Gov. Linda Lingle said yesterday she would order state workers to take three days a month in furloughs for the next two years and would scale back state healthcare benefits for low-income adults to close what she described as a $730 million budget deficit.

The furloughs — 72 days in all — would start in July and are equivalent to a 13.8 percent pay cut for the state's 46,000 workers. The governor said furloughs would save the state $688 million, while the remainder of the deficit would be closed by $42 million in spending cuts to state healthcare benefits for low-income adults.

Lingle said the state would delay paying $130 million worth of bills to get through the fiscal year that ends this month.

The governor's plan followed a new forecast issued last week by the state Council on Revenues that stripped $611 million from expected revenues through June 2011. After the governor met with her budget advisers over the weekend, she estimated that the revenue losses and a lower-than-expected take from tax increases passed by the state Legislature would result in a larger gap of $730 million.

"In short, we now have a government that we cannot afford," a gloomy Lingle said in a live, televised address from her chambers at the state Capitol.

Leaders of the state's public-sector labor unions reacted with disappointment, arguing that state workers would have a disproportionate share of the burden. Economists cautioned that furloughs could reduce consumer spending by state workers during a recession.

State House and Senate leaders accused Lingle of negotiating with labor unions through the media rather than collective bargaining. The governor had sought about $300 million in labor savings through contract negotiations, but her furlough plan would more than double that amount.

LITIGATION POSSIBLE

State Senate President Colleen Hanabusa, D-21st (Nanakuli, Makaha), a labor attorney, also questioned whether Lingle has the authority to unilaterally impose furloughs.

In a February letter to state House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo Valley, Wilhelmina Rise), the state attorney general's office said it was unclear whether the governor has the power to order furloughs. The governor would likely have the implied authority to furlough if it was viewed akin to a layoff, the attorney general's office found, but the governor would have to consult with unions on furlough procedures. The attorney general's office warned that "these issues are likely to be subject to litigation."

In a second letter to Say on Friday, however, the attorney general's office argued that furloughs are not subject to mandatory negotiation. The attorney general's office determined that furloughs are not akin to layoffs and that negotiating furlough procedures with unions is permissible but not required.

"I don't think she can just unilaterally implement a furlough," Hanabusa said, adding that Lingle could face a court challenge.

The Lingle administration and union leaders are discussing furloughs, wage cuts and changes to healthcare benefits in labor talks, which are going poorly. Labor contracts expire at the end of the month, and if no settlement is reached in time, furloughs would be imposed when state workers are out of contract and potentially looking at strikes or binding arbitration.

Say said there are no plans for lawmakers to return in special session to address the budget deficit. Lingle has the discretion to implement the two-year budget passed by the Legislature, the speaker said, and lawmakers can make adjustments to the budget when they return for a new session in January.

Say said he doubts the economy will improve by then and believes lawmakers will have to come up with new revenue-generating ideas. The Council on Revenues is scheduled to update its forecast twice — in September and January — before lawmakers return. The speaker said lawmakers may have to go into the state's hurricane relief fund and the state's rainy-day fund and take other steps to contain the deficit.

"For me, by the time we start the session again, I'm looking at a $3.1 (billion), $3.2 billion shortfall," he said.

Randy Perreira, the executive director of the Hawai'i Government Employees Association, said Lingle's furlough plans would hurt many of the union's 29,000 members. He predicted some state workers would be unable to keep up with their home mortgage payments or would have to pull their children out of college.

Perreira said the governor "wants to cut her way to prosperity on the backs of the public workers. It's going to be horrible."

Roger Takabayashi, the president of the Hawai'i State Teachers Association, said the governor wants to close the deficit "off the backs of public workers and kids, particularly the kids, and that will be very difficult."

'SO SELFISH OF THEM'

Lily Santos, a state worker who lives in Waipahu, expressed qualms about how state workers would absorb the pay cut from furloughs, given the state's high cost of living. "It's hard and so selfish of them," she said.

Lingle, anticipating claims she was balancing the budget at the expense of state workers, said labor costs account for about 70 percent of state expenses. She said state workers enjoyed pay increases of 16 to 29 percent over the past few years when the economy was thriving.

The governor said the alternative to furloughs would be layoffs of up to 10,000 state workers.

"While I recognize the serious financial impact that furloughs will have on our state employees and their families, this is a decision that I must make given the current fiscal challenges facing our state and the fact that we have already cut the budget where we could in other places," Lingle said. "This is the most difficult decision I have had to make since becoming governor."

Lingle does not have the power to order furloughs for workers at the state Department of Education, the University of Hawai'i and the Hawai'i Health Systems Corp., which are governed by independent boards. She said she would restrict spending for these departments by an equivalent amount as her furlough plans and hoped the departments would adopt furloughs.

The governor also asked the Legislature, the Judiciary and the state Office of Hawaiian Affairs to impose furloughs or restrict spending.

Lingle said that while furloughs would likely have an impact on state services, furloughs should not be used an an excuse for poor performance.

SCHOOLS HIT HARD

State schools Superintendent Pat Hamamoto estimated that the equivalent to furloughs amounts to about $162 million a year over the next two years. When added with restrictions during the past legislative session, she said, the Department of Education is facing a total of $384 million in cuts over the next two years.

Hamamoto said she was unable to say exactly how public schools would deal with those reductions. She said the department is likely to seek a combination of cost-saving measures including furloughs, increased class sizes and cuts to school-level programs.

Lingle described the budget deficit as a fiscal emergency unprecedented in size and scope. With $2.7 billion less to spend because of the declining revenue projections, she said, the state needs to create a government it can afford.

The governor repeated her opposition to new tax increases or legalized gambling as revenue-generating options, arguing that further tax hikes would delay the economic recovery and describing talk of legalizing gambling as a distraction. She warned that the state could face enormous deficits like California if it failed to cut labor costs. She also said it would be "irresponsible not to seek savings from the single largest expense in our state's operating budget — labor."

Lingle said the $42 million in cuts to state healthcare benefits for about 112,000 low-income adults is about 4.3 percent of the amount the state spends on health insurance for the poor. The state is unable to totally remove some adults from the healthcare program without jeopardizing federal money from Medicaid, the federal health insurance program for the poor and disabled.

"We must live within our means, and that requires that we provide what the government can afford while maintaining service levels as best we can," she said.