House Standing Committee on Finance

Okay. We're going to convene the Committee on Finance this morning for informational briefings. We have the Department of Defense. Welcome.

Hey. Good morning, Chair Yamashita, Vice Chair Takenouchi, committee members. I'm Major General Steve Logan. I'm the current Adjutant General for the State of Hawaii Department of Defense. Aloha, good morning, and Happy New Year. Thank you for this opportunity to come brief or provide this informational briefing and provide the department's budget for state fiscal years 20-26.

There's been a lot of turnover within the Department of Defense, so with your permission, I'd like to introduce some of the members that I brought with me today, since some are fairly new. With me is Deputy Adjutant General Brigadier General Phillip Mallory, call sign Buddha.

To my left rear is my brand new command senior enlisted leader, Command Sergeant Major Kumalae. Chief of Staff of the Hawaii Army National Guard is Colonel Ronald Hogsten. The Director of Staff for the Hawaii Air National Guard is Colonel Shane Nagatani, call sign Nuke. Administrator of the Hawaii Emergency Management Agency is Colonel Retired James Barros.

Administrator of our community programs that oversees the Youth Challenge and the Job Challenge Academies is Brigadier General Retired Bruce Oliveira, Director of the Office of Veteran Services is Lieutenant Colonel John Alamodin, the Military Support Officer is Brigadier General Retired Neal Mitsuyoshi, the Administrative Service Officer for the Department is Colonel Retired Rusty Spray, and our Chief Engineering Officer is Major Xiao Li.

The primary mission of the State of Hawaii Department of Defense is to enable a safe, secure, and thriving state and nation. We're a small department with a relatively small state budget, but it's important to highlight that although small, the State of Hawaii Department of Defense has a significant mission and that matching state funds provides access to significant federal funding.

The department request for this year is $40.5 million in state funding, and these funds would bring in approximately $74 million in matching federal funds. This funding would also allow the department to manage its 411 open projects, which potentially could bring in another $2.3 billion in federal grant money.

The major adjustments contained in the budget request focus on sustainment, safety, and reorganization based on recent lessons learned from the disaster that occurred on Maui with the Maui wildfires. These adjustments include approximately $1.3 million in recurring funds that sustains the department's software, hardware, cloud service, and maintenance of our IT structures.

Prior to this year, the department was able to fund this internally through vacancy savings. However, as you'll see later in this briefing, we're unable to do that, and so we're asking for this to be funded externally. This is more clearly articulated as departmental priorities number 1 and 2 on the Form B or in Table 6.

HIEMA requests $2.7 million to provide funding support for 32 core emergency management positions. The requested additional state funding for HIEMA personnel positions is critical to sustain emergency management planning, response, recovery, and mitigation efforts statewide, including direct support for the four Hawaii counties while administering those 411 FEMA grant-funded program projects that equate to that $2.3 billion I talked about earlier.

This is more fully articulated within the Form A's and it is listed as departmental priorities number 13 and 14 in Table 6. The Hawaii Army National Guard requires three new positions and approval to upgrade four existing positions to a higher grade.

All new positions are 100% federally funded at no cost or financial burden to the state and these are articulated as departmental priorities 36, 39, and 40 on that same table. In the Hawaii National Guard Youth Challenge Program, positions are funded in accordance with the National Guard Youth Challenge Program Cooperative Agreements.

The National Guard Bureau supports the program with 75% federal costs with the state providing a 25% match. Unfortunately, the current federal funding appropriation is insufficient to incorporate state-required federal payroll fringe for all of the program employees. Additional federal funding for payroll fringe is unavailable at the National Guard Bureau level and will not be increased.

The program is unable to hire retain all required employees at full time salaried rates which equates to about 44 employees, and they're currently budgeted at an hourly or 89-day hire rate due to the lack of the federal funds.

Because of this, the Youth Challenge Program has requested an additional $1.9 million to pay the federal portion of the state-mandated fringe benefits. The this will allow compliance with staffing supervision requirements and ensure cadet safety 24 hours a day, seven days a week.

So we have two separate campuses, two curriculums per year with live in 24/7 facilities for about five and a half months per semester, and there are federal requirements from a cadet to a cadre ratio. And these are more clearly articulated as department priority number eight for the fringe and number 17 for the required salary increases.

I'd like to move on to CIP. The Governor's Budget approved eight of our 12 CIP projects requested for a total of 61.8 million in FY 26 and 19.5 million in FY 27 in general obligation bond funds which then matched to 62.7 million in FY 26 and 17.7 million in FY 27 in other federal funds.

The governor's FY 26-27 budget approved a total of 81.4 million in general obligation bond funds and 80.5 million in other federal funds that are then matched. Details of the projects can be found in Table 15, but I'll talk a little bit about them here.

One is to upgrade our Youth Challenge Academy facilities where we have those live-in cadets. One is also to improve, sustain, and modernize our siren program. One is for an elevator so that we can be ADA compliant at our Diamond Head facility. One is to retrofit all of our buildings so they can be more resilient to effects of natural disasters, specifically hurricanes, because that's about when we go into a higher operational op tempo. One is to upgrade our army facilities.

One of our large ones is to get the federal--the state funding--to start building the third State Veterans Home over on Maui. One is to improve the HIEMA Emergency Operations Center. And then we have a small maintenance building which has a supplementary fuel capability at Diamond Head.

So in the event of a loss of power, we can then fuel our vehicles, and so we want to renovate that building. I'm pleased to report that we've turned the corner on vacancies and are getting closer and closer to my goal which is no more than 5% department wide.

DOD has a total of 400--correction--504 authorized positions and our total vacancies are 142 or 29%, which is trending downward by 43 from last fiscal year and represents a 28% reduction. Of these 142 positions, 95 or 67% are are either 100 or 75% federally funded. The following status breakdown is the status breakdown for the vacancies.

24 of the positions are being established, and the position descriptions and classifications are in progress. About eight positions are being redescribed due to the repeated inability to fill them at the current described rate. 24 positions are awaiting state matching funds so they're unfunded and are included in our budget request throughout.

23 positions are filled by exempt hourly wage employees or 80 90 hires. 18 of these are from the Youth Challenge Program that I talked about in the earlier paragraph. So we have insufficient funding to hire them.

So we put them into an hourly rate and what we'd like to do is be able to convert them to a full civil service, and four or five of the employees are in clerk positions that have been announced. 15 are awaiting DHRD and classification and 48 positions have pending actions. Either the vacancy is published, they're awaiting the list from DHRD, they're pending interviews, or are awaiting background checks. And I have a breakdown of that if this committee would desire that.

In closing, I'd like to thank you for this opportunity to present the Department of Defense budget requests, and myself and my team are here available for any questions that you might have.

Okay, thank you very much. Members, at this time, we'll open up to questions. Representative Lee Loy.

Thank you, Chair. Thank you, General Logan, for being here. Just a couple of questions on the Siren Program and what that timeline for all of the upgrades and repairs for that modernization of that siren program.

Okay, thanks very much for your question. What I'd like to do is bring up Mr. Barros. He's the Administrator of the Hawaii Emergency Management Agency, and he has much more detailed information on the current and future Siren Program.

Good morning. So for the Siren Program, the modernization, we're looking at years and addressing bundling sirens and addressing them by year. So, for example, this year we'll fix roughly 31 sirens, will be modernized throughout the state. And that's just in the modernization program. The fixed is a different one.

So the ones that are broken that we want to fix, we'll go out and fix, and then those that are in the modernization phase. So this year we're looking at between 26 and 31 sirens for modernization. And we work with DAGS, we bundle them, go with DAGS, and then it gets caught up in their process for contracting.

Great. That's exactly what I needed to hear. Of the 31 sirens, like what is the breakdown per island?

I can get you those numbers.

That's fine. Perfect.

Right now, 15 on Maui, eight on Oahu, and eight on the Big Island. Part of the modernization piece. Yeah.

Okay, great. That was my only question, but General Logan, thank you so much for the dollars that come down from the federal government. Also really interested in the REPI Program and how the REPI Program can continue to help to be good neighbors across the island and how we can actually blend more dollars through the REPI Program, through your office, and then down into the counties. Just putting it out there. Thank you, Chair.

Thank you for the question. Representative Kusch.

Yeah. Good morning. Thank you for both everybody coming today. I appreciate that, and good information you gave. Are you able to maybe give us a little bit more numbers? And forgive me, maybe you put them in there, but it was a lot of information and I didn't see it on the tables on your Youth Challenge.

I know in Hilo, that's a popular program and seems to be pretty successful. And I was just hoping to--and you talked about a lot of the vacancies and that's where a lot of your state shortfall--if I'm correct--came.

Can you talk and maybe break down by county where you're short and some of the numbers there, like how many graduates, how many students, how many--where you're short? I don't know if you're able to get into that granular space or not.

I'll actually bring up Brigadier General Retired Oliveira. He's been intimate with the program for quite a long time, but I will tell you this and I'll offer an invitation. Our next graduation for the Kalaeloa campus will be in June of 2025. The class is about to start later this month.

And if you haven't been to one of those and you see the transformation that occurs to the youths from when they start to when the pride and the proficiency that they display upon their graduation--and all of them have plans for afterwards.

They're either going to go to college, some of them join the full time military, some of them move into our Job Challenge Academy where they're then provided internships to find a vocation that they can be a contributing member to society. It is spiritually uplifting and will provide, Chair, you and your committee members the opportunity to come and participate in the graduation. But what I'd like to do now is turn it over to Brigadier General Retired Oliveira, who has a lot of that data.

Sure. Thank you for that question. In regards to the numbers, it will vary from year to year and class to class. We have two classes--well, actually four classes every year, and one is in Hilo, which we just started the Job Challenge Academy.

So we finished our first class with Job Challenge and going into our second class, and then the other one is out of Kalaeloa, and that's our Youth Challenge Academy. Youth Challenge, we're looking at about 100 per class, so 200 per year.

And then with Job Challenge, with the first class, we're starting off kind of slow right now, but we're looking at--we have the capacity to go up to about 45, 50 at Hilo. We're solely dependent on the Youth Challenge Academy at Kalaeloa because we can only place Youth Challenge graduates into the Job Challenge Program.

So we're working really hard as one program now and trying to get the Youth Challenge Academy to support the Job Challenge and try to get as many of those hundred graduates that are--or cadets right now that are there over to Hilo.

Okay, so there's no Youth Challenge Academy on Hawaii Island right now? It's all on Oahu?

Correct. They're all--we used to have the two Youth Challenge academies and the two Youth Challenge academies would compete with each other. So then I gave all the neighbor islands to Hilo Youth Challenge, and Oahu was for Kalaeloa Youth Challenge. Now that all the Youth Challenges combined into one in Kalaeloa, there's no competition anymore.

All the recruiting for Youth Challenge throughout the state all goes to Kalaeloa. So that's really helped out Kalaeloa's numbers. And then if we help out Kalaeloa's numbers, the expectation is that will also increase the number of graduates that we have that will be able to attend a Job Challenge Program in Hilo and increase their enrollment also.

Got it. Thank you, guys. Yeah, I wouldn't have figured that out. Thanks for putting that together. No further questions, Chair.

Thank you. Questions? Representative Lamosao.

Thanks, Chair. General Logan, I just want to thank you for your service and thank you for your team, for all your work throughout the years. I do have a question in regards to the vessels that were used for the transport of the six New Year's Eve burn victims. I want to know if we own any C-17s.

Okay. Thank you for your question, and of course, thank you for your kind words. It's a little complex, so I'll try to break it down like this. Our Air National Guard assets are in an associated relationship with the Pacific Air Forces or the U.S. Air Force.

Some of our airframes are owned wholly and operated completely by the Hawaii Air National Guard. That would be our KC-135 tankers. Some of our airframes are associated through the Total Force Integration Program, where the Hawaii Air National Guard is the lead agency and the Air Force provides just pilots and some maintainers, but we actually run the program.

And that would be more descriptive of our F-22 fighter program. The C-17 program is just the opposite. So the lead agency is the 15th Wing, which is an active duty Air Force element, and the Hawaii Air National Guard, the 154th Wing, is the is the associate unit that provides pilots, maintainers, safety personnel, and such.

That specific mission, that single ship mission that transported the six patients to Arizona, was crewed by two Hawaii Air National Guard individuals. The rest were active duty Air Force crew members.

The challenge there is within our force structure, within the Hawaii Air National Guard, we don't have the medical capability to provide that specific in-route care while they're flying to the mainland. This has brought up something that we're going to look into and see if there's the ability to develop that within the Hawaii Air National Guard itself.

If that was the case, we could have transported the patients via a KC-135 or we could go through the same process, get the approval, and then utilize the C-17 airframes. As we look at the types of threats and disasters that could occur in Hawaii, we want to make sure that we have those types of capabilities ready.

Our vision statement for the Hawaii National Guard is--on the second page--is we want to be trusted, ready, and responsive. Obviously, to be ready we got to have the assets and we got to be trained and ready to use them, and we have to anticipate what those needs might be so that we can be more responsive.

And this is an example where we've looked at what just occurred on unfortunately the tragedy on New Year's Day, and we're going to staff this to find out how we can be more responsive to the needs of the State of Hawaii. I hope I answered your question.

I wanted to know the breakdown of that cost and who are we paying. Where is that money coming from? Is that coming out of general funds?

I don't have that answer. There is going to be an after-action review conducted by USINDOPACOM later this month. They haven't calculated that cost or we haven't calculated the cost. The airframe itself costs around $20,000 per flight hour for the flight there and the flight back. It's an annual rate that's published by the Department of Defense, but I'm not sure what the bill is going to be from INDOPACOM to the State of Hawaii.

And is this something that needs to be considered when we're looking at your folks' budget?

I'm not sure where the funding would come from. I don't know that it's going to come from the Department of Defense. The actual request for assistance came from the Department of Health. I'm not sure a decision has been made where the, where the funding would come from.

We can get that information.

But we will look for the information and we'll provide it back to this committee as soon as we get it.

Thank you.

Thank you. Further questions? Representative Hussey.

Thank you for that explanation. A real quick question about the cost per flight hour. Is that all-inclusive? Is that fuel? Is that manpower as well?

It is. So for the Department of Defense active component folks, that's already included in because we're going to pay Air Force personnel regardless of whether they participate in the mission or not. If we were to use strictly National Guard soldiers, most of our force is part time.

We would have to then factor in a cost for those folks. Of the two Air National Guard folks that were participatory in the mission, they were already in a status. So that would be the total cost. I can get you the total breakdown. It's at approximately 20,000, but I don't have the official figure with me today.

Thank you.

Thank you. Further questions? Okay. Yeah, I have a quick question. Just, can anybody update me on the status of the Maui Veterans Home? Because I know there was a timeline that we had to meet if the alternative sites have been secured and how we're proceeding on that. Cause it was--my understanding is there was--the timing would affect the availability of the federal funds.

Yes, sir. And I'll ask Mr. Alamodin to update you on that.

Good morning, Chair. So there are really two important suspense dates: August 1, 2025 and then August 1, 2026. The key piece with regarding to meeting what's required for the August 1, 2025 suspense date is the certified $35 million match in addition to a state commitment regarding land use.

So when we briefed you, approximately, the September timeframe, two sites were under consideration: University of Hawaii Maui College and the 10-acre parcel in the Pulehunui District.

What we recently learned regarding University of Hawaii Maui College is that the Faculty Senate did a review and a vote on whether or not to support the State Veterans Home on campus. As you know, the VA has a CBOC, community-based outpatient clinic, soon to be approved as part of the campus footprint.

And then the proposal was to have the State Veterans Home adjacent or essentially next door. For what we recently learned is the Faculty Senate did not support the State Veterans Home on campus. So our focus is now on the 10-acre parcel at the Pulehunui District.

Certainly there are much advantages to the Pulehunui District location. Being a larger parcel, it provides the ability to perhaps have a broader footprint in terms of a service orientation for the facility. So for a lack of a better way to say it, it might be a blessing in disguise, so to speak, but in terms of what's immediate in terms of commitment is their $35 million certified state match.

Once we provide that in terms of a pre-application packet to meet that August 1st suspense date along with the land commitment, then it allows us then to move into the second phase which would be 100% design piece and then the appropriate environmental and historical site assessments.

Once those components are complete, then we can submit for the August 1, 26 suspense date. Once approved, then it puts the home then in the 2027 funding cycle within the VA system. So if it all aligns up correctly, then it puts us, our project, in a priority queue, so to speak, in terms of top 50 projects nationwide with regard to Veteran Administration priority CIP projects.

Thank you for that update. I appreciate that. I think that it'll be a good addition to that whole development, like, I've always believed that it's a matter of clustering into that whole area and this would be a good add. Okay, thank you. Thank you. Any other questions, members? Vice Chair.

Thank you, Chair. Can I follow up on that Veterans Home Maui question? So I'm looking on your CIP request list and it falls under department wide priority number six. So I'm wondering if now with this timeline and needing the funds by August, would you say that that moves up as in priority level on your CIP request or is still--I know it's hard to answer because they're all important, but I'm just thinking like there's a whole bunch of things listed above it, right? The Youth Challenge, the sirens, all of this. But I'm just wondering with the deadline, would you, would the department consider that as the most critical funding so that you can move forward with this project?

Clearly--and thank you for the question--clearly for the Department of Defense, because of our commitment to our veteran population, it is one of our most important priorities. We've just completed the Daniel K. Akaka State Veterans Home out in Kapolei. It's about to open. A dedication ceremony is being scheduled for March. 120 beds.

We were fortunate to have the chair come out on a tour and see what that provides for the veteran population. We are the number two state as far as number of veterans per capita, only number two behind Alaska.

So I think we have a duty to try to provide the ongoing care for folks that have either volunteered or in the case of many, were drafted for the Korean and Vietnam conflicts and really didn't have a choice and are now suffering through some debilitating, you know, states. It is clearly one of our priorities. Unfortunately, with the tables already having been submitted, it is too late to move it up in the priority up to number one, but it is one of our highest priorities, definitely.

Okay, great. Thank you.

Thank you very much. Further questions, members? Representative Kusch.

I just have one more. Thank you. I was just noticing in--and I didn't catch it before and I don't think I heard it in your discussion--was about the fire marshal and the Office of Recovery and Resiliency at the bottom there. It's a governor's add-on. Can you expand? It looks like there's seven positions, and if you can expand a little bit on that.

Okay, so thank you for that question also. The last legislative session established the fire marshal position or reestablished it. It was de-established, I believe, in the 1978 session and it went into effect, I believe, 1, July 1979. It was placed into the Department of Labor and Industrial Relations and that's where it currently resides.

To my knowledge, they haven't hired anybody yet, and I believe there is a hiring process that the Hawaii Fire Council is considering at the present time. There is an emergent concept to try to request that fire marshal and the Hawaii Fire Council to migrate over to the Department of Defense. That legislative priority has not been--correction--the legislative proposal has not been completed yet.

So what we're doing here is leaning forward and trying to anticipate what those needs are so we can be responsive and articulate the funding that would be required if in fact, after this session, it does come to the Department of Defense.

I wasn't really participating in the discussions on the fire marshal reestablishment last year, so I'm not that well-versed on it. I don't come from a real heavy fire department background. I retired from the Honolulu Police Department. We did co-respond to a lot of fires with those folks. So I don't really have that expertise, but what I do know is, if in fact it does come to the Department of Defense, we want to be able to have that funding available.

Looking at the Maui Wildland fires, which we participated in a lot, looking at the most recent event that occurred on New Year's Day, and then of course, the tragic loss of that firefighter and the hospitalization of the other injured firefighters, we see a real need to operationalize that concept as quickly as possible and try to get after whatever gaps there are within our fire--mitigation prevention and of course our fire response or fire building code issues that we might have.

So I don't really have a good answer because there's not enough known about yet and it doesn't really belong to the Department of Defense as of yet, but if it does move to us, this is an attempt to try to secure funding so we can hit the ground running as quickly as possible in the next state fiscal year.

Copy that. Thank you. So is that like--it looks to me there's 3.3 million essentially for seven positions. Does that also include other ancillary costs, the vehicles, communication offices and such, or is there any other details on that, or is it just kind of a placeholder at this point--you don't know much on the details?

I'll tell you what. I'll bring up my ASO, my Administrative Service Officer. He helped craft the Form A's, and like I said, this is kind of outside of our department at the present time. So this is kind of our unique fiscal request that we have.

To answer your question, sir, the 2.1 million of that is operating cost. What those details in cost centers are, we don't know at this time, but--so only one million is salary and the rest operating.

So it's 1.1 for seven positions and then the 2.2 is for operational?

Right.

Got it. Okay. All right, thanks so much. I appreciate that.

Okay, thank you. Further questions? Colonel Spray, can I ask a follow-up question, please? So mechanically, if it comes to you, how does that work? Is it like an attached agency? How is it going? Are you there for administrative purposes? How is it going to work?

I think in preliminary discussions internally, we're going to just reorganize the department and put it under divisions because there's not enough administrative support to support those two offices.

Okay. So we'll just wait for more detail. Thank you very much. Any further questions? Thank you very much for being here. We look forward to working with you.

Thank you. Thank you very much, Chair, Vice Chair, and committee members.

Okay, thank you. We are in recess.

[Recess].

Okay, we're going to reconvene the Committee on Finance. Next we have the School Facilities Authority. Welcome.

Good morning. Thank you, Chair, Vice Chair. My name is Riki Fujitani with the Hawaii School Facilities Authority. Thank you for the opportunity to brief you and tell you about the School Facilities Authority and what our ask is for this year. We're a startup agency, relatively new. It was established in 2020 by this Legislature with Act 72.

The first executive director however wasn't appointed until two years later in 2022. Unfortunately, I'm the second executive director for the School Facilities Authority and I was confirmed in June of last year.

The hope of the Authority, what I like to do is any kind of task is to look at the destination where you want to end up and then work towards that goal. So everyone's pointed in the same direction or paddling in the same direction.

The model that we want to follow is not uncommon to other state--other school districts across the nation. They establish School Facilities Authorities to create standards, to get efficiencies, and to basically make sure that schools, districts, all focus on the same mission and in the same direction. So that's why they've been established.

And Massachusetts is a great example. So that's our ultimate goal. Hawaii is very unique in that there's only one school district, but there's still 264 schools split up amongst 15 complex areas. So in essence, we have 15 different school districts. So that's pretty much our goal. My presentation is kind of organized along three questions.

First is the why, then the how, and then the what. So the why is that we were established to develop modern learning spaces for Hawaii schools and contemporary living environments for Hawaii's workforce. That's basically why we exist. How we're going to do it, which is the real big question, right, what makes us different, is we want to improve the way government builds schools and housing through first of all, standardized designs.

For some reason, our state has diverted from standards and uniformity into ad hoc one-offs. Everyone wants to be part of an award winning project. This is a project that is cost-effective, maintainable, and will be around for literally eight generations, when you think of building something. You have to keep that in mind. Then we want to adopt different ways of building because construction costs in Hawaii are so high through prefabrication.

That's the best way to control costs and to implement standards, and then designed for building maintainability, not for lead certification or award-winning designs, but what's maintainable over the course of a lifetime, and then do innovative things through procurement. And the things we do is like prequalified vendors for speed.

So everything's done beforehand before the money comes, everything's set up versus doing it afterwards. Getting Best Value, best is Low Bid; unfortunately, the state is all stuck on Low Bid. We don't do any of that. Our contractors are all based on Best Value. So it's a criteria. Price is only one factor.

And then the third is to use innovative things called design, build, finance, operate, maintain, or P3s where you're using or matching both state money with private money. So that's the how or how we intend to get this done. And finally, what we do, and that's dependent upon you.

Right now we have three programs which we call swim lanes. One is preschools, universal pre-K, the second is Central Maui School, and then the third is workforce housing. That's the three things I want to cover. Next, I'll tell you about our general program budget. It's been around since the appropriations in 2020.

The money at play is 81 million for preschools, meaning the legislature appropriated 300 million, but was ultimately released by the Governor in allotments is 81 million. For Central Maui Schools, it's 20 million, and that one is CIP, and then the third one is workforce housing, which is 5 million.

So that's what's been released, encumbered, and being spent and worked on of the appropriations so far. Our operating budget is very, very small. It's actually--our request is less than the first two years at 1.6 million. We have only 12 employees, eight of which have been filled, the exempt positions.

The four civil service--unfortunately, we are trying our best, but hiring civil service positions takes a really long time, and we will try our best, but we've been at it for this time. So operating requests are very, very small. Next is these programs, so the first one being preschools, and our mantra is to approach everything programmatically.

No more one-offs, no more ad hoc uses of how to solve problems. You have to develop a program and then you can scale it. So that's what we did with preschools. First with the pilot, we did renovations. The first thing we did was develop standards for preschool renovations so everything is standardized.

And that's why we were able to do 11 preschools in the pilot within six months, incredibly fast. And then in the next year, we've increased that to 45. So we have a standard and a process and that's how you can get things done quickly.

But preschools, the real need for universal pre-K is you have to increase capacity by hundreds of classrooms, and the only way we're going to do that is with new builds. We have two types of new builds, traditional buildings where we help shovel ready products--projects at the libraries or University of Hawaii, but more importantly, we're bringing prefabricated preschool hubs at key locations in order to meet that need.

That's the programmatic approach. As you can see, the renovations are on a fast clip. The next slide will show you the buildings which are prefabbed. Again, this slide shows you all the renovations in play.

Right now we have 25 in play for opening up next year, and then the next slide is the preschool buildings. What I tried to do is show actual examples from Hawaii of the technology we want to use. There's actually two preschool prefabricated classrooms already at the University of Hawaii.

It was actually established maybe a decade ago with the Department of Energy grant, but more recently they've done builds in Kauai at an R&D facility and most impressively the recent hospital in Kona for Kaiser.

So what it is is, right, all these things are manufactured in a factory, shipped to Hawaii and prefabricated, and then set up on site at a much better cost factor, and that's what we intend to do. This is the model that's happening nationwide at Oakland Unified, LA Unified, Boston Pre-K, right.

It's creating centers for preschools and that's what the goal is. So that's the first, what we call swim lane on preschools. Our second swim lane is Central Maui Schools, and again, we have to build schools differently.

We have to go back actually in time to how schools were built during the 1940s to 1980s where they all look the same. It's not going to be that boring, but it'll be standardized. So there was a time when in Hawaii, where every three days a new classroom was built. That's the clip level they ran post-statehood.

We have to get back to that model, and it all starts with standards. Right now there are five key standards that needs to be developed: ed standards, construction specifications, design guides, technical drawings, and commissioning. Right now we're building schools with only one standard. So we have to build those other four first before you build anything.

Then you go build on these standards so you can scale it and build it fast. We're also developing three other tools for the Central Maui Schools. One is what we call a Classroom Capacity Assessment system database that tells you based on a multiple of factors, why there's need.

So we've been able to show there's an incredible need for a school in Central Maui based on the Maui fires and also the 3,000 homes that are projected to be developed. The need is substantial. The other tool we're developing is standard classroom configurator.

So if you ever bought a home at Horton or Coleridge, right, you can get on a configurator, tell you what kind of home you want, how many rooms. We're doing that for classrooms. So you say, I need four classrooms at this location. It cranks out to you a diagram. It cranks out to you the Revit diagrams.

And now the plans are standardized. You don't have a choice. You can choose furnishings, amount of bathrooms, but they're all standardized. So if you can standardize 60% of your bill, that's how you control costs, and you develop speed. It's not nothing on you. LA Unified has already done this. We're just doing it for Hawaii, for this Central Maui School.

And the last swim lane we have is workforce housing. This is the most challenging. And our goal, right, is to repurpose school lands for workforce housing. We've had one pilot, and we're in the midst of it, is Mililani High School, right. The RFP closed.

We awarded actually a local developer who's done and has a great track record of affordable, viable workforce housing, and we're in the midst of working with them on pushing this through. There's a lot of controversy, pushback about having it in Mililani, but we will try our best. But that's just the start, right? That's the first pilot.

It's always the hardest. The challenge is to replicate this across ten different sites. So to develop the model, yeah, and we want to do five. We want to do ten. That's the only way you can create a dent and get thousands of workforce housing sites. And the best example is the NOAA project at University of Hawaii, right?

That's the model: design, build, finance, operate, maintain. This model is being replicated across the country, everywhere, where you provide the land lease, developer fronts at all, maintenance, everything's included for the life of the project, 65 years. So that's our intent. That's what Mililani will be, and hopefully ten more thereafter.

So hopefully, that gives you a good idea of who we are. Most people don't even know we exist. We've been around for a very short time. There's a few of us, but the challenge we're taking on is great, but I think it's real key to changing the way Hawaii builds public schools and workforce housing. Open for any questions you have.

Members, question? Okay. Representative Kusch. I mean, Hussey. Sorry.

Sorry for being a little bit late for the beginning of your briefing, but thank you very much for being here today. My question is regards the workforce housing piece and one of the, one of the things that we deal with in Hawaii is zoning rules which essentially require us to build automobile-dependent communities.

You know, we require parking, we separate land uses so that public land uses like retail, commercial, are separated by zoning from residential. And I'm wondering, given that what you're embarking on with Mililani is essentially a novel way of rethinking or you're taking one land use and you're converting to a very different land use--I'm wondering if you're also seeing that as an opportunity to revisit some of the restrictions that we currently have which are requiring essentially car-dependent communities. Can we finally build walkable pedestrian-centric towns in places like Mililani which are very suburban? Thank you.

That is a very aspirational goal, and we are planning that for the Central Maui School where we have the luxury of a clean sheet design, right. It's a dirt lot right now. So that plan has that same concept. We're in our footprint, we're putting possibility for future workforce housing.

Unfortunately in the case of Mililani, that's completely different, right. That's a 30-year old development that we're coming into where the community doesn't really want any more change to it. So for that one, we will have to go through the 201H exemption process that allows us to build higher with different parking requirements.

But the reason why that site is so attractive, it's right next to shopping, food, and everything. So you can create a walkable offering at Mililani High School and that's why so many developers were interested in it. So we had a lot of interest despite not having much due diligence to properly vet it at the time, but we can achieve that. Not regulatory yet. We'll have to go through the 201 exemption process. But our goal is on the next goal, Central Maui, that will be built in as part of the plan.

Representative Grandinetti.

Thank you so much for your presentation. I have a follow-up question. Given kind of the difficulties you're facing in Mililani and also, you know, that's my alma mater, but the fact that it's a high-performing school, it's not a rural school facing a significant shortage, why was that site chosen?

Excellent question. It was actually determined by the Legislature, so it was in the actual act and in the budget bill where Mililani was number one. So we went there. Personally, I would not go there. It's a very challenging environment. You want to go somewhere where they want you. But we had no choice.

The next one, though, hopefully, will be where we think is the best option for workforce housing. No, that's, again, that's in the last budget bill, but all that money went away, right, because it went to the Maui Fire. So the next one will be dependent upon the new money you're giving us in our ask for CIP where we have the latitude to determine where the best use is. Yeah.

And do you have--do you have any ideas?

Oh, yeah. Most of it is actually in urban Oahu, where the schools are underutilized, where they're close to transit stations. You know, that's where the real sweet spot is. Yeah.

Thank you.

Okay, thank you. Further questions? Representative Lee Loy.

Thank you, Chair. Thank you, Director, for being here. I get really excited about this stuff, especially when we talk about creating your own design guideline standards, your own building standards, along with just this ecosystem of live, work, play.

I'm just really curious because having done land use for a little bit, some of the hurdles that are out there really lies with the state and the development of an EIS because spending public dollars is a trigger. I'm just wondering how long it will take you to develop these guideline standards.

I'm asking that question because there's a lot of bureaucracy which really stalls the delay and the development, along with the 201H program, which allows you to exempt yourselves from some of these standards.

And I was just wondering if there was a way to kind of extrapolate or comb through these places of bureaucracy because that's the development standard to get you guys to building schools efficiently and effectively, and then us as policymakers can really take a hard look on what those regulations are and how they're either helping or hurting development of housing or schools or other things that is so desperately needed in community.

Yes, and so in answer to your first question with schools, again, there's five key standards and we've only developed one, and the one that we've developed is actually in 2006. So that's a problem. What we've been able to do is we have hired a firm out of San Francisco.

So the architect of record for the Maui Schools is actually a Maui firm, because I'm a firm believer in having a Maui school, Maui-built. So the primary architect is Hawaii Off Grid, which is based in Paia, Maui, and they're doing most of the basic site work right now.

But we wanted to back them up with a national expert, so they're being backed up by this firm called MKThink in San Francisco, and they built an award-winning community mixed school program in Emeryville which blends the needs of the school and the community together.

That's why in the initial site layout plan there's a community--shared community access component of the school that's very open to the--that's going to be open to the Waikapu community as part of the design, and this firm has already done that on the mainland, so that helps.

They can do most of the heavy lifting because they've done all these things for other school districts in the Bay Area already. So I think we can jumpstart it quicker that way. But that still has to follow a process getting accepted by the Department of Education and then the community on Maui, right?

Yeah, and I asked that question because I would love to see that or even just put it front of mind. I mean, there's so much work to do, but if there's ways for us to learn the lessons to continue to fall forward, that helps other communities. I also recognize that within your operating budget you have a architect on board. Is that architect evaluating those plans for those things? Share with me that position a little bit.

Absolutely. We have actually two architects on board: one that lives in Kailua, thinks kind of out of the box, and then we have one actually from New York City who ended up in Hawaii because she worked for for a billionaire that was building schools across the world.

So she's been involved with schools built in France, Singapore, New York, and San Francisco. Unfortunately, her employer decided to buy the Oakland Athletics and just recently destroyed the Tropicana to build his new Oakland A--it was Las Vegas A Stadium. So they laid off the entire staff, but we were able to hire her. So she is key in driving how we should build schools versus how we've built schools in the past. Yeah.

Great. Having that kind of design professional on team looking out for our best interest is critical. And then finally, as it relates to the workforce housing piece, were those same design design guidelines also be utilized to the development of the workforce housing?

Yeah, unfortunately we were given very little money for workforce housing because of the Maui fires. I know the ledge appropriated 170 million, which got reduced to 5, which we think is what we need to just get this project over the finish line. So we haven't had the same luxury to develop housing standards like we did for Central Maui Schools, but that is our intent.

Great.

Standardization.

Yeah. Look forward to all of that.

And, you know, the county has done some pretty--I don't know if you've seen the Westlock Project--but that's a good example of prefabricated. It was built in a factory volumetric in Canada, shipped on a barge, and literally assembled in weeks in Westlock. So it's been done before. We just need to apply that same discipline going forward. Yeah. We're not reinventing the wheel.

Absolutely. I think there's a crayon box full of options and we just, we're not utilizing those unique colors that are available. So thank you for that. Yeah, I look forward to those design standards and how we can help move some of these projects along.

Our intent is once we get that configurator, we'll let you guys be able to play with it so you can configure new classrooms in your schools.

Thank you. Thank you, Chair, for the time.

Further questions, members? Member Kusch.

Thank you, and you're right. I didn't know much about your organization. Looks like about a dozen people.

There's eight.

Right, yeah. And it's--I'm, I'm glad. It seems like you're a really nimble organization and forward-thinking and so I'm grateful. Can you elaborate a little bit about some of the Hawaii County projects that are in the pipeline over this biennium?

Yeah, unfortunately we have--actually the only swim lane with Hawaii County is two preschool hubs, one that's in pre-designed at Imiloa.

Oh, okay. Yeah.

So we actually have pre-designed conceptuals already for that. We've been working with the astronomy center and our hope is that'll be actually one of our first sites. Construction will start in 2027 on a prefab model. They're going with the Project Frog model because of the steel and the weather and the termites. So they'll be the first one, I think. They're first in the chute. They've been easy to work with too.

Yeah, good organization.

Yeah. The one biggest thing that can help us on the Big Island is consistency of permitting. So the problem with--every county has their own building code permit exemptions. All counties are consistent with the exception of Hawaii County. So if you read the code, state agencies don't need permits. You have to opt in and request them with the exception of of Hawaii County. The risk is you can exempt yourself from permits.

But if you do that, what happens is all their other associated agencies--water, fire--rely upon that permit. So you can exempt yourself and go build it, but then you won't get a water meter and you won't get fire certification. So you still have to submit a permit. But for most of the things like renovations, where things where you already have a certificate for occupancy and a fire system do not apply for the permit, and the Permit Department will tell you don't do it. Yet state agencies consistently submit a permit and wait 18 to 24 months for that permit, even though it's not required by the code. Except for Hawaii County.

Yes, I've seen it, too, specifically exempted in what's needed for a code, but I see your certificate occupancy. So there's nothing that Waikoloa Library Project and the Palamanui--those are...?

Yeah, those are DAGS or--Palamanui will be--you're right. That'll be the next one, too. That's on the hub list. But the Waikoloa, that's--we're dependent on DAGS where we just contribute funds to their overall project, yeah. But they'll all have to go through permits because those are, those are big. They need water meters, they need fire. You can't permit--you can't get a permit exception.

Okay, and that was that 20 million for Hawaii County? I saw that--I think it was a workforce housing number.

Yeah, that was to build workforce housing, but again, all that money went away, right. What happened was because of the governor's--the initial appropriation was 170 million, light on the veto reduced it to 50, Maui Fire reduction reduced it only to 5. We think we need the 5 million just to finish Mililani.

Got it. And did you have a site planned out for that 20 million for the workforce housing?

No. We never got that--

Okay. It never got that far?

Yeah. I mean, by--the money was reduced within the first six months of the appropriation.

Okay, thanks so much. I appreciate it.

Okay, thank you. Members, further questions? Okay, Vice Chair.

Sorry, one quick question. So Mililani is the pilot, and then after we kind of get that, hopefully we have the design, what we're going to do, how quick is the timeline and the rollout to start replicating after that, you guys think?

Sure.

You know, like the sites, Nanakuli, Waipahu, the counties.

Yeah. So, I mean, our hope is we don't follow that pattern on Nanakuli, Waipahu because that was in the original appropriation that's gone. We hope the new appropriation will give us latitude in finding the five best slots based upon real data, what a developer will want to build, not what somebody else wants to build.

The process from an RFP to an award is probably a year. So if we get that money in August we can do the RFP development by December. That's 25--you're looking at 2026 where you award the RFP. We still have a long road ahead for Mililani, right.

All we do, we have an award, we have a selected developer, we have 201H, we have EA, we have LIHTC, we have a lot of hurdles, but at least we're there. We have an award and we have a very good developer selected that has an incredible track record in Hawaii and an incredible track record in Mililani alone. They've built a senior living site in Mililani. So I think we have a really good shot at this.

So since we're so far out, I guess, with the Mililani project, I guess the intention is to start identifying, lining up those sites and then fall into that one year kind of schedule?

Absolutely. Yeah, we have 25 sites lined up. It's just that--

Oh, already identified. Oh.

Yes, but that's a process to get agreement from the governor, the Department of Education, there's all these people involved that we have to go to. But we're confident that with--I don't know if you're aware but there's a new senior policy advisor at the Governor's Office named Will Kane.

He is well-aware of the situation with the Department of Education because he spent a previous job studying it for several years with the Jacobs study, so he is very in tune to what can be done with the properties. Yeah.

Okay. Representative Grandinetti.

Another quick follow-up. What kind of data are you looking at as you develop that criteria for the next site selection?

Sure. Yes. So the, the key thing, what we call for property identification is location to accessibility, zoning and land use regulations, proximity to infrastructure, and then environmental and natural hazard conditions. So that's your first cut. Based on that, you can say these are good sites for identification.

But then to really go deep, you have to do a land survey, you have to do a topographic survey, you have to do soil testing, you have to do archaeological excavation because that'll just kill you. And then you have to do actual infrastructure capacity analysis that there's enough sewer, water, electrical to meet that need. So that's the process.

Do the--at what point are we looking at like the needs for teachers at the school sites?

That--so there's one need for teachers. We don't have great data on that yet. Yeah. And I know the DOE put out a survey with now defunct survey company that we haven't been able to get that information, but from a Department of Education, there's 22,000 employees in the Department of Education. We're confident that--unfortunately Mililani is just 100 units. To get any dent in this 5%, we need ten locations. Yeah.

So we're not prioritizing schools that are having a hard time attracting teachers at all?

That's, that's a different issue because most of the teachers that are new to--they're all in the rural areas and no developer will, will do that. You know, it's, it's almost impossible to fund teaching housing in rural areas. You just have to grant them money and renovate it.

That's why, if you're not aware now, there is a rural teacher housing program in the Department of Education with 50 units. 80% should be demolished, they're so old. They're all grandfathered in from the counties when they built it. Those things are very important, very necessary, but they're not being funded.

That's how you can get teachers for rural areas in high need. The hope is that you build it in centers where they want to live, and unfortunately they're going to have to drive or take transit, and they're doing it now. They're living wherever they can get good housing and driving, you know.

Thank you.

Yep.

Okay. Thank you. Members, further questions? Okay, thank you. I really appreciate this conversation, and you know, I think this is, this, what you are doing is part of a grander scheme. The original vision, when it was pitched to me was the vision and what this could be was from the person that used to sit in this seat, and I always thought it was a good idea to do something like this going forward, but it is only part of a bigger script.

So what you talked about, issues with permitting and what you talked about, that you're having difficulty so that you're going to use 21H to move something forward, part of me believes--and I'm going to use my time to help the members understand a few basic things--part of me believes--and I know it's difficult to get to everything--but we become experts at using state laws that exempt us from county permit or state process to expedite a project when I believe that the long-term fix is fix the process, right? And in fact we should.

If we got rid of Expedited Process 21H, whatever it may be, and some of the departments have exemptions and all these kinds, if we got rid of those and we actually forced ourselves to actually work on making it better and making the process make sense, then it might get better, right?

And that's the work that I think we all have going forward because right now we have developers that are experts at exemptions and not necessarily trying to fix what's wrong, right? So we as policymakers have to step back sometimes and say, you know--because the easiest way is--right--okay, there's a problem, they exempt it. Right?

That's the easiest answer, but that's not the long-term fix. The long-term fix is we've got to figure out where the bottlenecks are. I believe that most of the bottlenecks are not legislatively done. I think it can be administratively fixed. I think somebody needs to get into the weeds and figure out where they are.

But it takes political will and it takes the Administration to want to do that and it is something that I've always believed that we need to work on. The, you know, the--we are very unique, and this is something that everybody got to clearly understand, right? We are one school district.

That's one challenge in itself because there are even federal laws that make it difficult for us. There's laws that tie to, like, one school district, but our one school district is the only one separated by water. So it creates problems where they mandate that you gotta use the same vendor for the school district, but some vendors don't exist in certain islands, right?

So--and these are federal laws, right, so we have unique challenges that don't exist anywhere else. All of education, community hospitals--HSC was before us yesterday--jails, which are the misdemeanants, not the prisons, district courts, which is traffic court, and even ambulance service, all of it is paid for at the state level. Everywhere else in the country, it's paid for at the municipal level and it is paid for by property taxes, things like that.

But because the counties pay for these things when they build communities--and this is to your question about rural areas where we have people in the middle of nowhere and then teachers don't live there and stuff like that--when the counties have to build these five things and they do plan communities, they cluster, right, so they cluster development and then they cluster services.

But because we at the state level take care of these five things and the county does permitting and zoning, there's a disconnect. So we have to purposely try to kind of fix that going forward. So this is something that I want this committee to start working on and I want all of us to start looking at and try to figure out how to, you know--we are unique.

There is many of us that represent rural areas, and then we want certain things for our districts, but at the same time, sometimes we got to step back and think of how does that fit into the big pieces where if we need to cluster services, medical services, whatever it may be, how does it work best for the island, right, and where do we cluster all these kind of different things?

So that's the bigger discussions, I think, that we need to have going forward and a deeper understanding. So my goal is that with this committee is some of the things we'll be doing off session is to take you out to take a look at some of these challenges and expose all of you to more of this so we can have a better understanding and a better discussion of how we can all work on these things going forward.

So I just wanted to make that comment because I asked Riki to give some insight into what they're doing because I do believe it is a component, right, standardizing how you build--all these things combined will make it better for all of us.

But we are--there are advantages for us being a centralized state. Because we are centralized and we pay for all these services at the state level we are able to deploy--at the will of the Legislature--resources more evenly, right--throughout the whole state because we have that control--versus if we did give it out to the counties, they would be counties that are have and have-not counties, right.

So I think it's what we have--we should take advantage of the pluses that we have, but at the same time, we have to understand the challenges that we have. So I just wanted to make that comment. So thank you very much for being before us. Is tax coming right after? Okay. You have any closing comments?

No. Thank you, and we're drinking the same Kool-Aid.

Okay. Thank you very much. Okay. Thank you very much. We're going to be in recess. Thank you.

[In Recess].

Okay, we're going to reconvene the Committee on Finance. Next is Department of Taxation. Morning.

Good morning. Good morning, Chair Yamashita, Vice Chair Takenouchi, and Honorable Members of the House Committee on Finance. Thank you for this opportunity to allow us to, you know, present our biennium budget through fiscal year 2027. Before I begin, may I introduce the members of my team?

Yeah, please.

Okay. Alongside me, Deputy Director Kristen Sakamoto, and I'd ask each of you to raise your hand when I call out your name. My Special Assistant, Gary Yamashiroya, our Administrative Services Officer, Min Meng, our IT Services Officer, Corey Higa, Tax Research and Planning Officer, Seth Colby, Administrative Rules Officer, Winston Wong, Taxation Services Administrator, Nicki Thompson.

Taxation Compliance Administrator, Regina Yuen, Acting Tax Collector, Susan Adamson, Business Analyst Supervisor, Titin Sakata, and Special Enforcement Section Supervisor, Gordon Zane. So, as you probably know, the Department of Taxation is responsible for collecting the tax revenues that fund many important programs and services for the people of this state.

Just some highlights: in fiscal year 2024, the department collected approximately 10.25 billion dollars in state tax revenues, processed over 350,000 paper returns, and approximately 2.8 million electronically filed returns.

The department also answered more than 220,000 phone calls, helped more than 20,000 customers at its walk-up windows, processed more than 41,000 licenses, issued more than 20,000 tax assessments, totaling an assessed amount of approximately 233 million dollars.

Our budget request for the upcoming biennium seeks resources to enable our department not only to continue its operations, but also seeks resources to build capacity so that we can do more and will allow us to operate more efficiently. So our significant budget requests were contained in our testimony, and so let me just touch upon each of the items listed in the testimony. The first is a request for additional funding to monitor and maintain TSM. And so let me explain what that is.

This funding request is to cover annual vendor price increases for equipment and maintenance and maintenance services related to the department's computerized tax administration system, also known as TSM or GenTax.

This system is the department software solution that was designed for Department of Taxation and is continuously updated to effectively perform tax administration while also providing taxpayers with convenient and secure filing options. Within this request is a request for $750,000 in fiscal year 2027.

And this is to replace our current scanners as they will be reaching the end of their ten-year lifespan in in 2027. So we're anticipating needing these scanners, and let me explain why. These scanners are used to create digital records of everything submitted to our department on paper.

So whether it be checks, tax returns, information, filings, registrations, et cetera, if it's submitted on paper, we need to make a digital record of it so that it can be inputted and placed in into the TSM or GenTax system for processing or storage, and so it's very vital to our operations.

I'd also like to note that we are asking for $100,000 in each of the fiscal years for AI consultation and product trial, and this is a way for us to start exploring how we can utilize AI to improve the quality, efficiency, and effectiveness of the department's tax administration services. The next request is to establish seven positions within our IT Services Office.

The request really contains two components or purposes, so the first purpose is to fund the establishment of a permanent project team within the department's IT section to create and maintain a new online tax filing platform that integrates with the IRS Direct File Program starting with the 2026 tax filing season and continuing thereafter.

The IRS Direct File Program, if you're not familiar with it, is a new program that officially started in 2024 that allows taxpayers the option to file their federal tax returns online for free, and once we have an online system or online platform that integrates with Direct File, taxpayers will be able to link directly to us from Direct File to file their returns with us. This request is for a permanent project team to address a long-term commitment to Direct File.

In addition to Direct File, this project team would also build needed capacity within the department to take on large projects so that we can handle them in house without the need for contracted services, such as the implementation of new tax types which could occur or with the many system changes required each year when tax laws are updated by you guys each session.

The other purpose of the request is to fund two additional exempt software developers to continue with the department's efforts to build--to basically to attract and retain high-level developers to handle complex system changes that currently require contracted services.

As some of you may recall, last year the Legislature approved the establishment of one exempt senior software developer position within our department and that position has already been filled. So we want to build upon that. This request seeks one additional senior software developer in fiscal 2026 and one software developer supervisor in fiscal 27. The supervisor will then be responsible for supervising the two exempt senior software developers.

Next is a request to establish a data privacy officer within the Director's Office and this position is needed to fulfill the IRS requirement for the department to appoint a senior agency official who will be responsible for the department's compliance with all applicable privacy laws and to oversee data sharing and exchanges.

Next is a request to establish two new positions on Kauai, an auditor IV and an administrative assistant II. The auditor position will expand the audit capacity on that island, and as noted in our testimony, there is a potential return on investment in having an additional auditor, as a seasoned auditor can assess $2 million or more annually.

The administrative assistant is needed on Kauai because currently administrative tasks are being handled by other higher level personnel. A request that is not highlighted in our testimony that I wanted to mention is that we're asking for the establishment of two positions within our Special Enforcement Section.

For those of you not familiar, the department has a special enforcement section. That section has broad authority to conduct civil investigations of any sector of our economy for noncompliance with Hawaii tax laws. Last year, our special enforcement section--we also called them--they go by SES--SES was credited last year with collecting over $54 million in unpaid general excise tax and transient accommodation taxes.

Specifically, the request is for two positions within SES, SES senior investigator and an SES administrative assistant/secretary. So right now they need the administrative help in the office to perform clerical tasks, and then an additional SES senior investigator, they only have one right now and so we're looking to get another one to supervise the other--approximately nine or ten investigators in the office. So it's growing, it allows us to do more, and we can catch more violators and bring in more money. With that, those are the significant budget requests for the upcoming biennium and we stand ready to answer any questions you have.

Thank you very much. Members, questions? Tax is always fun. Go ahead. Representative Kusch.

Thanks for coming out this morning. I appreciate it, and thank you to the IT section. As a longtime GET user, it's come a long way from the pink books. Oh my God, thank you. Do you have an estimate? You know, I noticed a lot of your requests are around catching people who are not paying taxes.

And is that people like underreporting or not reporting at all or you know, do you have any idea, like, is there a cloud out there, like you're estimating 3% of tax, you know, 10% is not being collected, I mean, do you have any ideas about that?

I think it's sort of impossible for us to know, and so it's everything that you just said; it's non-filers, people flying under the radar or people underreporting, and we won't know until we look into them and we need personnel to do that. But really, those hiding from us, I mean--and that's the dilemma, right? I mean, we just don't know what we don't know.

But, I mean, when you fill--I imagine you have, you know, auditors already, and as they reach into sectors or something, they must, you know, and audit businesses, they must like, oh, wow; one out of ten restaurants and one out of five landlords and--or, you know, some--there's no data like that at all? Doesn't give you an idea at all?

I can ask our tax compliance people, but, she's shaking her head no, so--

Okay. Okay.

But I think the thought is that the more resources we have and the more taxpayers we can look at, then we're bound to catch people that are not paying their fair share.

Sure, sure. No, but I mean, it's like a motivation. Like, I know the IRS has an idea of, you know, if we add so many more enforcement agents, we're going to capture X number of dollars, which is a return on, you know, and then that's always a negotiation at the federal level that becomes a political football, but I just--that's why I was curious if you had, like, an ROI on your agent auditors, you know, that--you mentioned the 2 million for your Kauai guy--

Yeah, the Kauai--and that's based on experience of what seasoned auditors can assess in a year. And that's not to say that it's guaranteed that they're going to be able to do that, but, but they've done it before.

Got it. Thank you.

Thanks. Representative Alcos.

Hi. Happy New Year. What is your infrastructure costs and your labor costs? Is collecting taxes and overall, like you said, how much you bring in overall in the year versus--are you any idea what it costs the state?

I think our annual report has a figure in there. I believe our operating cost last fiscal year is about 30 million, and I think what it breaks down to is I think it costs us about 29 cents per every $100 we collect.

Okay. That's including infrastructure or is that just labor?

Well, our total base budgets for this fiscal year is about 42 and a half million, so--and then, as Director said, we current--we collect about 10.25 billion.

Okay, thank you.

Where do I buy shares?

Okay, thank you. Further questions, members? Okay, Vice Chair.

Hi, Director. You know the AI consulting contract that you were mentioning earlier? Has--is that an overall assessment of where--is that going to be to identify places or do you guys have areas, you know, like for the public or internal processes? Is that--what are they going to be working on? Is it like suggestions for the department or have you guys, are you guys identifying places to look for where implementations can be made? What's the consultant going to be working on?

I think the consultant is going to help us identify internally how we could be more efficient. I don't--I mean--

It's a mix of things, so we're looking both at potential industries that we can tap into for noncompliance, non-filers, and based on the consultants' work in other jurisdictions, they have some suggestions for us that we're thinking about exploring, but in addition to that, we're also looking into areas internally that would be potentially beneficial for us to become more efficient. So it's a little bit of--everything is kind of on the table. We want to make sure that we evaluate all options so that we use the funds that we get in the best and most efficient manner.

Okay, so more of that--we're at that broad stage where what can be possible rather than how we implement certain things. Oh, great. Thank you.

Okay, thank you. Members, further questions? Okay, let's see. The--and maybe just since we got you here, give us some insight. So yesterday Council of Revenue came out and then they adjusted the numbers, and my assumption is because of the estate tax spike was part of it, but they did also adjust economic growth from 6% down to 5.8 or something like that. Maybe helping us give insight as to the information that you gave them and then which may have adjusted those numbers?

We have an expert here in our department. His name is Seth Colby, so let me bring Dr. Colby up here. He does provide administrative and technical support to the Council on Revenues, and so he's the best person to ask.

Okay, thank you.

Good morning. The Council on Revenue adjusted--they made a very small adjustment to things, taking into account the outsized estate tax payment, right? So a lot of what was happening as they were adjusting to the estate tax payment, and then they lowered it a little bit.

Frankly, they lowered it by $24 million, which in a 10.2--or a 10 billion dollar budget is pretty small. I think what--a couple things were going on in their minds. One is if we do year to date, if we had taken--once we take into account the estate tax, our collections were about 5.4% year to date.

So they were coming down to that number. The other thing was the, in September there--frankly they had a relatively--they increase their forecast a lot, right, so another way of thinking about this is they're just kind of adjusting back from a pretty strong, strongly optimistic forecast.

Okay. Okay. I don't know if that was helpful, but yeah, okay. The--because they went, they upped the projection for 25 from--I forgot what it was; four to whatever it was--6.8, yeah--and then, and then they lowered the following year to -1.5. So--and then I think there was--and then it went back up again the following year. Yeah, go ahead.

So we focus a lot on the growth rates, right, because they're easy for us to understand, but what we--you guys should really be caring about is the absolute rates, the actual amounts of dollar amounts that you're bringing in, right?

So if you're going to have a very big increase in 2025, which is like, you don't expect that to happen pretty much ever again, then you're going to have a big increase. You're still going to have more money, basically the same amount of money as you had before the increase, but because you have to adjust it for the growth rate, you're going to have a negative number, right.

So, a negative number is not something to be afraid of. It's just something to understand, right, and that means because of how percentages work, you're just comparing it to the previous year. If you have a very, very, very strong year, sometimes you have a negative number. Another great example of this was in 2022, we had, we were up 30% on the year.

In the following year we were slightly negative, which makes sense, right, because if you go so much up--you're gonna do that--is that--do we decline by 30%? Or it would be even more of a decline, it would be like something like 35% to get to the same level. Absolutely not, right? So one thing I would--a lot of us tend to focus on the growth rates, but the actual numbers are more important for budget--the budgetary staff like you guys.

Right. Exactly. Okay, Very good. Everybody follow that? Okay, good. Okay, thank you. Any closing statement for you or any further questions, members, before I close it out? Okay. Yep.

You mentioned the hiring of software developers. I was curious about the coordination between your team and the new CIO. I was wondering if there's any joint work or coordination there?

Yes, there has been. Corey Higa is our IT Services Officer.

Hi, good morning. So as far as our software developers go, they work independently from ETS, but as our overall staffing, you know, we as DO techs do participate in some of the consolidation efforts and discussions that go on on long-term retention within IT in general, right?

But what we tried to do with ours is to build a career path for our software developers beyond the civil service, right. So once they're kind of maxed out on the civil services exempt, positions give us an opportunity to still retain them within the department and not having them leave, right.

So we're training them up, years of experience, and continuing to provide opportunities once they kind of max out on civil service. And so I believe ETS has permission, authority to hire exempt already, but this is something that we are focusing on as well to try and bring that into our department.

Thank you. Thanks, Chair.

Okay. Thank you. Anything further? Okay, thank you very much for being here. We appreciate you. Okay, members, we are adjourned.

[Adjourned].