State tax collections forecast to rise

Economic experts in charge of forecasting Hawaii’s tax collections say the state’s revenue will grow at a slightly higher rate than expected, citing in part an anticipated stimulus effect from the Republicans’ federal tax cuts.

The state Council on Revenues voted Monday to revise its year-over-year growth prediction for the current fiscal year to 4.5 percent growth from 4.3 percent.

That modest increase would amount to roughly $13 million to $14 million more in collections for the fiscal year that ends June 30, and would put the state on track to collect close to $6.6 billion this year in taxes.

The council — whose members include economists, accountants and business executives — meets quarterly to set revenue estimates for the general fund, the state’s treasury filled by the general excise tax, individual income tax and transient accommodations tax, among other collections. The panel’s projections form the basis for the state budget, which will be crafted and finalized during the upcoming legislative session.

Laurel Johnston, the state’s acting budget director, welcomed the higher forecast but said she’s viewing it cautiously.

“Any additional revenue is helpful in balancing our obligations,” she told the Honolulu Star-Advertiser, citing costs for public worker pensions, debt service and previously approved pay increases for state employees.

“I’m cautiously optimistic that it’s heading in the right direction,” Johnston said. “Certainly, any additional revenue, we’d like to be able to put it toward our unfunded liabilities.”

Johnston said the healthy growth is viewed as a positive compared with last spring, when Gov. David Ige’s administration had to recommend hefty budget restrictions after revenue growth projections came in lower than expected.

This time around, Council on Revenues members said they’re encouraged by early impacts from the federal tax cuts in the form of employee bonuses and increased wages.

“This is a minor stimulus, right? With the tax cut, people have more money in their pockets and will be spending more money,” Seth Colby, tax research and planning officer with the state Department of Taxation, said of the tax overhaul, which includes tax cuts for corporations and business owners and temporary tax benefits for individuals.

Accountant Marilyn Niwao, who serves on the council, cautioned that the changes could adversely affect tax collections at some point as taxpayers accelerate deductions against their tax liability. She also said some individuals may be eyeing relocating to other states with more advantageous tax laws.

Meanwhile, the council anticipates the tourism sector will continue at a healthy clip. Visitor arrival statistics released late last month by the Hawaii Tourism Authority showed an estimated 9.3 million tourists — a record high — came to the state in 2017.

“I think the visitor industry did do better than the visitor industry expected for the first six months of the (fiscal) year. That was largely driven by arrivals,” said Ed Case, senior vice president and chief legal officer of Outrigger Enterprises Group, who serves on the Council on Revenues.

Case added that overall hotel occupancy has been low as visitors seek out alternative accommodations, and visitor expenditures aren’t as high as expected.

Council on Revenues member Jack Suyderhoud, a University of Hawaii economics professor, said he expects inflation will rise modestly as a result of the state’s record-low unemployment, now at 2 percent.

“My sense of this is that basically full employment and over-full employment in the case of Hawaii is going to result in higher wages. Higher wages are going to cause business expenses to increase. Those businesses that can pass those expenses on to consumers are going to do it,” he said. “And so I would expect an uptick in inflation.”

In forecasting economic growth for future years, the council voted to leave its current projections unchanged at 4.3 percent growth for the fiscal year that begins July 1 and 4 percent growth the following year. The panel next meets in March to revisit its forecasts.