The Hawaiʻi House of Representatives passed the state’s $20.5 billion budget, which starts in July and incorporates impacts from federal funding while trying to preserve essential government services.
“We definitely had to address the cuts in the federal budget,” House Speaker Nadine Nakamura said. “It's impacting many of our departments. So the budget builds in cushions to try to make sure that our social safety net is taken care of.”
The total monetary impact of the federal funding cuts is not yet clear, but House Finance Committee Chair Chris Todd said that for the upcoming year, the state Department of Human Services will incur about $100 million in added costs.
“The future is a little murky. That is really just the tip of the iceberg,” Todd said.
He added that the effect could be up to $8.4 billion in lost state revenue through 2031.
“Some of that's not as direct,” he said. “It's the projected slowing of our economy. It's a reduction in anticipated tourism revenue and [general excise tax] collections. It's a reduction in spending at the federal level, leaking into federally funded positions here, which are now under threat and have led to direct job loss, which has a ripple effect through our economy. So we're really trying our best to find creative ways to make up that difference.”
The budget also includes a freeze on income tax cuts. Currently, the state’s income tax cut plan, which went into effect last year and would ramp up through 2031, will cost $3 billion.
The House passed a bill that eliminates any further reductions to income taxes and increases the rate charged to those in the top three tax brackets by 1 percentage point.
It differs from the Senate’s bill, which preserves the future income tax cuts for most people, but pauses them for the top five highest tax brackets. It also reconsiders several tax credits, including some for renewable energy projects.
Todd expects the chambers to come to an agreement.
“ I don't think that there's a substantial difference of opinion. I think it's more just a matter of detail,” he said. “Both proposals try to maintain ongoing assistance for low and middle-income families. They just approach it from different ways in terms of how we're actually going to finance that.”
The $130 million generated from the state’s new Green Fee on hotels and cruise ships is also included in the budget. The House included almost all the governor’s recommendations for projects.
The fee is being challenged in court by the cruise ship industry. But Todd said the Legislature will continue to operate as if it is in place until there is an official ruling.
“We're not expecting clarity before the end of session,” he said. “The administration would still have the flexibility after these appropriations are made to restrict those funds if they need to, or in some cases, if a project is deemed unworthy down the road and we need to make a sacrifice. And they can choose to do so after that money is appropriated by the Legislature.”
The budget will next go to the Senate for consideration.
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