The largest government workers union has taken a tougher stance on contract negotiations with the governor as the two sides head into arbitration.

The Hawai'i Government Employees Association, which had earlier offered to take a 5 percent pay cut, dropped that language in its written proposal to the arbitration panel.

The HGEA instead said it is willing to accept "no pay increase," according to a summary of the proposal sent to members late Tuesday.

Because the contract negotiations are heading to arbitration, it is likely the union is staking out a more extreme position with the expectation it will eventually have to compromise.

The governor's proposal to the arbitrator was for state workers to take a wage reduction of up to 14 percent, the same as she proposed in June.

Gov. Linda Lingle originally offered to have union workers take three days a month off without pay, which is equivalent to a 13.8 percent wage cut.

The state is facing an estimated $786 million budget deficit through June 2011. Lingle has sought to save $688 million through labor cuts.

Last month, the public-sector labor unions made an informal offer to take a 5 percent pay cut to help close the state's budget deficit. A 5 percent pay cut for the state's 46,000 workers would only achieve about a third of the amount the governor wants to save.

Union leaders have suggested that the governor and lawmakers use money from the state's hurricane relief fund and rainy-day fund, and consider temporarily raising the general excise tax to close the budget gap.

With the two sides still far apart on a contract agreement, an arbitration panel has been set up and will begin proceedings on Sept. 4, with a decision expected by Dec. 21.

The old union contract expired on June 30, but workers have continued to operate under its terms while a new contract is negotiated.

HEALTH COVERAGE

The HGEA proposal to the arbitration panel also called for maintaining a 60/40 employer/employee split in paying for health insurance premiums.

The state has said it cannot continue to pay 60 percent of the premium but needs workers to carry more of the cost.

The union said it is willing to discuss furloughs as part of the new contract.

A Circuit Court ruled last month that Lingle could not order furloughs but had to negotiate them with unions.

The unions have never said they oppose furloughs outright, but have argued vehemently that the governor cannot order them without negotiating.

The administration last week delivered written layoff notices to about 1,100 unionized workers who were told they will lose their jobs starting Nov. 13. The layoffs could be avoided if the unions and Lingle reach an agreement on a new contract before Nov. 13.

HGEA officials would not comment on their proposals yesterday, citing a confidentiality agreement tied to the binding arbitration process.

GRIM FORECAST

State Budget Director Georgina Kawamura said that accepting HGEA's proposal would leave the state "short of our goal," requiring the state to find other ways to balance the budget.

Kawamura, like union officials earlier this week, said she hopes layoffs can be avoided and an agreement can be reached without arbitration.

At the state Capitol earlier yesterday, Kawamura and other state officials painted a bleak picture of state finances in the coming two years.

Kawamura said the state entered the new fiscal year on July 1 with a general-fund balance of only $8.1 million out of its $5 billion budget.

Asked to appear before a joint hearing of the House Finance and Senate Ways and Means committees, Kawamura said actual general-fund tax collections were down 9.5 percent over the previous year, and greater than the 9 percent forecasted by the state Council on Revenues.

That's an additional $21 million annually that the state will need to make up to achieve a balanced budget as required by law, Kawamura said.

Lawmakers grilled Kawamura for failing to produce a list of the government employees scheduled to be laid off and for not being able to tell them how much in savings the administration is hoping to achieve.

Kawamura said how much savings there would be is hard to determine because "bumping rights" of more senior workers could mean many more lower-paid employees would be laid off than forecasted.