The state Senate Ways and Means Committee yesterday produced its draft of the state budget, avoiding a broad-based tax increase but scooping hotel-room taxes from the counties to help close the state's $1.2 billion deficit.

The Senate's version comes in slightly higher than Gov. Linda Lingle's $10 billion supplemental budget request for the fiscal year that starts in July. But senators would trim $14 million from the $4.9 billion in general-fund spending over which lawmakers and the governor have the most control.

State Sen. Donna Mercado Kim, D-14th (Hālawa, Moanalua, Kamehameha Heights), the committee's chairwoman, opted against a 1 percentage point increase in the general excise tax that two other Senate committees advanced to help with the deficit.

Mercado Kim instead chose to take about half of the hotel room taxes that go to counties, transfer money from special funds and raise the barrel tax on petroleum products to generate new revenue to pair with spending cuts and balance the budget.

"The threat to our economy is too great," Mercado Kim said of a GET hike. "We cannot enact a policy today that would threaten businesses, especially small businesses that would lay off the very people we are trying to help."

Lingle and the state House also offered budget drafts that did not rely on a GET hike to lower the deficit, so if the full Senate follows Mercado Kim's recommendation, it would be unlikely that the broad-based tax increase would happen this session. A GET bill is still alive and pending in the House from last session, however, so it could theoretically be revived if lawmakers need it as an option.

State Sen. Rosalyn Baker, D-5th (W. Maui, S. Maui), said she expects lawmakers to hear from more people who support a GET increase once they see some of the revenue-generating ideas and cuts to state programs being considered as the alternative.

"There's a famous saying: it's never over until the fat lady sings," she said, arguing that a GET increase would be more equitable.

Mercado Kim decided to cap the share of the transient accommodations tax — commonly known as the hotel-room tax — that goes to counties at $50 million a year. The House's budget draft set the cap at $94 million a year, the amount counties receive today, so counties stand to lose $44 million a year under the Senate version.

Lingle had proposed taking all of the hotel-room tax revenue for the deficit.

"We needed it to balance our budget," Mercado Kim said afterward, adding that counties would still get about half of the money under her approach.

COUNTIES OPPOSE

County mayors, in a joint statement, strongly opposed the Senate's decision. "Taking even half will put a significant financial burden on the counties and our taxpayers," the mayors said. "While we appreciate the severity of the state's financial condition and the difficult decisions that need to be made, we believe taking the counties' share of the TAT is not an answer.

"That being said, of the two proposals now alive at the Legislature, we obviously prefer the House position."

Big Island Mayor Billy Kenoi said the state and counties will not be able to solve budget shortfalls by "working at cross purposes with one another."

"It makes no sense for the Senate to grab the counties' money and make the state budget situation better, while making the counties budget situation worse. We represent exactly the same people," Kenoi said in a statement.

The Senate's draft also differs from the House on how to finance a reduction in teacher furloughs next school year. Mercado Kim would take $32.5 million from the state's hurricane relief fund and $33.5 million from the general fund to reduce 12 of 17 furlough days next school year. Senators expect teachers to make up the additional five furlough days through adjustments to planning days.

The House draft, by comparison, set aside $50 million in general-fund money to reduce teacher furloughs next school year.

Separate bills are moving that would tap the hurricane relief fund and rainy day fund as options for teacher furloughs. The state Board of Education and the Hawaii State Teachers Association have reached an agreement to end furloughs, but Lingle has a competing proposal and has said she would not release the money for the school board's and teachers' deal, so there is a stalemate.

The Senate also chose to preserve money in the state Department of Education's weighted student formula — which bases school spending on student need — rather than follow the House and make cuts that could increase class size.

The Senate, however, made a series of cuts to non-core functions at the department to free up general-fund money to reduce teacher furloughs.

The Senate draft also contains a $7.5 million reduction to the University of Hawai'i, compared with $10 million by the House.

DIFFERENT TACTIC

Mercado Kim would transfer $45 million from a variety of special funds and generate $22 million by raising the barrel tax to help with the deficit.

Her committee also wants to save money by closing one of the modules at Hālawa Correctional Facility, which could mean about 246 additional prisoners would be sent to the Mainland, where incarceration is cheaper.

The House draft of the budget was $41.2 million less than the governor's overall budget request, and $60.7 million less in general-fund spending. The Senate did not restore as many state positions as the House — targeting jobs in priority areas such as agriculture inspectors and security at Hawai'i State Hospital — and did not slash purchase of service contracts at the Department of Education and Department of Human Services.

The Senate Ways and Means Committee's draft now goes to the full Senate for a vote. House and Senate negotiators will then meet in conference committee on a final draft to send to Lingle.