In a sobering message to Gov. Neil Abercrombie and the state Legislature, the state Council on Revenues on Thursday downgraded the state’s revenue forecast because of the cost of a renewable-energy tax credit.

The council reduced the forecast for fiscal year 2013 to 4.9 percent growth, down from 5.3 percent in May, about a $16 million decline. The council also lowered the forecast for fiscal year 2014 to 3.9 percent growth, down from 4 percent.

Economists described the downgrade as a warning about the cost of a renewable-energy tax credit and said the forecast would have otherwise increased because of the state’s economic recovery.

"We’re kind of ringing the bell on this issue," said Jack Suyderhoud, a University of Hawaii-Manoa professor of business economics who serves on the council.

The state offers a 35 percent state income tax credit for homeowners and businesses that install photovoltaic systems, an incentive that can be used in combination with a 30 percent federal tax credit to produce a generous tax break.

The state Department of Business, Economic Development and Tourism reported to the council Thursday that the cost of the state tax credit has grown from $34.7 million in 2010 to $173.8 million in 2012. Some in the solar industry are skeptical that the growth has been that high, however, and note that solar installations have been responsible for job creation in the construction sector.

Abercrombie and state lawmakers had discussed curtailing the solar tax credit earlier this year, but lawmakers, under pressure from the solar industry and environmentalists to preserve a meaningful incentive, were unable to reach a compromise before the session ended. Lawmakers will likely review the solar tax credit again next year.

The state Department of Taxation is also expected to release new temporary administrative rules within a month that could restrict the solar tax credit starting in January.

"We are supportive of clean energy development, but need to make sure there’s clarity and fairness to all taxpayers," Fred Pablo, the state’s tax director, said in an email.

ECONOMISTS on the council compared the solar tax credit to the high-tech tax incentives under Act 221 in the past decade. The state auditor has found that the state can neither measure nor ensure the effectiveness of the nearly $1 billion in high-tech tax credits.

"It’s back," Suyderhoud said of the uncertainty over tax credits.

Mark Duda, principal and founder at RevoluSun, a leading solar company, said he doubts that the solar tax credit has cost the state $173 million this year. But he said there is broad agreement that the tax credit is costing the state more than expected and consensus around a gradual reduction.

He said the changes should be made by the Legislature, not through administrative rules by the Department of Taxation.

State Rep. Marcus Oshiro (D, Wahiawa-Poamoho), chairman of the House Finance Committee, said the council’s forecast validates warnings by the state House last session.

"This is an ‘I-told-you-so’ moment," Oshiro said. "The speaker and majority leader and the House took the position that the renewable-energy solar tax credits were unsustainable, causing a huge revenue loss, and it would come back to bite us."

But the solar industry and environmentalists have said that the House’s proposal, which would have limited the solar tax credit to one per property instead of one per system, would have been devastating to the solar industry. Many instead preferred a gradual reduction in the tax credit favored by the state Senate.

"The tax credits are creating jobs. And it’s one of the few areas, especially in the construction trades, that are actually creating jobs," said state Sen. David Ige (D, Aiea-Pearl City), chairman of the Senate Ways and Means Committee.

The council’s downgraded forecast casts some cloud over the state’s financial outlook. The Abercrombie administration had hoped the council would upgrade the forecast after the state closed the last fiscal year in June with stronger-than-expected 14.9 percent revenue growth, leaving a $306 million surplus.

The Abercrombie administration will have to account for the lower revenue in this fiscal year’s budget, and the governor will use the council’s latest forecast when drafting his two-year budget proposal to the Legislature in December.

Kalbert Young, the state’s budget director, said the forecast shows that the overall condition of the economy does not always reflect the financial condition of the state.

"The council did recognize that the overall economy looks very positive, growing and optimistic, but when you factor in this one aspect of the tax credit program, the state’s revenue growth doesn’t look as optimistic or as positive," he said.