Gov. Linda Lingle and state House and Senate leaders opened the year with optimistic talk about collaboration, about putting their political differences aside to confront the state's budget deficit, but that spirit did not survive more than a few weeks into one of the most difficult sessions in memory.

The Republican governor drew a familiar line against new taxes, majority Democrats opted for a combination of targeted tax increases and spending cuts to close the gap, and the two-year budget that emerged is so precariously balanced it could have a substantial hole when the state Council on Revenues updates its forecast later this month.

"We started with collaboration. It turned into cooperation. Now we're in confrontation," one Republican adviser said ruefully.

The early reviews are not very positive.

Observers believe Lingle, state House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo Valley, Wilhelmina Rise), and state Senate President Colleen Hanabusa, D-21st (Nanakuli, Makaha), may have missed an opportunity for statesmanship. The veteran Say, the first to warn of the magnitude of the economic downturn, was the only one to break convention by suggesting adjustments to retirement benefits for government workers that antagonized the Democrats' union allies.

The more pragmatic analysts, however, believe what happened was what voters intended when they split the executive and legislative branches of government between political parties.

Republicans have praised Lingle for trying to hold the line on taxes; many Democrats believe House and Senate leaders acted responsibly by trying to target the tax increases and spending cuts to shield the poor and middle class.

Ben Cayetano, a former governor, was critical of both sides. He also said the news media should have pushed harder on the governor and lawmakers to explain their differences.

"It's a mess," he said in an e-mail. "The governor's actions seem shaped more by public relations than substance. For her to send a budget with no specifics to the Legislature was not only a breach of her statutory duty but left the hard decisions to the Legislature."

Cayetano said lawmakers could have used money in the state's hurricane relief fund or temporarily diverted money from a general-excise tax surcharge for the Honolulu mass-transit project to help with the deficit. "The Legislature did not have to raise state income tax on anyone. At least for the coming biennium," he said.

IN DISAGREEMENT

The widest splits between Lingle and Democrats on the budget, now that the governor's vetoes of tax increases have been overridden, are over education spending and labor savings from collective bargaining.

Lingle wants to use federal stimulus money meant for public education to help close the deficit, including for the fiscal year that ends in June, while lawmakers have spread the federal money over the next two fiscal years to help offset state spending cuts in education.

Lingle also wants to save $278 million in collective bargaining with public-sector labor unions, while lawmakers kept labor spending at existing levels because the negotiations are still in progress.

Although Lingle has said a settlement with one union may be imminent, union leaders dispute her assertion. Randy Perreira, the executive director of the Hawai'i Government Employees Association, said the HGEA, the Hawai'i State Teachers Association, the United Public Workers and the University of Hawai'i Professional Assembly have petitioned the governor to negotiate together toward a global settlement.

Dean Okimoto, the owner of Nalo Farms, said he believes lawmakers did the best they could given the deficit. "I'm not for a lot of new taxes, but I don't see how you do this without raising some taxes," he said.

Okimoto said that while tax increases could take money out of peoples' pockets at a time when the economy is struggling to rebound, so could extended furloughs of state workers, which is under consideration in labor talks.

"I just think we're going to pay one way or another," he said. "I think that doing long-term fixes with additional taxes is more feasible because it will benefit more people."

Jamie Story, the president of Grassroot Institute of Hawai'i, a conservative-to-libertarian public-policy group, said the tax increases were a mistake. Lawmakers increased state income taxes on the wealthy, the hotel-room tax, the conveyance tax on the sale of luxury and second homes, and on cigarettes and other tobacco products.

"We wish that the majority had not turned to tax increases as the only answer to solving this budget shortfall," Story said. "Certainly there are ways to cut costs as well and they didn't seem as enthusiastic about doing that."

'IN THE DARK'

Dave Rolf, the executive director of the Hawai'i Automobile Dealers Association, said the governor and lawmakers "had the unpleasant task of dealing with 'air' dollars — those errantly high projections" by the Council on Revenues.

Projected state revenues were off by more than $2 billion over the past year. "Like in my old health class in high school — with its frequent projector failures — you're in the dark for a while," Rolf said.

Perreira said veteran observers knew early on that the session would be difficult.

"Money was so tight and, I guess, from the very beginning, it was easy to realize that at the end of the day, no matter how the Legislature chose to balance the budget, nobody would be happy," he said.

"I think they did what they could under the circumstances. They balanced the budget, so they did their job. But I would characterize the budget being balanced rather precariously using some assumptions and components that are not necessarily rock solid going into the future."

Perreira described the governor's budget proposals, even excluding her goal of $278 million in labor savings, as "very sketchy."

With the likelihood the state's revenue forecast will fall later this month, creating new holes for this fiscal year and the following two-year budget cycle, and the fact that Lingle has the discretion to implement the budget lawmakers passed starting in July, there is no certainty the existing budget will stand.

"Now we're all just waiting to see what real life brings starting July 1st," Perreira said.