Gov. Josh Green’s next budget will be dominated by housing, including funds for more kauhale villages and affordable housing projects. This comes as the state begins adjusting to the historic income tax cuts passed during the last legislative session.
This is the first budget the Green administration has been able to shape from the start.
“Of course, we had a budget that we submitted two years ago shortly after assuming office, but most of those details had been worked on for six months or more by former Gov. [David] Ige. We were only able to do some small tweaks to them,” Green said.
“So this is our budget, our first one.”
Hawaiʻi’s budget works on a two-year system called a fiscal biennium. The new biennium will start on July 1, 2025, and end on June 30, 2027.
Housing and Maui fires
It plans to infuse the Rental Housing Revolving Fund with $250 million more to provide loans and grants to develop affordable rental units.
Green also plans to spend $50 million each year to construct more kauhale, which are tiny home villages for those experiencing homelessness. He expects there to be 14 new kauhale completed by 2026 – saving the state $450 million over a 10-year period.
He pointed out that people can see the impacts, with less severely ill homeless individuals in areas like downtown Honolulu.
“That means that there will be less cost to the system for Medicaid, which means we have the opportunity to reinvest,” he said.
“This is why, for years, I've been saying housing is health care. For us, it really is. Health care dollars are otherwise spent in gigantic numbers if we don't care for this population.”
This budget also accounts for the state’s roughly $800 million share of the $4 billion global settlement with victims of the 2023 Maui wildfire. The settlement awaits a critical decision by the Hawaiʻi Supreme Court, which Green hopes will happen next month.
If the settlement fails, those funds will go back into the general fund, and the state would be tangled in lengthy litigation.
Balancing the budget
General fund spending will see a small change compared to years past. Usually, the state’s spending differs by several hundreds of millions of dollars a year on each new biennium. But this time it’s up just over $150 million.
It’s largely due to the state’s historic income tax cut that went into effect in July. It ramps up over seven years and at its peak in 2031, will eliminate $1.4 billion of tax revenue from the state’s general fund.
“There's a broad consensus or belief that in every state, revenues perfectly match expenditures and that is just not the case,” said Seth Colby, a state tax research and planning officer.
He explained that Hawaiʻi – like many states across the country – was receiving more money than it was spending. And that’s how the state is able to afford the income tax cuts.
Some instances of that were massive infusions into the state’s rainy day reserve which is now over $1.5 billion. Green also plans on reducing costs by cutting positions that have been vacant for four years or more. While there isn’t a final list out yet, many will be from the University of Hawaiʻi.
“ There are no positions that have an employee in them that will be cut. That's very important. We won't cut a single individual,” Green said. “We'll just gradually, through attrition, let some of the long-standing vacant positions go.”
Funding for climate resiliency
Green is also putting forward several bills to the state Legislature that would pay for the impacts of climate change.
One would allow the interest of the rainy day fund – about $50 million – to be used on climate change mitigation and recovery. Another is increasing the 10.25% transient accommodations tax levied on hotels by somewhere between 0.75% and 1%.
Green will again pursue a climate impact fee that would be charged to visitors.
“These would not be fees on local people. These would be fees on the 9.5 to 10 million travelers that come to the state of Hawaiʻi which I think is the right thing to do,” he said.
“So we're lowering income tax, we're slightly raising fees where there's a lot of impact and we cover our needs for the climate.”
Rep. Nicole Lowen, who chairs the House Environment and Energy Committee, explained that these proposals are really a question for the Legislature if they are willing to prioritize setting aside these funds for climate resiliency or not.
“ I don't know if there's any creative revenue generation… without it still coming down to the same conversation,” she said.
“I would also say that lacking the detail, there's a talk about using these funds for resilience and infrastructure improvements, but without specifics of what projects they would anticipate going towards, I think it can be a harder sell that way. Sometimes it's easier when you have a concrete idea of exactly how the money will be spent.”
Sen. Donovan Dela Cruz who chairs the Senate Ways and Means Committee was open to exploring some of Green’s proposals.
“We're also going to look at some of the bills that the governor is looking at proposing, other members have bills to try to also deal with climate change and figuring out different ways you might be able to fund it,” he said.
“It's a good starting point. It's a good proposal. But, we have to make sure that we look at all the proposals, and it's still too early to tell.”
Dela Cruz added that these are the topics that the Legislature will begin discussing as budget briefings begin at the end of the month.
The legislative proposals and budget will next be considered by state lawmakers when they reconvene on Jan. 15.
