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State tax forecast up

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The state Council on Revenues yesterday raised its forecast for tax collections for the fiscal year that ends in June, which could considerably reduce a projected budget deficit over the next six months and ease an expected shortfall over the following two years.

The new forecast is for 3 percent growth this fiscal year, up from 2 percent in September. The higher forecast means an additional $44 million in tax revenue, which could help offset what Gov. Neil Abercrombie has pegged as a $71.6 million deficit.

The higher forecast for this fiscal year also raises the general-fund revenue base for the following two-year budget cycle by about $99 million, which could help reduce a projected $771.9 million deficit. The Council opted to leave the forecast at 10 percent growth in fiscal year 2012 and 6 percent growth in fiscal year 2013.

Paul Brewbaker, an economist and the Council’s chairman, said the higher forecast for this fiscal year is due to the improvement in tourism as the state’s economy recovers from the recession. The Council had been expecting about 6 percent revenue growth this fiscal year but had to adjust for Gov. Linda Lingle’s decision to delay state income tax refunds to help get through the last fiscal year with a smaller deficit.

Brewbaker and other economists on the Council agree the recovery will likely continue, but want to give themselves more time to predict the strength of the rebound, so they left the forecast for the next two fiscal years unchanged from September.

"We’re seeing a little more oomph than we earlier expected at this stage of the recovery," he said. "The question becomes, how much of that is sustainable, since a lot of what we’re seeing now is rebound and recovery from a real low?"

Brewbaker said economists do not know whether the recovery will be average, above average or below average. Carl Bonham, a University of Hawaii-Manoa economist who serves on the Council, has warned that past forecasts have not adequately accounted for unpredictable — yet inevitable — economic shocks that influence tax collections.

The Council’s next forecast is in March, and it will provide Abercrombie and state lawmakers with new estimates before they complete work on the two-year budget. Under state law, the governor and lawmakers use the Council’s forecasts when drafting the budget.

"Today’s projections by the Council on Revenues do not lessen the financial hardships that our families and businesses face right now," Abercrombie said in a statement. "This administration will remain focused on economic recovery by creating jobs and restoring government services. We will achieve this by working together with lawmakers, business and community leaders."

The state House Finance Committee and the state Senate Ways and Means Committee will hold joint informational briefings on the forecast and other budget-related matters starting on Monday.

"This is good news," state Rep. Marcus Oshiro (D, Wahiawa), chairman of the House Finance Committee, said of the higher forecast this fiscal year. "It helps the governor address the current shortfall by $44 million, and it means we have an additional $100 million to use in the biennium budget.

"This is positive. It’s a good sign."

But lawmakers will still be facing a sizable deficit and will likely have to reject most requests to restore spending on state programs that was cut during the recession. "We’ll try our best to find a way, but it’s going to be awfully hard given the current projections," Oshiro said.

State Sen. David Ige (D, Pearl City-Aiea), chairman of the Senate Ways and Means Committee, said it was encouraging that economists on the Council saw enough in the economy to raise the forecast.

"There still needs to be significant reductions in order to balance the budget," he said. "So it’s helpful, but there is still a huge hole."

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