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Tax outlook gives state budget buffer

By Derrick DePledge


State tax collections dropped by 0.9 percent last fiscal year, a smaller decline than the state Council on Revenues had forecast, giving Gov. Neil Abercrombie more cushion in implementing the state budget.

The council had projected a 1.6 percent decline for the fiscal year that ended in June, a figure that influenced the two-year budget approved by state lawmakers and signed by the governor.

The higher-than-anticipated tax collections could give the Abercrombie administration a larger carry-over balance once books on the fiscal year are closed.

Abercrombie obtained authorization from state lawmakers to tap the state's rainy day fund and hurricane relief fund to get through the fiscal year.

State lawmakers used a combination of tax adjustments, labor savings and spending cuts to close a projected $1.3 billion deficit over the next two fiscal years. Lawmakers gave Abercrombie the discretion to make about $50 million a year in cuts, and the governor has asked state departments to identify programs and functions for elimination.

"The preliminary tax revenue figures do not change the requirements of the budget just passed for the next two years. Hawaii still has big challenges, but this is a promising sign that change is happening and we are moving in the right direction," Donalyn Dela Cruz, an Abercrombie spokeswoman, said in a statement.

"The Abercrombie administration is firmly focused on continuing to build momentum in Hawaii's economy, and fixing government including sound financial management of the people's tax dollars."

The budget contains about $11 billion in state spending in each of the next two fiscal years. Tax collections help finance the general-fund portion of the budget, which involves about half of state spending.

House and Senate budget negotiators have been cautious about the council's forecasts, which often have been revised downward to calculate for revenue declines during the recession.

The council issued its projection in late March for a 1.6 percent revenue decline for the fiscal year, the last forecast before the state budget was adopted, and affirmed it again in late May.

A 0.9 percent decline, according to House Finance Committee staff, could mean about $30 million more for the state.

"This is a good sign," said Rep. Marcus Oshiro (D, Wahiawa), chairman of the House Finance Committee. "This is a good, positive balance."

According to the Department of Taxation, state revenues would have increased by 3.4 percent last fiscal year if not for the impact of former Gov. Linda Lingle's decision to delay state income tax refunds to help close the deficit.

General excise and use taxes, the largest source of state revenue, were up 7.7 percent. Hotel-room taxes were up 26.9 percent.

Individual income taxes — influenced by the delay in tax refunds — were down 18.4 percent. Corporate income taxes were down 41.6 percent.

The Council on Revenues has predicted 11 percent growth for this fiscal year and 6 percent growth in fiscal year 2013.

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