Hawaii governor fights an economic undertow : A soaring deficit has stalled Ben Cayetano’s bold development plan. He now presides over a jarring retrenchment of social services.

Ben Cayetano had grand plans when he was elected governor a year ago to transform Hawaii into a strategically centered powerhouse of education, technology and medicine for Pacific Rim nations.

And why not? Economic forecasts were so rosy that the long-held dream of diversifying the islands’ tourism-driven economy finally seemed within reach.

But reality intruded shortly after Cayetano, a Democrat, took office, when a revised state fiscal analysis revealed an unprecedented economic crisis. Facing the specter of federal cutbacks coupled with lingering recession in Japan and California, Hawaii’s projected deficit soared from $150 million to $750 million.

The 56-year-old son of an immigrant waiter from the Philippines, a man who had worked his way through Loyola Law School and went on to become the first Filipino American governor of the state, found himself having to lay off 600 state workers. He has been pelted with paper wads hurled by university students angry over a proposal to raise tuition by as much as 75%. This while real estate prices are falling, insurance premiums are skyrocketing, state prisons are overcrowded, drug abuse and crime are on the rise and native Hawaiians are making increasingly strident demands for nationhood.

All in all, it’s been a rough first year for the governor.

In a recent interview at the governor’s mansion in downtown Honolulu, Cayetano projected the frustrations as he prepared for another day of political battles over more budget cuts.

“By nature, I have a short temper and I am trying to keep it under control,” he said.

That is going to be hard. Critics blast Cayetano for failing to clearly communicate a long-range goal for the cuts--beyond simply trimming the fat off a bloated state government at a time when more people than ever here need social services. They also are irritated about his proposals to allow development of a theme park in Waikiki’s famed Diamond Head crater, and eliminate tax credits to meet the state’s revenue shortfall.

Cayetano’s most unforgiving critic is Noel Kent, a professor of ethnic studies at the University of Hawaii, who calls the governor’s first year in office “a disaster.”

“Cayetano is a right-wing Republican posing as a liberal Democrat,” said Kent, who was among thousands of students and faculty members who yelled obscenities and shouted down Cayetano when he tried to speak at a recent “death to education” rally protesting university budget cuts.

“He is using the budget crisis as an excuse to ratchet up the pain levels of the poor and the working class by undermining their living standards,” Kent said, “and has become a stalking horse for big business.”

“And at a time of cultural pessimism with more and more people insecure about their jobs and mortgages,” added Kent, “he has a fortress mentality.”

Not so, said Cayetano supporter Joseph Blanco, an assistant to the governor and regent chairman at the University of Hawaii.

“The governor looks at this as an opportunity to right-size a bloated government,” Blanco said. “He couldn’t do that in a boom economy.”

Flashing some of the combative personality he picked up as a youth in Honolulu’s gritty Kalihi district, Cayetano said his critics are, at best, misinformed.

“What bothers me a lot,” he said, “is when people are smart and know what the situation is but are deceitful and cowardly and unable to muster the political courage required to make this place better.

“We have people like that here today,” he said, taking aim at university students who contend tuition hikes will make it too costly for them to continue their education. “The generation of today is pretty much spoiled. They read about, but never saw, the civil rights movement, or the war in Vietnam or economic hardship.

“But economic winds are changing in Hawaii--government cannot be all things to all people anymore,” he added. “The toughest decisions I’ve had to make were laying off 600 state workers and cutting Medicaid benefits for people who are down and out.”

He also has had to shelve the so-called “Cayetano plan” while he tries to keep the state’s fiscal ship afloat by pruning or eliminating services in what remains of one of the most progressive states in the nation.

Although he promised to diversify the economy, Cayetano is traveling to Japan, which has pumped $18 billion into Hawaii since it achieved statehood in 1959, to plead for investment in developments along Honolulu’s waterfront and in Waikiki.

He has approved $250 million in local construction projects that will create needed jobs and, he hopes, reflect a healthier fiscal condition next year.

“If you covet this job, it’s hard to deal with long-term goals because you care too much about your political future,” Cayetano said. “But if you come into office realizing people have given you a great privilege and you are unconcerned about your political life, then dealing with the pressure is possible.”

Nonetheless, Cayetano, who expects Hawaii’s economy to rebound next year, recently held a $1,000-a-plate fund-raising dinner with an eye toward reelection in 1998.

“I probably will run again,” he said. “My timetable has been set back by the budget crisis, but this is a golden opportunity to make needed changes.”