Gov. Linda Lingle yesterday proposed tripling state spending on capital improvements to spur new construction at a time when the state's economic growth is slowing.

The governor would increase spending on new state construction by $1.1 billion next fiscal year, which would bring the total to $1.6 billion. The money would be split between revenue bonds and general obligation bonds, with much of the revenue bonds going toward investments in the state's airports and harbors.

Economists have predicted the state's economy will continue to expand but at a slower rate. State revenue growth is up 3.4 percent over last year through the first five months of the fiscal year, which is below the 5.7 percent growth predicted by the state Council on Revenues.

The council is expected to release new projections in early January that will likely set the tone for state spending during the upcoming session of the state Legislature.

Economists often frown on the governor and state lawmakers taking specific steps to try to influence the economy, since the impact is debatable, but some have suggested the climate might be right for new state construction projects.

The boost in construction spending was part of Lingle's supplemental budget request for fiscal year 2009, the second year of the two-year budget cycle.

Lingle described her proposal as "prudent, it's focused on our highest priorities, and it's very dynamic as we face the future."

Anticipating slower revenue growth, Lingle is asking state lawmakers for modest spending increases that focus on priorities such as affordable housing, education and infrastructure.

Lingle's priorities are largely in sync with state House and Senate Democrats, although they will most likely differ on dollar amounts. Lawmakers will review the governor's recommendations when they draft their budget changes during the legislative session.

The governor is calling for a $306.7 million increase in the state's operating budget — or 2.9 percent — which would bring it to $10.8 billion. She wants a $100.2 million increase in the general-fund portion of the budget, or 1.9 percent, which would take it to $5.4 billion.

Lingle and state lawmakers have the most discretion over general fund and capital improvement project spending than the federal and special-fund money that accounts for about half the state's operating budget.

BUDGET SPECIFICS

The governor wants $50 million for repair and maintenance at University of Hawai'i campuses along with money to enhance security and improve the library collection at UH-Manoa. She asked for $20 million for a permanent homeless shelter in urban Honolulu to replace the temporary Next Step shelter in Kaka'ako. She wants $26.4 million to fix public housing, including money to finish elevator repairs. She proposed 15 new conservation enforcement and clerical positions at the state Department of Land and Natural Resources, which has been criticized for a lack of enforcement.

Lingle said two-thirds of the new general-fund spending would cover increased fringe benefits for government workers. She faulted state lawmakers for authorizing the fringe benefit increases without appropriating the money, but House finance staff said lawmakers did account for the increases in their financial plan.

The state finished the last fiscal year in June with a $493 million surplus, down from the record $732 million surplus at the close of 2006. The Lingle administration is projecting a $475 million surplus at the end of this fiscal year and a $213 million surplus in 2009.

Like this year, state lawmakers next year will be required by the state Constitution to provide tax relief because the general-fund balance exceeded projected revenues by more than 5 percent for the past two years. This year, lawmakers for the first time satisfied the constitutional mandate with targeted relief to low- and middle-income taxpayers rather than a break for all taxpayers.

Lingle said yesterday she would announce three targeted tax-relief proposals at her State of the State speech in January. She declined to discuss any details other than to say it would be in addition to the constitutionally required tax break.

EARLY OPPOSITION

Lingle has asked for significant tax relief in each session since being elected in 2002. But Democrats who control the House and Senate have chosen more targeted tax relief while directing state spending toward education, affordable housing, infrastructure and other needs.

State Rep. Marcus Oshiro, D-39th (Wahiawa), chairman of the House Finance Committee, questioned Lingle's emphasis on construction spending. He said the cost of construction materials is high, and he worried about competing with private construction.

"I'm not there yet on the necessity at this point in time in frontloading and committing to these CIP (capital improvement) projects," Oshiro said.

Oshiro also noted that Lingle has not released $140 million in cash that has been approved by lawmakers for repair and maintenance at public schools. The governor said yesterday that she would use bond funding for some of those projects.

Oshiro also said that Lingle has not released $10 million lawmakers approved for grants-in-aid to community groups and $72 million in other spending.

State Sen. Rosalyn Baker, D-5th (W. Maui, S. Maui), the chairwoman of the Senate Ways and Means Committee, described Lingle's proposal as "austere" and expects state departments to come to lawmakers with requests for more money. She predicted lawmakers would not lose their focus on affordable housing, healthcare and public education despite the slowdown in state revenue growth.

"I know it's a very sparse budget," she said. "I've already heard complaints from some of the departments."

State lawmakers have the authority to draft the budget, but the governor has discretion over whether to release the money. The Republican governor has used that power as leverage in public-policy disagreements with Democrats.

Lingle said much of the spending approved by lawmakers has merit but said she must keep the state financially sound.

"Bottom line, it would diminish our fiscal integrity if I released all the money that gets appropriated by the Legislature," she said. "The public can count on us to continue to use their tax dollars wisely, and to make the very tough but responsible decisions going forward."

Reach Derrick DePledge at ddepledge@honoluluadvertiser.com.

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