ACOs, not the sheriffs because we don't want to have weapons inside the facility. Rod agreed, and he was going to go back and talk to both the chief district and circuit court judge here.

So I'm waiting for her to get back to me. That being said, any new facility we put up, including if we get money for Kona Jail down the line, the relocation of KCCC and HCCC and eventually Maui, we would incorporate at least a courtroom inside the courthouse, inside the jail.

For the Kauai move, one of the sites we're looking at is close to a courthouse, but I think what's more promising is one of the sites we're looking at for OCCC is on the same land as the courthouse on the Big Island. And so the land belongs to a trust. And so we did start some preliminary contact with the trust.

We haven't gotten too far yet because we haven't gotten any funding yet for it, as much as we need, but so those discussions were had to make everything--to make things more efficient and to stop on the transports because right now on the Big Island, we take people to court five days a week.

They leave first thing in the morning, they come back very late in the afternoon. Transports are some of the most dangerous times for corrections officers because it's transport. They're vulnerable, even though they're armed. They're on the road quite a bit.

And so we go through the vans quite a bit on the Big Island just because of the mileage and because we have to install retrofit cages inside, secure cages. We also have to--each van cost us about 107 to $117,000 because we have to also increase the suspension on the vans. So, yeah.

Very good. Okay. No, I appreciate that. I think that is something that we need to consider going forward and even working with them, you know, the prosecutors and everybody on alternative systems in place to be able to hold them until trial.

I agree.

How's that conversation coming along?

Well, there's no place to hold them in the community except in the jails. I mean, the police can hold them over the weekend, they take them to court first thing in the morning, and then whoever the courts remand over, we're there to pick up and bring back. I don't think there's any other intermittent place to keep them.

You brought up the bail issue and things like that.

Well, I think the bail issue is--I mean, there was a bill passed two years ago. The governor, the former governor ended up vetoing it, I believe, at the very end because I think police and prosecutors saw it as a revolving door, but I can tell you there are folks in our custody who are economically challenged, who can't get out for bail, and there are also people in our custody, pretrial in particular, and sent in misdemeanors, who if it wasn't for their mental health issues, they wouldn't be part of the criminal justice system.

You can't take someone who has mental health illness off their medication, living on the street, and tell them to show up for court three weeks from now because they're just not going to remember. So they get contempt of court, contempt of court, finally the judge gets fed up, he or she issues a warrant, they are in custody, but now the jail is the least effective, most costly place for them.

So it's not working. There has to be some type of community-based place to place these people, not in a correctional setting but in a holistic setting, where they can get the treatment they need and the services they need, and I can assure you that would be much cheaper than $307 a day.

Appreciate that. Okay, so like, okay, if you're looking at that model where you're going to build the courthouses within the jail or a jail--

Courtroom. Courtrooms.

Courtrooms, sorry--within the jail, are you looking at cost-saving measures such as a cookie cutter type design that can be replicated throughout the system?

To be honest, no, because each island has a unique--unique needs and a population a little bit different. I think to some degree we can look at a certain model that we can move the pieces around within the model. I think that's doable because it's scalable. Yeah.

Because that's where, even in other, DOE, for example, that's kind of where we waste a lot of money because it's--you know a classroom is a classroom, and yet we go through a whole plan and design process for each one and--but some of them can be redundant, right? So that's why I'm asking if, is there models throughout the nation that you can look at that...this is just...

Well, I think the one for like OCCC because we're pretty far along in the planning and design. I think that could be something we use as a model moving forward to say, 'okay, make it smaller for Kona, make it half the size for Maui, make it, you know, one third of the size for the Big Island.'

Because then, once you get the major blocks, the major pieces, all you're doing now is looking at--you're just making those pieces smaller or bigger, and you're just shifting around to fit the terrain needs and the weather needs and then you have three different type of construction methods.

You have the standard construction where you're using, you know, tons of steel and concrete, you have the prefab method, which is faster, but you have to make sure you have the right material because it's got to last, and then you also have the modular type units where you put in all the infrastructure, water, sewer, electrical, and as you need it, you put the module on top. So we're looking at all three of those types to see which is the most advantageous for OCCC, and that type of thinking can go forward for any other facility as well.

Right. Yeah. So these discussions have been going on for a while. I mean, 20 years ago, when John Borders was around, right, these are some of the things that he talked about about, right, and so it's not new, and I think it's just--I think we need to start taking action on some of these things, and that's why I bring it up again.

Okay.

Thank you. Any further questions from the members? Okay, thank you very much for coming in, and we look forward to working with you.

Thank you.

Thank you. We're going to recess.

Okay, we're going to reconvene the Committee on Finance to continue our informational briefing. Next up is Office of Hawaiian Affairs. Please proceed.

Aloha, Aweenala Ko. Chair Yamashita and members of the House Finance Committee, thank you for having us. My name is Kaiali'i Kahele. I'm the Board Chairperson for the Office of Hawaiian Affairs. Joining me today is Trustee John Waihe'e, Trustee Keoni Souza--Vice Chair of the Board, Keoni Souza--as well as Trustee Keli'i Akina.

Aloha, Representatives.

Happy New Year, and at this time, I will turn it over to our CEO, Ka Pouhana Stacy Ferreira, for the introduction of her team.

Mahalo, Chair. Aloha. Mahalo for having us. It's good to be back in the square building. It feels like home to me. I've been with OHA now a year, and so it's great to be in front of you again, being able to share with you what our proposal is for our budget for the biennium. Before I start, I wanted to introduce our team. Again, I'm Stacy Ferreira. I'm the pouhana at the Office of Hawaiian Affairs.

Kehaulani Pu'u. I'm the Chief Operating Officer here at the Office of Hawaiian Affairs.

Aloha. My name is Ramona Hinck, and I'm the CFO.

Aloha, Chair Yamashita, Vice Chair Takenouchi, and members of the committee. Mahalo for the opportunity to present the Office of Hawaiian Affairs budget proposal for the upcoming fiscal biennium.

Our work is grounded in the State of Hawaii's solemn trust obligation and responsibility to Native Hawaiians as enshrined in the Admissions Act, the State Constitution, and Hawaii Revised Statutes HRS Chapter 10 and 10H. It is imperative that there is critical alignment, critical alignment between--and accountability to these foundational mandates and OHA strategic priorities.

Through our biennium budget proposal, we are emphasizing the transformative potential of a collaborative approach between OHA, the Legislature, and the executive branch departments and agencies. When I was working here at the Capitol, I was the Budget Chief for Senate Ways and Means, and I learned a lot interacting with House Finance and with Senate WAM, and some of the things that I learned that you're going to see reflected in this budget proposal.

The first one is, what does the statute say? And it's really important that all of us are grounded in what is our trust responsibility to Native Hawaiians. The second thing is that it takes leadership to ensure coordination, collaboration, and coherence.

Essentially, the executive branch is the gorilla in the room at $20 billion. That's what your appropriations have been year over year and I make up that it's probably going to be in that ballpark again.

And so when we talk about the trust obligation and responsibility to Native Hawaiians, a large amount of that $20 billion is going to be towards serving Native Hawaiians and the lahui. And then lastly, what is the plan?

So we can come before you with our budget proposal, but I want to be very clear about what our plan of action is so that you feel confident and comfortable that what we plan to do in the next two years that we can come back and report to you the progress that we're making.

So what is the state's trust obligation to Native Hawaiians? The Admission Act of 1959 establishes a public trust reaffirmed by the people of Hawaii in the State Constitution to ensure the betterment of conditions for Native Hawaiians.

This trust obligation calls upon all branches of government to address the needs of Hawaii, Hawaii's aboriginal people, and to work actively towards their welfare. Specifically, HRS10-1[B] mandates that all state departments and instrumentalities actively support the goals of the Office of Hawaiian Affairs, recognizing it as the principal agency for addressing Native Hawaiian needs.

OHA's mandate and role: our statutory purpose under HRS10-3 outlines four key responsibilities. Actually, it's HRS10-3 but also Chapter 10H, the first one being the betterment of conditions of Native Hawaiians and Hawaiians. OHA is committed to improving health, education, housing, and economic opportunities for Native Hawaiians. Secondly, the coordination of programs.

OHA is the principal public agency responsible for coordinating state programs relating to Native Hawaiians and ensuring alignment with the Hawaiian Homes Commission Act and other statutory frameworks. Thirdly is policy assessment and advocacy.

OHA assesses policies and practices of other state agencies impacting Native Hawaiians and conducts advocacy efforts to safeguard their rights and interests, and lastly, facilitating self-governance. Per HRS10H-2, OHA is dedicated to advancing recognition and self-governance for Native Hawaiians, including promoting their culture, heritage, health, education, and welfare.

Our biennium budget proposal seeks to be a catalyst for systemic change. OHA's biennium budget request represents an extraordinary strategic investment in addressing historical, generational, and systemic challenges faced by Native Hawaiians. It also signals the gravity of our shared kuleana and the opportunities for impactful collaboration.

The proposed General Fund appropriation of 4.8 million and 4.9 million over the next two fiscal years represents critical investments in OHA's efforts to meet its statutory obligations while serving as a critical multiplier for additional resources. I think it's important to note that only 7% of OHA's budget comes through general funds.

The majority of our work that we do that comprises OHA's budget of about $57 million is trust fund. So any request, any proposal that we come before this committee with is actually a multiplier effect. We are actually matching any dollar that this committee puts forth towards our proposal. That's like no other department, no other agency.

There's nobody else that really comes in unless you're the federal government that comes with matching funds. OHA does that in our proposal. The key components of the OHA budget include--for 1.2 million in fiscal year 26 and 1.2 million in fiscal year 27--is strategic coordination and accountability.

We are proposing funding for 13 full time equivalent FTE positions for strategy and implementation staff who will enable OHA to operationalize its statutory authority to coordinate efforts with state agencies ensuring strategic alignment, execution, and accountability. Furthermore, we are looking at priority agency partnerships.

Over the biennium, OHA will prioritize collaborations with the Department of Education, Department of Health, Department of Human Services, Department of Hawaiian Homelands, and the Department of Land and Natural Resources.

That's not an exhaustive list, but those are top of mind for us because they are in direct alignment with many of the disparities that our Native Hawaiian communities are faced with. These partnerships aim to leverage resources, align priorities, and maximize impact on Native Hawaiian communities.

The 3.6 million in fiscal year 26 and 3.7 million in fiscal year 27, again, are matched dollar for dollar by the Office of Hawaiian Affairs trust funds. We are looking at focusing Native Hawaiian beneficiary advocacy activities on affordable quality housing and related infrastructure, social services, including referral services and case management, to at-risk beneficiaries to immediately address unexpected crises, provided further that program activities shall be designed with an overall objective to provide financial assistance to improve stability during emergency situations.

Educational improvement programs for Native Hawaiian students provided further that programs shall be designed to help Native Hawaiian students prepare for postsecondary education and economic stability to support families and communities, to provide legal services and legal representation to beneficiaries, including but not limited to what you see listed there, protections of aina, land and water, including climate change adaptation and mitigation strategies and practices and cultivating resilient communities through ahupua'a economics or many times these--the money committees talk about regional economic development and workforce readiness.

Next slide. So the path forward is a collaborative approach to achieve transformative results. The challenges facing Native Hawaiians stem from decades of systemic inequities, land dispossession, historical injustices, and complex trauma. Addressing these deeply rooted issues requires unprecedented coordination, collaboration, coherence, and accountability between OHA and the executive branch.

By leveraging each other's resources and the execution of OHA's statutory authorities, we can create a transformative partnership that reshapes the trajectory of Native Hawaiian well-being across the state. This level of coordinated, systemic change and pursuit towards self-governance is a tremendous lift. It has not been attempted by the Office of Hawaiian Affairs previously, but the stakes demand bold action.

However, we believe that with your support and the collective will of the governor, the state departments, and agencies, we can begin the vital work of collectively transforming the conditions of Native Hawaiians.

We passed out in front of you what we're calling the framework for collaborative action between OHA and the executive branch over the next two fiscal years. It's not enough for us to come before you to tell you what we want to do. We also want to be able to demonstrate to you by outlining what our key authority is by statute to perform this work.

We've detailed action steps, our milestones, our deliverables, and the timelines in which we expect to execute these things so that when we come before you next session and the session after that, that we will be able to demonstrate progress. In closing, OHA affirms its commitment to fulfilling its statutory mandates and working with the Legislature and the executive branch to advancing the trust obligations of the State of Hawaii to Native Hawaiians.

With this biennium budget and an unprecedented focus on collaboration, we aim to honor and actualize the principles of the Admission Act, the State Constitution at HRS Chapter 10 and 10H. As stewards of this shared kuleana, we ask for your support in approving OHA's biennium budget request.

This investment represents not only compliance with statutory mandates, but also a moral commitment to the betterment of conditions of Native Hawaiians. I thank you for your continued leadership and support of OHA's mission.

Thank you very much. Okay, anything else you want to add? That's pretty much it. Okay. Well, members, we'll open up to questions. Representative Holt.

Thank you, Chair. Thank you, folks, for being here today. A couple years ago, we passed a bill to increase the public land trust revenues and start a working group to have discussions between the Administration and OHA. Do you guys have an update on where we are currently with that?

Absolutely. Thank you. So that was Act 226, and we've had a working group that has been comprised of previous Chair 'Hulu' Lindsey, Sherry Broder, who is an attorney and assisting OHA, as well as Chair Galuteria of our Beneficiary Advocacy and Empowerment Committee. And representing the state, we have Luis Salaveria, Director of Budget and Finance and Director of Department of Land and Natural Resources, our chair, Dawn Chang, as well as their deputy from DLNR, Ryan Kanaka'ole.

So they have been working very diligently. They've met over 16 times over a 12-month period, and they will be putting in a bill to ask for one million dollars for the Public Land Trust inventory to be audited. We still, after decades, do not have accurate inventory. So that was one deliverable of the working group.

The second deliverable was a report to the Legislature which was submitted that basically outlines the work that the PLT did. And so that's a very lengthy document, but it is available for you folks on the Legislature's website. Simultaneously with the budget, with the bill with appropriation, the governor will be putting in a governor's message for $750,000 and OHA will be matching that with $250,000.

So we are very grateful that the governor has shown his commitment to ensuring that we have an accurate inventory and by doing so, putting it in as a governor's message through the DLNR budget, and the intent is to appropriate to DLNR and to expand through OHA.

Thank you very much.

Okay, thank you. Any further questions? Chair Tarnas.

Thank you. Thank you, Chair. My name is David Tarnas. I'm not on the Finance Committee, but I chair the House Committee on Judiciary and Hawaiian Affairs, and with me is Vice Chair Poepoe.

So we can be educated about the work that you're doing because we'll be considering your budget request in our committee first and then coming here. When we had the request from Office of Hawaiian Affairs previously, it was $3 million in each fiscal year.

This is a significant increase and it looks like a large part of that is this 13-member strategy and implementation team. Could you please tell us why this would be such an important thing to see? You know, that we should be funding?

You did in your presentation say that this was something that, you know, you're wanting to put into practice, things that people have talked about before, but this is a significant increase and the public who's watching this really needs to understand better is it why we should be doing this? Maybe you could speak to this, and Chair, others, I'm happy to hear from you as well.

Sure. That's a great question. And you're right. Our previous base budget was $3 million in A funds and we matched that 3 million with trust funds. So again, every, every dollar that the Legislature has put towards us, we have matched that.

And so what we've done, again, coming from Ways and Means, I'm acutely aware of when the departments come in front of the money committees, that many times they come with flat budgets. So what you're seeing in terms of an increase on the 3 million side, the $3 million, is a 3% cost of inflation because to run programs and services, we need to keep up with the cost of inflation.

So that's where you're seeing some of the increase occur. And that's just good business, right? We don't want to have to rob Peter to pay Paul. We want to be able to do quality service and be able to pay the bills, but that has to come out with an increase, a measured increase.

The second thing is, when I came on as the CEO of the Office of Hawaiian Affairs, we had a 15-year strategic plan, but we had no mechanism, no function in which to actually effectuate the strategic plan.

The way that OHA is structured is that we have very discrete functional areas. We have advocacy and compliance, we have IT, we have human resources, we have communications, we have operations, but nothing that focuses on where you need subject matter expertise: housing, health outcomes, economic resilience, and education. That needs precision focus. It needs expertise.

It needs leadership that understand those particular ecosystems here in Hawaii. It requires leadership that have established networks because we need to hit the ground running. This 15-year plan that we inherited was already in year four, so we didn't have time to ramp up.

I needed to create a division that had a level of expertise that could effectuate our plan starting off day one. And that's what I've created. And that's the 13 FTE that I'm putting before this committee. Now, why it's important for OHA so that we can accomplish our manaema ho'olala, 15-year strategic plan, and it also allows us to address the mandates that are in statute, but this 13-person team is also going to help the executive branch meet their statutory mandates. Right now, this committee will have before them $20 billion worth of appropriations.

Much of that goes towards programs and services that are trying to address disparities with the Native Hawaiian community. I don't think there's any one department that will come in front of you across the 20 plus departments and agencies that are going to be able to tell you definitively how they are spending that money, what progress they are making, what their performance metrics are for Native Hawaiians.

By statute in Chapter 10-2, 3 and 4, we actually have that mandate to go in and work with the departments to ensure that those things are actually happening with the resources that you folks are appropriating. I think it's a huge opportunity. I think it's a strategic opportunity.

I think it's a great investment by the money committees to ensure that we are changing the trajectory of where our Native Hawaiian populations have been dealing with for decades. It will bring accountability, it will bring transparency, and that will be shared kuleana, right? Finally, because OHA has never, ever--we've never approached the budget this way.

We've never been as strategic and precision than we are right now. And I think it's one of the best investments. We're asking for 1.2 million to get ROI on 20 billion. That's just on the executive branch side. That's the compelling rationale.

If I may, Chair, could you help us understand over the last years where you haven't had this team, how is it that you've been tracking your effectiveness? I know you weren't there, nor were you, Chair Kahele, but, you know, we've been wanting to support whatever OHA had come--you know, I want to do my best to support what OHA has asked in the past. And in the past, the 3 million was specifically for beneficiaries, and now we're being asked to do that and this new group. So how is it that you've been meeting this need for, you know, determining whether or not you're benefactive if you haven't had this team?

Yeah. I'll let our CEO get into a little bit more of the details regarding the grants, because basically, the 3 million, and again, the 3 million that we match it with, has been primarily in grants. So one of the biggest shifts I did share when I came in was that I want to be very strategic and precision-like. So typically, how it's been run is that we have grant categories that align with the strategic plan.

But the way that it's run is we basically do a mass call out, like an RFP kind of proposal, and we say, these are our grant categories. How can you meet this or how can you provide this program or service based off of these large strategic areas?

So they tell us what program they're delivering out in community, and then they're telling us basically how much it's going to cost. We are flipping that. We are saying that we are coming with this strategy and implementation team. We are coming up with the tactics, and we are saying this is the solution that we're looking at, and we will put out an RFP.

Who in community can provide us with this particular solution? So it's not this scattershot, like broad approach, tell us how you can assist in any one of these categories, but really, how can you help us deliver to this precision-like solution? And then Kehaulani will talk about metrics and how they measured grants.

Hi. Aloha. So I will share. So we do collect data, impact data, specifically around our grants. You know, we have right now about 86 grantees and our Research and Evaluation Division--so we have one--creates performance metric tables for each of those. And, you know, we do reporting, monitoring.

And so we have, I guess, the results of the impact of that program and who they serve specifically. Some of the questions we've been asked about is how are we moving the needle, you know, population wide? And that's something that is very difficult to measure and that isn't something that I would say OHA would be solely responsible for, but what we have created are strategic indicators.

And we're going to use that as our baseline to be able to articulate the impact that we're having moving forward around not just grants, but even how we use advocacy. How do we use policy changes, right, to help to achieve our strategic outcomes? How do we use partnerships and collaboration?

You know, our CEO just talked about collaborating with other state agencies. So it is different levers, you know, that we are going to use to achieve our strategy. We will--we want to be more precision-like in the way that we are tracking. So again, we have been collecting data. Not all of it has been public, and that is with our grants.

We're doing--we have--we've set up a baseline to track how we are going to move the needle moving forward. These are data points that we want to make public, and we're shifting the way that we are going to use grants, the way that we are going to use our advocacy, community engagement, partnerships, collaborations to help us achieve our outcomes. That was helpful?

Thank you, and I appreciate, Chair, letting me ask the questions. We look forward to further discussions with the Judiciary and Hawaiian Affairs Committee. Chair Kahele?

Thanks for the question, Chair Tarnas. You know, I think as a, you know, legislative body, when you look at the population of the state and approximately 20 to 25% constitute Native Hawaiians, right, about 250,000, OHA is tasked with big kuleana that it has to address a myriad of issues that affect the Native Hawaiian community.

But the amount of resources that we get for that ask is not enough to do the things that we're in some cases statutorily mandated to do. A significant amount of resources go to other state agencies that should be doing the things that OHA should be doing as well. We need more collaboration with those agencies.

But how have those investments that the state has year over year over year put in to address the health disparities of Native Hawaiians that represent really the highest amount of homelessness in this state, the underinsured in this state, the non-insured in this state, prison recidivism, highest incarceration rates in the state.

This is the beneficiaries, both small N and big N, those that are part of the Hawaiian Homes Commission Act and those that are not, right? We have a statutory requirement to address all of those needs and we just can't do it alone.

So these 13 FTE positions is vital for OHA to be able to collaborate with the other state agencies that get the bulk of the resources that you provide. And so that's the rationale behind the ask and what we're hoping to achieve. Hope that answers your question.

Thank you very much. Appreciate it. Back to you, Chair.

Okay, thank you. Any other questions, members? Representative Holt.

Thank you. Just going through the budget materials and your active contracts and stuff; looks like maybe we should have hired more attorneys. There's, by my quick count, maybe over 5, 6 million dollars in attorneys fees over the last couple years. So how many do we have? I know we have an interim General Counsel. Are we looking to hire up in that area? Has there been a increase in number or is that something that we should expect over--or 5 million every two years or so?

Mahalo for the question. Many of the things that OHA has to respond to in terms of beneficiary advocacy require specialty law. So when you talk about water rights, Iwi Kupuna, dispossession of land or housing, you know, we just don't, we don't, we have a generalist in house, but we need specialists.

And even when it, sometimes when it comes to HR, we need a specific HR consultation. So what you're seeing is a reflection of this--the vast array of issues that the agency has to deal with and needs to get legal representation or guidance. And then, you know, we do have some ongoing litigation as well.

Okay. I mean, so that just shows the, you know, broad range of things that you guys have to take care of right across the state, like basically doing all the lawsuits on behalf of the Hawaiian community and--no, it's very important. Thank you, guys.

I also had a question about the rest of the contracts. Are the grants included in those contracts? So your grant awards--so there's grant awards, there's other things that you guys need to do because a lot of active contracts going on. And as far as the travel, how does that get approved? And just had a question about a bunch of missing descriptions from, I don't know, some trustee travel.

Aloha. So we do have, so we do have processes for approval. So on the administration side it would go up the chain to our director and COO, CEO, and then on the BOT side it does go up to our, our chair and CEO for approval.

And a lot of the travel is--so we do have certain criteria for travel. A lot of it is community engagement meetings and etcetera, etcetera. So there is process in place. We have some SOPs for that. Regarding some of the missing information--so I will share that prior to this, I would say the beginning of this fiscal year, I think prior, we weren't collecting some of the information that's being asked for in the table.

So at the beginning of the fiscal year, for us, July, we did do a retro ask of our staff to complete what we call travel narrative reports to collect all the information within the table and to do that to the end of the calendar year. So we are missing some info.

We are following up with our staff, but we were able to gather most of the information. We are also working with our CFO to streamline our process because we have a request process, we have a, you know, completed travel process, and then we have this travel narrative report form.

So there's multiple asks of the traveler in terms of providing information. So I think by the end of Q3, we'll have a new system in place to be more efficient. Yeah, based off of the tables, we want to be able to collect that information efficiently. We can update these tables and collect the missing info and resend that if you want.

No worries. Thank you. I appreciate all the hard work you guys are doing. And last question, and I always ask this, you know, you guys are asking for an increase in your General Fund budget this year, and you know, we don't know. That's why we're going through the inventory for the Public Land Trust.

But by all accounts, we're very falling very short of what is owed to OHA, correct? And if you guys were to be getting your correct fair share, could we probably get rid of the General Fund ask or would that be something that you guys would be--because we're talking a big 50, 60, 70 million plus as compared to the 21 currently. So we could probably wash that General Fund appropriation if we were to get to a correct amount?

So I think it was 2016 when we did the audit. We had an independent audit and at that point, it was about $80 million annual that was owed to OHA for the Public Land Trust. So again, you know, with how many years have passed by, I'm sure it's a lot greater. We could do a lot if we were getting the fair share of the pro rata, the pro rata share of the Public Land Trust. Absolutely.

Thank you.

But I do want to say, though, but what's in front of you today, this General Fund request, because we don't get the full 20%, we do think this is shared kuleana, and I think it's the best ROI on your $20 billion that, that you'll get. Mahalo.

I'd also say, Representative Holt, you know, we don't want to keep coming back year over year over year and arguing about PLT and trying to solve this problem that previous administrations and previous legislatures have been unable to solve or unwilling to solve.

The pro rata share that the Office of Hawaiian Affairs should receive from the Public Lands Trust Corpus, which is different than the Ceded Lands Corpus, that's constitutionally mandated by the Hawaii State Constitution, ratified by the people of Hawaii in 1978. Of course, through court cases and various administrations, it's been determined that the Legislature sets that amount.

But that only works if state departments and state agencies that have public land trust lands in their inventories are accurately reporting all the revenues and all the fees and everything they get, which they are statutorily required to do.

But unless we can have a mechanism that requires them to do it, that has an enforcement piece, if they don't do it, we'll never really know what that accurate number is. And in a previous study that has been done, I think about eight years ago, the estimated amount of PLT that OHA is constitutionally and statutorily required to receive was somewhere about $80 million.

If we got that money, we would never come back to this Legislature for anything, and we would be able to do all the things that Chair Tarnas is talking about and all the things that our beneficiaries expect of us. But without those resources, we have to keep coming back year over year over year. So we hope the PLT bill is something that we can work with you this legislative session to advance.

Thanks.

Thank you very much for the questions. Representative Poepoe.

Aloha. I was curious if OHA has an adopted real estate management strategy or if that's still a work in progress.

It is a work in progress. So this has been work that the Board of Trustees has been focused on very diligently over the last fiscal--over this fiscal year. They have been working with some very skilled and expert consultants to help craft the real estate strategy. They have approved a portion of it.

And then there's a second half that's going in front of the board for discussion, actually for informational briefing on Wednesday and then decision will be two weeks later to solidify it.

So once that is finished and adopted, would that become the kuleana of the new--the 13-member strategy and implementation team as well, or would that require additional FTE to implement?

So the way that OHA is structured, so Board of Trustees set policy and once that policy is set forth, administration does operations. So there--whatever we do, that would fall under land development. And we have two very distinct aspects of our real estate portfolio.

So we have legacy lands, which are more like our conservation, historical, cultural portfolio, and then we have our commercial part of the portfolio. So anything that we do administratively would be set, would provide the guidelines that are set forth in that policy.

So who would be responsible for implementing the strategy that is set once it's adopted?

It would be administration. So strategy and implementation in coordination with our land division.

Okay, thank you.

Mahalo.

Okay, thank you. Further questions? Thank you. So, okay, so along those lines, are we, are we going to see anything this year to deal with Kaka'ako Makai?

Yes. Thank you for the question. You know, Chair, this is an issue that has eluded the Office of Hawaiian Affairs ever since it was conveyed the Kaka'ako Makai 30 acres or so of land back in 2012.

And though it was not part of the law that was passed by this legislature, the expectation was that OHA would be able to receive its desired entitlements in subsequent legislative sessions. And 2014 was the first year that the Legislature addressed the entitlement piece, specifically the ability to develop residential housing in Kaka'ako Makai.

We haven't been able to bring that to fruition, and we are hoping and anticipating to be able to work with this legislative body in 2025 to finally address that. And so what OHA has, well, what OHA will hopefully be adopting, we hear our bill in committee on the 8th and we will hopefully take action on it on the 9th.

So it is part of the OHA package. Before this body convenes on the 15th next of January, is that OHA will be asking to be part of a whole of government effort to solve the state's most important crisis, which is housing, specifically workforce housing. It's the priority of our governor, it's the priority of this body.

And OHA wants to be at the table to contribute to a crisis in this state, which is the lack of workforce housing, lack of affordable housing, is why people year over year are leaving the State of Hawaii. Our Best and brightest are leaving.

They're not coming back because they can't afford a place to live, specifically here in the urban core. And so what OHA wants to do is propose to repeal the residential prohibition of on residential housing in Kaka'ako Makai in a specific geographical area.

It aims to provide and mandate 50% plus one unit of any residential housing in that geographical area to workforce housing, affordable housing defined as 140% AMI or below, it will require owner occupants of all residential housing in Kaka'ako Makai, and it will take the statutory requirement that was created a few years ago and the precedent of preferencing housing for a category of essential workers, in this particular case, education.

And I'm speaking to the School Facilities Authority legislation that the Legislature passed a few years ago where we're doing a pilot project to develop educational housing for teachers in Mililani, is we want to preference and expand on that definition to create workforce housing for six essential categories in this state centered around healthcare, construction, hospitality, law enforcement, education.

And if you work in a geographical 5 nautical mile radius of Kaka'ako Makai and you are employed by one of those essential workforce categories in the state, then you will get a preference for the workforce housing that we want to develop. And so that's essentially the bill that OHA wants to bring to the Legislature this session.

The other 49% of any housing that's developed would be dedicated to market rate housing, which we feel is critical to subsidizing the Hawaiian Cultural Center. All the other things, the Lei of Green, the open promenade along the boardwalk of Kaka'ako Makai, everything that we envision that's nonresidential, that has impact in a way that impacts the community culturally, will be subsidized by the market rate housing. So we'll be presenting that bill to the Legislature as hopefully part of OHA's package.

And you know, we feel it is a--it is a strong message that the state and OHA can send together that we want to create workforce housing in the urban core that is affordable to local families that are part of the state's essential workforce that we need to keep here. And we want to do it in the urban core and our Kaka'ako Makai lands.

Okay, thank you. So, you know, I assume that when you put this forth, you'll be able to share with us how this will pencil as far as--so it's going to be what, 49% market?

Yes. So part of the 50 plus 1% allows us to take advantage of the 201H development incentives that would be afforded to a developer that would like to apply for rental housing revolving fund money.

Of course this has to be approved by the respective city council, but it allows us to take advantage of some of those entitlements and also package together the entire financing piece. The thing that OHA will bring to the table that is the most expensive part of any residential development is the land.

It is also the horizontal improvements, the infrastructure, the water, the sewer, the soil remediation, the geotechnical studies, everything that a developer doesn't want to deal with to de-risk the project so that the developer, either through a joint venture or through a RFP, will just focus on the vertical. OHA would retain the land.

OHA would retain the podium which will have all the commercial, all the mixed use where your coffee shops are, your restaurants, and then OHA would share in the sales of the units with the developer. Very similar to what let's say Kamehameha Schools is doing with the Kobayashi Group in the Alia Tower across adjacent to the SALT properties.

And so, you know, we've been working very hard behind the scenes and working with local community stakeholders and partners, the Friends of Kewalos and others in the local area. We'll be doing a community presentation myself and our Investment and Land Management Chair and our Vice Chair of the Board, Keoni Souza, this Wednesday at Kupu.

And you know, we, prior to this legislative session, want to roll out all the details for the bill in full transparency and get as much public feedback from stakeholders in the past who have opposed residential development in Kaka'ako Makai, frankly because it just didn't have the details. There was no really good solid plan and we think we have a better plan this time.

So the, the workforce housing is going to be 140 AMI and below. This is going to be rental or fee?

It'll be all fee simple. One, two, three bedroom units. We have average prices of what those units are. The average median home on the island of Oahu is $1.1 million, and we have a breakdown of what the affordable units would be versus the market rate units.

So our target range is between 80 to 120% AMI, that is your typical DOE teacher married to a fireman and they have a child or two. That's the model we're looking at is providing workforce housing for them. We're not creating workforce housing or housing period for out-of-state investors, for international investors.

This is for local families to address the workforce housing needs of the state. And we think we can contribute several, maybe 1,000 or 2,000 units at total build out in Kaka'ako Makai.

Okay, so the, so you have any idea what the subsidy would be to make it market?

What the subsidy would be?

To make it workforce housing?

Well, you know, so that's, that's the entire package. You know, the 140%, there is no bottom of that AMI, so there's also a possibility to use LIHTC credits and to do Kupuna housing or to hit that 50 to 60% AMI piece.

There's also the opportunity to partner with DHHL and to CPR a portion of the building and dedicate that to DHHL's wait list. That also allows us the opportunity to use DHHL's infrastructure.

The lower you go, would you still be looking at it being in fee?

There are some projects that we could do Kupuna housing that would hit the LIHTC piece because that's really at your 60 to 50%.

You haven't broken that out yet? As far as...

We haven't broken that down yet. But we do have a clear idea of what units would cost in the building. And, you know, that's of course the, based on market volatility, right. Where interest rates are right now it's 6.7%. You know, we have, you know, housing constrained market, a capital constrained market.

So things could change, right. This is a--Kaka'ako Makai is a development that is going to take decades to finish, you know, but we can start now this legislative session and we're ready to do that. So we'll bring all of those numbers and data to you that you're looking for. But having it pencil out is very, very important.

And we've had a chance to talk to developers that are developing now in Kaka'ako Mauka in how they're doing it and how they're penciling it out. And they are, they are building 400 foot units, buildings in Kaka'ako Makai at 40% affordable, 140% AMI or below, and they are making it pencil out.