Gov. Linda Lingle, trying to close a $1.2 billion budget deficit through June 2011, said yesterday that she would delay tax refunds from April until July and ask state lawmakers to scoop hotel-room tax revenues that now go to counties.

Lingle would also raise taxes on insurance commissions, stop paying life insurance premiums for state workers and retirees, and end the state's reimbursement of some Medicare costs for the spouses of retired state workers.

The governor preserves the state's rainy day fund and the hurricane relief fund as options in the event the economy does not improve and the deficit grows larger. The governor also did not call for any additional layoffs of state workers.

County mayors were disappointed that Lingle would take the hotel-room tax revenues and suggested that property taxes may have to be increased in response.

Lingle, a former Maui mayor, said mayors should be prepared given that lawmakers almost took the money last session.

"I tried to give them a heads-up about it over the past year, I think legislators have sent the same message, but it shouldn't be a surprise," the governor said at a news conference at the state Capitol.

Taxpayers will have to wait for their refunds. The delay is an accounting maneuver to get a one-time savings this fiscal year by not counting the refunds in the budget until next fiscal year.

"It's sort of everybody sacrificing so we can get through a crisis period," Lingle said.

Lowell Kalapa, president and chief executive officer of the Tax Foundation of Hawai'i, said he doubts the delay will have much of an impact because many people do not know if they are going to get a state refund until they file their taxes.

But Kalapa said it may send a message about the extent of the deficit.

"I think it sends a message to folks out there — taxpayers, consumers — that the state is really hard up," he said. "They cannot pay their bills."

FISCAL MANEUVERING

Lingle would reduce the state budget this fiscal year by $522 million, mostly through labor savings from new contracts with public-sector labor unions, spending restrictions imposed on state departments, and debt restructuring.

The governor would save an additional $296 million through special fund and tax revisions, mostly by delaying the tax refunds for 90 days as allowed by state law.

These steps would enable the state to get through the fiscal year that ends in June.

For the next fiscal year, Lingle would reduce the budget by $378 million, primarily through labor savings and department spending restrictions, and pick up another $181 million by taking the hotel-room tax revenues from counties and other tax adjustments.

In all, Lingle closes a $1.2 billion hole through June 2011 and leaves a carry-over balance.

The total supplemental budget request is $10 billion for fiscal year 2011 — including $5 billion in general-fund spending over which the governor and the state Legislature have the most control.

The governor also wants to reduce the capital improvement budget this fiscal year by $30.4 million in general obligation bond funds. But she would increase CIP spending by $164.9 million next fiscal year, to $1.1 billion. The new construction spending would include $50.9 million for improvements at Honolulu International Airport, $31 million for a new facility at the University of Hawai'i-Hilo College of Hawaiian Language, and $10 million for repair and maintenance and construction at charter schools.

DELAYED IMPACT

Scooping the hotel-room tax revenues from counties will likely spark a fight with mayors, who are facing their own budget deficits.

Last session, state lawmakers considered taking the hotel-room tax money from counties to help balance the budget but backed off after protests from mayors.

Lingle and state House and Senate leaders have made it clear for months, however, that the money would likely get diverted.

Unlike the state, counties avoided furloughs this fiscal year and have not made significant spending cuts because the impact of the recession on property taxes — the counties' main source of revenue — has yet to fully play out.

Lingle would divert hotel-room tax revenues from the counties for three fiscal years. Counties would lose an estimated $99 million next fiscal year: $44.5 million in Honolulu; $22.7 million on Maui; $18.5 million on the Big Island; and $14.4 million on Kaua'i.

Despite the warnings, the mayors were unhappy yesterday.

Big Island Mayor Billy Kenoi said he thought Lingle, as a former mayor, would understand how difficult losing the hotel-room tax money will be on counties. "The counties rely on the transient accommodations tax to balance their budgets, and for the state to take away that source of funding puts pressure on the counties to raise taxes at the county level," he said in a statement.

Honolulu Mayor Mufi Hannemann said he was disappointed. "I am disappointed that the governor would reverse from last session her position on taking the counties' share of the hotel room tax," he said in a statement. "In so doing, she is opening the door to the possibility that local residents will have to pay more in property taxes so that the counties can continue to provide essential services such as police, fire, paramedics and lifeguards for the state's No. 1 industry."

Kaua'i Mayor Bernard Carvalho Jr. said he was surprised. "We incur significant costs related to tourism including: parks maintenance, lifeguards; police and fire services, road maintenance, and the list goes on and on," he said in a statement. "Losing all of the TAT would be devastating to our budget and we are hopeful that there will be continued dialogue with the state on this matter before any decisions are made."

OPTIONS OFFERED

Lawmakers, over Lingle's veto, raised the transient accommodations tax last session to help with the deficit. The tax, popularly known as the hotel-room tax, is applied to operators of hotel rooms, apartments, condominiums, beach houses and other places rented to visitors.

Lawmakers offered to give counties the option of adding a local surcharge to the tax, but the mayors were not interested.

State House Speaker Calvin Say, D-20th (St. Louis Heights, Pälolo Valley, Wilhelmina Rise), said counties not only avoided furloughs but kept covering the 60 percent to 40 percent split in health care costs for workers while the state could not because of rising costs.

"They must have had a lot of money this fiscal year that the state of Hawai'i did not have," he said.

State Sen. Donna Mercado Kim, D-14th (Hälawa, Moanalua, Kamehameha Heights), chairwoman of the Senate Ways and Means Committee, said lawmakers will look at the long-term financial health of the state when considering Lingle's budget request.

"To me, the strategy on how we're attacking this is very important, because, to just find little pots of money, I mean, it's one thing. But then what do we do after those pots of money go?" Kim said.

Say and Kim, like Lingle, said they would try to avoid a broad-based tax increase to balance the budget, such as raising the state's general-excise tax.

'WHERE DOES IT END?'

Advocates for the poor and many parents and teachers will likely ask lawmakers to use the rainy day fund and the hurricane relief fund to restore some social-service spending and end teacher furloughs.

Say said there are other public demands to save state programs — such as school bus routes and vector control for rats. "Where does it end for the general public to understand?" Say said. "I thought they wanted us to downsize and rightsize state government?"

Lingle, a Republican who generally opposes tax increases, does have a tax hike in her budget request. The governor would raise the tax on insurance commissions from 0.15 percent to 4 percent, generating $20 million for the state.

The governor would save $12.5 million by not paying life insurance premiums for state workers and retirees and ending reimbursements for some Medicare costs for the spouses of retired state workers. The reimbursement reductions are in Medicare Part B, which covers a range of health-care items, including physician services, home health care and diagnostic tests.

The budget request also reflects the governor's layoffs earlier this year and zeroes out many vacant positions, eliminating 1,990 positions in all.