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Forecast brightens revenue outlook

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The state Council on Revenues on Wednesday offered a brighter forecast for revenue growth, which may make it possible for the Legislature to adopt some of Gov. Neil Abercrombie’s budget initiatives and restore funds cut from social service programs during the recession.

The council projected 12 percent revenue growth for the fiscal year that ends in June, a slight increase from the 11.5 percent growth estimated in January, or about $21.6 million in additional money. The council also raised the forecast for fiscal year 2013 to 7.5 percent growth, up from 6.5 percent, or an additional $71.5 million.

Economists credited improvement in the tourism industry for the more optimistic prediction.

"What we’re seeing is a good solid economy in the tourist section, particularly in Waikiki, the hotels and that kind of thing," said Richard Kahle, the council’s chairman. "The rest of the economy, once the tourism industry starts going, it drags all businesses with it, and that’s what’s going on."

State Budget Director Kalbert Young said the new forecast was encouraging. Budget analysts had said earlier that the two-year state budget would likely balance under the previous revenue estimate in January, but that lawmakers would have to make adjustments to avoid deficits in the six-year financial plan.

"This administration has taken a strategic approach to fiscal management and there are still structural financial issues that need to be addressed," Young said in a statement. "We recognize today’s news is a positive prediction of Hawaii’s economic recovery. Overall, the council’s latest projection is encouraging as we work towards alleviating projected minor shortfalls in the state’s budget in the near future and we remain cautiously optimistic in regards to the actualization of these new revenue projections."

The improved forecast was a relief for House and Senate leaders who have spent the past few years chasing billion-dollar budget deficits linked to the recession.

The House Finance Committee on Wednesday approved its draft of the supplemental budget, which covers fiscal year 2013, the second year of the budget cycle. The draft includes some of the extra money Abercrombie has requested for welfare services, public school bus transportation, health care for the poor and child abuse prevention. Lawmakers also backed the governor’s initial requests to help the state’s chief information officer overhaul the state’s aging and outdated technology.

Rep. Marcus Oshiro (D, Wahiawa), chairman of the House Finance Committee, said legislators set aside $50 million for the growing unfunded liability in the state Employer-Union Health Benefits Trust Fund, a potentially important signal that the state leaders recognize the $11.5 billion problem.

Oshiro said the new revenue forecast may give legislators the ability to consider new funding requests instead of turning to the options some had suggested. For example, some want to take a share of the proceeds from a successful bond sale to help finance social service programs instead of using the money to replenish the rainy day fund, which was drained to close the deficit last year. Others want to divert a portion of the revenue from a new consumer fee on single-use plastic bags to help pay for the governor’s watershed protection initiative.

Despite the higher revenue forecast, Oshiro said the House budget draft is based on a more conservative 11 percent revenue growth projection for this fiscal year, following a pattern by the House to take a cautious approach in the event the council’s forecast is off.

"It’s recovering right now. It’s on a positive track," he said of the economy. "And that’s good news for all of us."

Sen. David Ige (D, Aiea-Pearl City), chairman of the Ways and Means Committee, said senators would like to restore some of the funds reduced over the past few years in health and social service programs. His committee will prepare a draft of the budget after the House version moves to the Senate next week.

"We were hoping for the best, preparing for the worst. It does allow us more flexibility than we had anticipated, so we can make different decisions because the budget is not as tight as it was," he said of the new forecast.

Ige said, however, that economic downturns force legislators to decide which programs are the most important. "So I think it’s prudent for us to remember that we’re not out of the woods. We want to be careful about what we restore and make sure that it is something that we would be able to sustain over the long haul," he said.

Carl Bonham, a University of Hawaii at Manoa economist who serves on the council, said economic troubles in Europe, rising oil prices and a possible war with Iran are uncertainties that could influence revenue growth in the islands. He also said that the loss of construction spending if the city’s rail project is blocked would reduce the forecast.

But Bonham and several others on the council believe the forecast may be too low, citing previous examples where it missed the rate of growth during economic recovery.

"Barring some unforseen possibilities, like much higher oil prices or a war, we generally think the economy is improving faster, and tax revenues will grow as well," he said.

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