State revenue collections were off 3.9 percent in July, a shaky start to the new fiscal year that falls substantially below the zero growth projected by the state Council on Revenues.

The council will take the state Department of Taxation figures into consideration when it meets later this month to update its revenue forecast. A lower forecast could increase the size of the state's estimated $786 million budget deficit through June 2011.

Gov. Linda Lingle warned of declining revenues as the state issued written layoff notices this week to 1,100 state workers. The governor said a lower forecast could have an impact on collective bargaining negotiations with public-sector labor unions.

"Our state's deteriorating fiscal situation is not unique," Lingle said in her weekly radio address. "Like many other states in the nation, the reality is that we simply cannot afford the size government we have today."

Union leaders, speaking yesterday to The Advertiser's editorial board and reporters, acknowledged the budget deficit and said state workers are ready to make concessions. But they also accused Lingle of creating a false sense of urgency that the deficit has to be closed immediately and that labor cuts have to account for $688 million of the cuts.

The deficit is projected over two years, the union leaders said, and labor cuts should be part of a package of steps to balance the budget and prepare the state for economic recovery.

"Our members want the pain and the anxiety to end, too," said Randy Perreira, the executive director of the Hawaii Government Employees Association. "We all want that. We have tried to reach that point."

Perreira said many newspaper opinion writers and talk-radio hosts have bought into Lingle's portrayal of the problem as union foot-dragging. He said collective bargaining is not a simple process where the governor and union leaders can go into a room and hammer out a deal.

A settlement would require ratification by rank-and-file union members. Perreira, speaking for the HGEA, said his members would not accept the governor's offer of three furlough days a month for two years — a 13.8 percent pay cut — in addition to paying higher health care costs. The union has offered one furlough day a month for two years or essentially a 5 percent pay cut.

Both the Lingle administration and the HGEA, meanwhile, have signed off on a binding arbitration schedule that does not conclude until December.

"I think what's happened is that the media has allowed the governor to dictate and define what's fair," Perreira said.

OTHER SUGGESTIONS

J.N. Musto, the executive director of the University of Hawai'i Professional Assembly, said the state Legislature should return in special session on the budget rather than let Lingle in effect make policy decisions through spending restrictions and layoffs. He said lawmakers should help identify what state programs or services should be reduced or cut.

Musto said lawmakers could also consider a tax increase to help with the deficit, while other educators and lawmakers have suggested using the state's hurricane relief fund and rainy day fund.

"If we are in a crisis, then I personally believe it behooves this Legislature to come into special session to address it. They should not by default leave programmatic decisions, and tax decisions, and all of the rest of them, to the governor through her actions to be able to unilaterally restrict," Musto said. "That's what I believe.

"I believe that the Legislature has an extraordinarily important role, which right now — right now — they leave behind."

State House and Senate leaders have said they have no plans to return in special session and can respond to the budget deficit when the next session starts in January. Lingle has also said she has no plans to call lawmakers back into session on the budget.

'SMALL PIECES'

Perreira and Musto, who spoke to the newspaper with Wil Okabe, the new president of the Hawaii State Teachers Association, said the Lingle administration has also rejected their suggestion to approach labor cuts in an incremental way — rather than all at once — in the event the economy improves.

They also said Lingle, who has said she prefers furloughs to layoffs, has not reassured them about job security even if they agree to furloughs.

"It is better to take it in small pieces, and we've proposed that, even quarter by quarter," Musto said.

State revenue collections for July, released yesterday, show a 3.9 percent decline over a year ago. Hotel-room taxes were off 22 percent. General excise and use taxes, the largest category, were down 8.6 percent. Individual income taxes were down 2.7 percent. Corporate income taxes were up 140 percent, but the money only accounts for a small amount of total collections.