Senate Standing Committee on Ways and Means

Calling to order ways and means, 10am agenda. We'll have the Department of Budget and Finance present their biennium budget request. So, good morning.

Good morning, Chair. Good morning, Vice Chair. Good morning, Senators. Louis Salivaria, Director of Finance for. For the State of Hawaii. I'm here to present to you the departmental ask for our upcoming biennium budget. Apologize with the timing, but would you like me to do some introductions while we. Before we get started?

So with me here today, I have Neil Mihira, who is our Budget Administrator. We have Tracy Bond, who is our Administrative Services Officer. Mark Anderson, who is our manager for our Director for our Office of Federal Awards Management. I also have Tom Williams here from the ers. And Derek Mizuno will be here shortly.

He is finishing up an EETF meeting. Unfortunately, Deputy Director Nasir as well as Administrator Rod Becker are not here today. They are currently in New York helping close the airport bond deal today as we speak, actually. So with that, sir. Yeah, I'll go ahead and go into table six.

So the department's operating budget request for the upcoming biennium, it's relatively skinny. I think the vast majority of our requests are for fixed costs. The first of one is. Is in budget in BUF721. And this is to provide debt service funding for the state with the exception of the Department of Education and University of Hawaii.

And that is for $10,095,046 in fiscal year 26. We are also asking for debt service funding for the Department of Education. We are asking for $9,975,178 in fiscal year 26 and 85,233,922 in fiscal year 27. We have.

We're also asking for debt service funding for the University of Hawaii of 3,617,781 in fiscal year 26 and 31,544,961 in fiscal year 26.

What's that to cover? What's that covering?

This is covering the debt service for the University of Hawaii Geo obligations that have been set up for the University of Hawaii. Okay. You don't think. I think you. You went well. The specifics were provided by the universities when the University did their presentation, their budget present.

I don't have that with me right now, but if you need that, we can get that for you.

Okay.

The next request, Chair, is for a budget for.

Bunch all those up. Huh? You can bunch all those up. Okay. All the same, right?

It's all. It's all the same. So the next, the next three line items are essentially for increases for retirement benefits for state employees. So this is for the Employee Retirement System. It's approximately. Well for uh, and DOE it's 18.8 million in first year and 29 million in the second year.

For DOE it's 23.4 million in the first year and 43 million in the second year. And then for. I'm sorry for you, the first one was for all state employees and then the last one is for uh. And we're asking for 3.8 million in fiscal year 27.

The next three requests, Chair, are for adjustments for health premium payments for the ETF. And this is 31.4 million for all state employees except DOE and uh, in the first year and 34.5 million in the second year for health premium payments for the DOE.

And uh, we're asking for approximately 54, 55 million in the first year 26 and approximately 69, 70 million in fiscal year 20.

So can you explain again why we're covering?

Uh, then this is for General funded positions within the University of Hawaii. Okay. And you have a separate line item for the non. And, and yeah, and so for the non ones that we assess them the cost out of their special Fund that's part of their fringe benefit assessment.

So this is just the fringe benefits that we cover from our end. Okay. So the next request, Chair, is the first one of our operational requests that are coming in. We are asking for the establishment of three permanent positions within the Financial Administration Division, budget and finance 115.

And this is for three permanent accountant, six positions really, to help strengthen our compliance and our internal control functions. You know, we are seeing a significant amount of increase in, in accounting requirements going forward.

We also have the ongoing update to the state's financial management system that is taking an exorbitant amount of time and effort from not just budget and finance, but all of the financial administrative functions throughout the state.

So this would really help our Department in order to meet our current obligations as well address some of the upcoming needs that will happen once the new financial management system comes on board. That particular division only has one vacant accountant position which is currently in recruitment right now. And we would like to.

But you guys have almost five pages or a little more than four pages, I guess, four and a half pages of vacancies.

And the vast majority of them are within the ETF and the ERS for non General funded positions.

But you still have some within the Department?

We have a few within the Department, but within the Financial Administration division. Very few.

Okay. And you don't want to just reorg and move some of those.

Well, some of the other ones, some of the big ones, like especially in the, we can't take any from the ers and the ETF because those are trust funded positions. But I mean, we can definitely take a look at some of the other areas. But you know, we definitely could use the assistance within the, within the Fed.

Our, our vacancies within what we call BNF proper are pretty minimal. I think our vacancy accounts, I think it's, I believe it's less than 10%.

How many positions is that? More than three? Well, it's more than three, but some of those other.

Only three. So you can take from that list. We can take a look at it. Sure. And then we'll get back to you. Okay. The next request is a request that we're asking for, for the office of the Public defender position. We are asking for. I'm sorry, John is not, I don't get. John's not here.

We are asking for your consideration to be able to increase the, our deputy public Defenders salary by 20%. Deputy Public Defenders are the lowest paid lawyers in state government. Right now we're having a very hard time filling those positions, especially on the neighbor islands.

This would bring them up to some level of parity with some of the other, with some of the other lawyers within state government. But we just noticed that the gap between all other lawyers in state government and our public defenders continues to grow every year. And these guys are really handling kind of the toughest cases, you know.

So the pay differential gets him on par with who?

Ag. With ag. But I also know that the AG has a lot more flexibility with regards to how they, how they do pay increases. Yeah.

So where do they stand with office, account, General counsel?

Zero, they're still much, they're still much lower than, than those.

So with what you guys are asking, where would they put them?

That would put them at the lowest level of deputy AGs.

Okay, so the Low. Still the lowest of the Low. Even if you give them.

Well, I mean, they're, they're the lowest right now. At least they're, they'll be on par with at least the.

Opposed to somebody else. That's Low.

Yes.

Okay.

I, you know, I'm sure the public defender would appreciate any consideration.

Well, I'm just wondering. I gotta, we gotta go through their vacancies to see if that's an issue.

And, and the big issue is the vacancies, especially on the neighbor islands, is because they cannot recruit, they can't recruit people on the neighbor islands. The pay is so Low and, and the work is very hard and I'm sorry, John is not here yet.

No, he's not here yet. Okay, so why didn't you guys ask for something a little more competitive then?

I think this was, this was a request by opd. He wants to kind of get started. I think it would be. I mean, this is probably getting us into a pattern of getting them closer as opposed to just taking them all the way up there. That might be a little.

I'm just wondering. I'm just a little concerned about the neighbor island vacancies that you're not going to be able to fill. Because even if you get it that Low, that high is still Low. Yeah. You still are going to fill them.

It's. And I don't want to answer for, for the public defender, at least my conversations with him. I mean, people who become public defenders don't do it for the pay. But they still got to live. But they still got to live. Yes. And stuff. So if he gets here, I.

Well, if not, the neighbor island legislators can go ask. Sure. If that's something that they want to prioritize. Okay. No, thank you.

He would appreciate that a lot. Okay, what else on table six? The next amount for table six, we are now going into priority one. This is priority six actually, for departmental priority six. And we're now going into non General funded positions.

The next one is for increased payment for fringe benefit costs for trust funded employees within the unclaimed properties division. We're asking for 148,000 in fiscal year 26 and in the same 148,000.

And this is just to increase the ceiling, the trust Fund ceiling in the unclaimed properties division to meet the increased fringe benefit rates that are being assessed.

Okay.

The next Request is in BOF143. This also is an increase in the fringe benefit rate we're asking for. We're asking for again, trust Fund monies. 830,000 in fiscal year 26 and 830,000 in fiscal year 27. And 143 is the ETF.

So what's the reasoning from 52.6 to 64.2?

That's just, that's the assessment that we're getting. I'm sorry, that's the assessment that we're getting every year we have to go in and we have to get a federal cost allotment cost sharing study done. And this is the rate that we're essentially Assessed. And everyone has to use that rate. Everyone has to use that rate.

A memo goes out from Budget and Finance and we let all of the departments know that this is going to be the fringe benefit rate that's going to be assessed.

Yeah. So why do you think DBEDT tried to use a different calculation when they tried to figure out the, the fringe rate for the Executive Director or CEO for HTA?

I'm, I don't know. Why, why they would demo memo. I did not. Well, no, they got the memo, but I would have to touch base with Director Tokioka.

Okay.

The next request is for BOF1, 141 which is the Employee Retirement System. We are $6.8 million in FY26 and $2.8 million in fiscal year 27. And this is to authorize funds so that the ERS pension Administration system, which is currently Vitech, can be upgraded.

Unfortunately, what's happening right now is the current, and Tom is here to, he can answer it if I do, if I don't do a good enough job. But the current, the current solution provider, which is vitec, was recently bought out and the new owner of that particular system is no longer going to be servicing the old system.

So basically all of these pension systems are going to have to start migrating over and this is the cost that it's going to be in order to migrate our state pension system into the new system going forward.

And the first year is really the implementation costs and the second year are going to be some of the ongoing costs associated with this.

And no, I said no additional staff needed.

No, a lot of this is going to be again implementation of the, of the system itself.

Now most other agencies ask for new software and then they want 10 new people. Well, that new software is supposed to make us more efficient.

We're not asking for any more new positions. This is basically an upgrade of the existing system that we have so that where we just have the ETIS cost going forward. Okay, the next request again also is for, for the ERS.

And this is 500,000 in the first year and 524,000 in the second year to authorize funds to provide supplemental technical services to support the ERS internal compliance team and testing around baseline payroll reporting requirements. So this is a contracted cost for consultants to help us basically better anticipate some of the compliance requirements around, around the ERs.

Okay, and the next request is for a position, but this is for a trust funded position within the ER, within the, within the ERs and or I'm sorry, within the EUTF. And this is for one permanent position, an Investment Officer. 143,000 in the first year and 287,000 in the second year for a new Investment Officer.

So the first year is just half your salary.

It's just half your salary. And you know, the, the ETF is now, you know, it's. It's now a $5 billion corpus starting from zero in 202014. It is a small investment. It's a small investment division right now.

But now that the corpus is getting larger and larger, we're just seeing the need to really kind of beef up that particular. And with me, I have Derek that can.

So how did that. How do you guys determine that salary?

Okay. Good afternoon. Well, first, I just wanted to clarify. So it's Derek. I'm Derek Mizuno, ETF Administrator. Good afternoon. Good morning. Chair, Vice Chair, Members of the Committee. So to clarify. So the state's portion of the assets is about 5 billion. Total trust assets is 8 and a half billion.

We are fully staffed in our investment office of four. We're adding the fifth position. In terms of the salary, we're looking at 175,000 per year plus the fringe. And that 175.

It's is in the ERS range of their Investment Officer salaries still, you know, much lower than out there in the private sector, but we think we can find someone for that amount.

Questions?

Okay, next. And that actually also includes the fringe benefit cost associated with it. The next request, Chair, is priority 11 again within the ETF, and this is increasing costs.

We're asking for 567,000 in trust Fund money in the first year and 515,000 in the second year for increased legal attorney fees associated with basically deputy Attorney Generals for the ERS, actuarials for the ERS. And I think Tom is here, too, and the medical board ERS costs that are just currently increasing.

The next request, which is second to the last, which was priority 14, we're asking for $600,000 within the ERS for other costs so we can do image and indexing of over 1.2 million paper membership documents in order to improve operational efficiencies, improve customer service, and also reduce some of our risks in case of some kind of disaster mitigation, where we have a loss in access to files.

And then the last request, which was priority 17, is we're asking for an increase to the expenditure ceiling of 572,695,000 in the 1st year and 572,695,000 in the 2nd year.

This chair is for increasing the ceiling so that we can give that money to the city because this is the expenditure ceiling for the mass transit special Fund that we collect on behalf of the city.

Question, Chair on that item, Director Salivera, would budget and finance have to come back in future years, foreign appropriation? Because right now you're doing it as emergency appropriation for ceilings for this Fund, Right?

Well, if we get this request, then it would become, it would become the new ceiling. Okay. Yeah. And perhaps you wouldn't have to come back then. We wouldn't have to come back. Understood, thank you.

Why wouldn't we want to come back?

It's, it's. I mean if it becomes non recurring, then then we would just not include it in the base because it disallows.

The Legislature to ask, you know, questions for ongoing issues.

That's, that is a prerogative of the Legislature, however you so choose.

If not, what's going to motivate Hart to come and answer questions? Understood. Understood.

I thought we were supposed to be monitoring how they use the Fund. Wasn't that part of the deal?

That's actually DAGS responsibility. DAGS is the one that reviews invoices that come in. What we do is we're essentially just the, the pass through agency. The money that we collect, it's budgeted within budget and finance. And so this also kind of represents some of the, the buildup that has been building up in the Fund.

Because the current expenditure ceiling is not enough in order for us to basically distribute all of the, all of the money that we collect in any year. We do expect that those invoices will start to increase, especially as they start to enter the urban core.

So again, but if there's a need, if we do this this particular year.

One of my concerns is when we did pass the GET extension that was with the mindset that they were going to have additional stops, then the city shrank the mos without really any consultation with the state. And that wasn't kind of the deal of why they got the, the Ge, the Get surcharGe to begin with.

So now that should be reviewed. I mean, when are. That was part of the deal when, when we, when the state and the Legislature passed. It was the previous mos, not the current mos.

Understood, Chair.

So I'm not sure what the communication that has to transpire between the state and the city to figure out what really are we agreeing to now.

What I could do, you know, I know we have representation on the, on the Hart board. The current Director of Transportation is an ex officio Member of the Hart board. I'll bring those concerns to him and then, and see where we can go from there.

Sure. For clarification, the disbursements, are they quarterly or annually?

They are quarterly, if I'm not mistaken. And a lot of that is run through dags. I think DAGS actually pays them, you know, kind of like on a reimbursement basis too as well. So they send us invoices.

I can't tell you, you know, the, the cash flow or whatever float is going on between the city and county, their contractors and the state. But that process is pretty much within that particular category.

Thank you, Chair.

Thank you, Director.

And then the city was supposed to build a parking lot at Pro Hilix and they now took that out. So I feel like the project changed from what there was some agreement to, as to why we had the surcharge to begin with with the mos and the amenities that go along the mos.

Then somehow the MOS shrank and then now we have the parking lots for central Oahu guys to go in, park their car so they can get on the rail. That whole area was, that banana patch road was condemned for the parking lot.

I, I drove that by that banana patch for over 40 years.

But I, you know, and they could. They kicked all those people out. I mean there was a whole community living there. They condemned all that land. So everybody had to move. And then now they're not even building anything.

I, I understand the concerns. I'm probably not the most appropriate person to answer those particular questions, but I will give, I will make sure that, that Ed is aware of the concerns.

Sure. Just a kind of question what Senator De La Cruz is saying. There's a lot of things that the city is doing with rail and Hart that we don't know and we, we funding it.

How would you feel if with these off Hart, bring the rail to a state who should have been doing it in the first place and have it in DOT and have DOT run it so we know exactly where our money is going that we're putting in?

I, I think I, I, that's a charter question. Yeah, yeah. I, I mean for, from my perspective, I'll answer from a budget. Anything that creates better oversight over. Fine. Over the spending of government money, I'm all for. But the how it's organized and how it is, I'm, I know, but we're.

Not going to give it more money to oversee less Money.

Understood. Chair.

Okay. That was your last one. Yeah, that is the last request. Okay. I had a question about libraries because I'm not sure if you were watching their, their testimony, but they said that it's because BNF is withholding their funds, that they could not fill their vacancies.

I, I find that a little bit hard to believe.

So if you can just explain, you know. Yeah. How that works and if that is the case.

So every Department, every division comes in every year and requests an operational expenditure plan. So you, if you get appropriated. $1.0 million. I'm just using round numbers. $1.0 million.

You know, budget and Finance withholds 10% as our restriction amount that you can ask for release over the course of the year, depending on how you spend your money. But it is the department's responsibility to give us their operational expenditure plan each year. And we set up those quarterly allotments.

And those quarterly allotments are really the planning and execution at the departmental level.

So do they have hiring schedule in those plans? Because what they're. They always give us these dates on the vacancy table. Are those dates aligned with what they have to turn into bnf as far as expenditure plans?

What, what we get from them essentially is what we call an A19 allotment advice. And the A19 allotment device or advice is a form that every Department submits.

It's the amount of money you need by each quarter and the amount of money that you need for payroll and the amount of money that you need for other current expenses.

And so it is, it is the purview of the Department when it comes to budget execution for them to let us know how much money they need in order to cover their payroll costs.

And if they want to hire, if they have vacancy amounts that are in there, you know, they, they should be working their, their operational expenditure plans based upon when they think they're going to start hiring. Hiring people. Okay, so we don't, with, we don't withhold anything if just because a position is vacant, Chair.

We don't withhold the allotment. The only thing that we withhold is the 10% restriction amount.

Okay, so they're vacancy tables. I'm not sure if you guys even look at them. I just want to know how they're aligned with the expenditure plan because they're telling us one thing, but I'm not sure if that's consistent with the expenditure plan very well.

Maybe what we can do take a look at, is because it didn't sound.

Like the libraries were aware of that. They just talked about the restriction.

Yeah. And the restriction is 10%. Right. And so I mean, if you, if you have a budget of. Of. Of a million and then we restrict 100,000, it's still up to you how you want to allot that 900,000 over the course of the fiscal year, over the course of the four quarters.

And if you get to a point where now all of a sudden, hey, we filled all of our positions, we spent all of our OCE, can we ask for release of the 10% restriction? Then we will release the 10% restriction so that you can complete the end of the year.

The concern that we have, and one of the reasons why we do the 10% restriction is because we want departments to adhere to what their budgets are. So if that's what their budgeted plan is for the entire year, then good. What we don't want them to do is to use.

If they, if they have savings over the course of the year is to use that 10% for something else.

Okay. I think there probably has to be some alignment, I guess when the next time we talk to the departments in with the vacancy tables and how they coordinate with their expenditure plan.

Yes. Yeah.

And then I just wanted to go over the MDF if you have any updates on where we're at with that and how much is left.

Gosh, that's a good question. The. At the last report, the, the MDF approximately had. Approximately only has about $54 million left. And what are they planning to spend it on? I don't have that information right now.

I know that there's still ongoing expenses associated with the disaster, but I can get that information from you from, From Hyema as well as the departments that have been allotted money out of the mpa.

Okay, so is purchasing property on Oahu allowed?

It would. I. I would have to get some kind of legal opinion. But my, My initial thought process would be it has to be consistent with what the MDF is. The MDF is authorized based upon an emergency proclamation. So the emerge. The MD.

The expenditures are out of the MDF would have to be consistent with what the emergency proclamation was made for.

Okay, so the emergency proclamation was really to deal with the Lahaina fires.

That's my understanding.

Okay. Because I'm told that Hyema would like to buy St. Francis, but that doesn't seem to be consistent with the emergency proc.

I've heard that alluded to, but I have not seen any particular action on that particular proposal.

So is the 54 million already spoken for or is that something that Hyema is looking to use to purchase property on O'ahu?

I don't know if it's being proposed to use to purchase property on O'ahu, but $54 million was pretty much set up in order to meet the immediate needs, response and recovery needs for Lahaina.

Any other questions? You know, we're going to defer, I think the first part, just because in a couple weeks CORE is going to give us a new forecast. So this data is probably going to be updated in just a couple weeks?

In all likelihood, yes, strong possibility.

And I'm not sure if it's going to be good news or bad news.

Just briefly, Chair, I think what the Administration is going through right now is we are, we're setting up the structure, we're setting up some planning provisions in order to address what we potentially see as a loss of federal assistance in the coming years.

Okay, so you think CORE is going to take that? I guess they will. That's a big chunk. So they'll take that into consideration.

They would probably have to take that into consideration as it, how it impacts state General Fund collections. Maybe not as, not as much, but it definitely has an impact on departmental budgets.

Yeah.

Yeah.

Well, and then the spending. Yeah, and the spending, because that's all. Money that we're not now spending in the economy.

I think the larger conversation would be some of the direct federal assistance that goes to like, individuals, nonprofits, all of those things within the community too are going to have potentially impacts.

I know it's hard to, to guess, but when do you think that dust will settle? So we'll really figure out which departments are going to get impacted and how much each Department will have an impact. So, so the impacts are going to cost.

So the contingency planning that we've, we've started the process on, Chair, after the, the freeze from two weeks ago, we know that the current continuing resolution of the Feds expires on March 14. So we will be facing once again a federal shutdown deadline on March 15th, 6 weeks from now.

Conversations that we've had with the congressional delegation indicate that we potentially could see continued short, short term continuing resolutions for the foreseeable future with, you know, maybe potentially a federal budget being passed probably in the fall of this year.

Okay, so how do you think it's going to affect the current fiscal year?

The current contingency plans that we have in place and given where the, the, the carryover balance is right now and in our current level of reserves, gives us Some pause in terms of what we will be able to accommodate.

But, you know, some of the numbers that we've been hearing from, say, for example, the Department of Human Services just, Medicaid, for example, could see exposures in the numbers of 200 to 250 $1.0 million a year.

You know, the Department of Education receives, has about, you know, $70 million in free and reduced lunch that they get from USDA every year. So these are definitely not inconsequential sums of money that we know at some point in time, the state is going to have to have some conversations with regards to how we can address.

But your carryover balance from the last.

Fiscal year was about what, 1.2? Well, 1.3, I thought. Yeah, but that could, depending on how much we, we want to cover and you know, we know we're going to have to cover some stuff.

And then you lapsed about.

Well, last year we, we lapsed a lot. 800. And that's why the number went up so high because we, there was some big lapses in some of the other areas.

So if we were to assume you, you're going to lapse the same amount in this current F fiscal year, then the amounts that you're talking about could be absorbed.

Well, one of the big numbers that was lapsed last year was the $300 million infusion into the, into the ERS. Right. So that was those. There were some big numbers that were included in there. We know we have a big lapse number. The new financial plan does assume a larger lapse number in it too, as well.

We went from 80 to 120 based upon the trend and the history over the last several years. But I mean, we tend to take a fairly conservative view on lapses because if we do see a drawdown in, say, for example, federal resources, I mean, the likelihood is that departments will probably not lapse as much. Yeah.

I think I've already stated that I would prefer that the Administration do what it can within the current fiscal year to move monies around instead of trying to come in for an emergency appropriation.

Yeah. And, and I am meeting with the, with the fifth floor this afternoon to kind of talk about the contingency plans that we want to, we want to at least have in place. We, we should have plan A, B, C and D going forward.

Yeah. Because then that makes the next fiscal year more predictable. We don't have to change the financial plan as much.

Yeah. Well, especially for the current year. So we can approach the biennium budget knowing what, where we're at. Yeah.

Yeah, if we just stick with the same. Okay. Any other questions? Okay. Thank you. Thank you.