The state Council on Revenues on Tuesday left the growth forecast for this fiscal year unchanged but increased the projection for next fiscal year because of an expected improvement in the construction industry.
The council reaffirmed 6.7 percent growth in tax collections for the fiscal year that ends June 30.
Economists discussed the potential cost of a solar tax credit and the effect on tourism from a decline in the Japanese yen, but concluded that they lacked enough information to adjust their prediction from March.
Yet the council increased the forecast to 8 percent growth for fiscal year 2014, up from 7.3 percent in March. The higher projection could mean an additional $37 million in revenue for the state. Economists believe the construction sector will lead the increase, while tourism will likely remain flat after pulling the state out of the recession in the past few years.
Richard Kahle Jr., chairman of the Council on Revenues, said there is some lag between building permits and construction, which complicates the forecast, but the council is confident construction will improve.
"It’s hard to get a handle on it, but it looks strong," he said.
Construction could be ready to spring with the resumption of the city’s rail project expected later this year and new housing and condominium projects being unveiled. The state is still waiting to see the full extent of photovoltaic installations as consumers took advantage of a solar tax credit before it was scaled back in January.
The resumption in July of a subcontractors deduction, which had been suspended for the past two years to help contain a state budget deficit, could also boost construction.
The exemption allows contractors to deduct the amount they pay to subcontractors when calculating their tax liability on construction projects, a break meant to help offset the pyramid effect of the general excise tax.
Gov. Neil Abercrombie said in a statement, "Our economy is strong and appears to be getting stronger. Hawaii continues to lead the U.S. amongst states with significant revenue growth possibilities. … We expect to see continued improvement in the construction industry, real estate market, agriculture and small business activity as well the hospitality industry."
State Rep. Sylvia Luke, chairwoman of the House Finance Committee, said the forecast "shows that our financial picture remains steady and positive. … With revenue projections remaining stable we are on track to meet the needs of our citizens."
