A miscommunication between two state agencies is tacking an additional $44 million to the estimate of the state's already daunting $1 billion budget shortfall, the Lingle administration said yesterday.

The blunder comes as state leaders are trying to close Hawai'i's largest-ever budget shortfall, with severe layoffs and furloughs in combination with drastic cuts in services being considered to help meet the deficit.

In normal times, a $44 million gap in a multibillon- dollar, two-year budget cycle can be made up relatively easily, but "these are abnormal times," said budget director Georgina Kawamura. "This just creates a bigger hole."

The Department of Taxation collects tax revenues, while the Department of Accounting and General Services reports them.

In August, "we at the Budget and Finance Department recognized there was inconsistency between DAGS and Tax with regard to the back fund balance and how much was collected in taxes," she said.

It wasn't until this past week that "things got very intense" and the agencies were able to conclude it was an accidental recording error, Kawamura said.

The tax department in June 2008 redoubled its efforts to collect delinquent taxes and created a new collections category to reflect that. But DAGS misinterpreted the information, and wound up recording the delinquent tax revenues twice, Kawamura said.

The result of the recording discrepancy was an overstatement of $44.8 million over the course of 13 months.

Kawamura said that both departments share in the blame. "The way it was reported by ... (the tax department), I would've done the same thing that DAGS did," she said.

The reaction from Democratic leaders was mixed.

Senate Ways and Means chairwoman Donna Mercado Kim, D-14th (Halawa, Moanalua, Kamehameha Heights), said $44 million may be considered by some a small amount in the context of a $1 billion shortfall, but it points to more fundamental issues.

"When we try to rid ourselves of the deficit, we're relying on the administration to give us accurate information," Kim said. "Otherwise, all the premises we have are off."

Kim said it also troubles her that the inconsistency went on for 13 months and that neither the Senate nor the public learned about it until yesterday.

House Majority Leader Blake Oshiro, D-33rd ('Aiea, Halawa Valley, 'Aiea Heights), said the issue is serious, given that the state government is going through one of its most troubling times.

Regardless, "we all need to work together to dig ourselves out" of the deficit, Oshiro said.

"It's extremely unfortunate, but there's no sense crucifying anyone at this point," he said. "And we're just going to have to deal with it."

Kawamura said "the big picture is we're still focused on the $1 billion we have to find in order to close our budget gap. The labor negotiations are a critical piece to closing that gap and we have to consider the other pieces of the puzzle."

The state and Hawai'i Government Employees Association, the largest public worker union, go into a second round of negotiations today and tomorrow for a binding arbitration settlement.

Both union and state officials said they would prefer to reach a settlement independent of the binding arbitration process.