State tax take falls short of forecast

A panel of experts that estimates how much the state will collect in taxes each year revised its projection significantly downward Wednesday, which means state government will have about $155 million less to spend this year than Gov. David Ige’s administration had expected.

Members of the state Council on Revenues were unable to explain why state tax collections have been lower than anticipated in the first five months of this fiscal year.

The council had predicted state tax collections would grow by a healthy 5.5 percent in the year that began July 1, buoyed by record tourism arrivals, increases in visitor spending and a booming construction industry. The council’s projections form the basis for the state budget.

ACTUAL collections, however, have not grown at that robust rate. As of the end of November, tax collections for the five-month period from July to November had increased by only seven-tenths of 1 percent.

It doesn’t quite qualify as a budget crisis, since the latest financial plan released by the Ige administration projected the state general treasury will collect more than $6.53 billion total in taxes this fiscal year, and will end the year with a cash surplus of more than $726 million.

Still, the slower-than-expected growth in state tax revenue likely will make lawmakers more cautious about spending.

“I think it really speaks to what we’ve been saying all along, that we need to continue to really exercise fiscal prudence with the coming biennium budget,” Senate Ways and Means Committee Chairwoman Jill Tokuda said Wednesday. “This is going to mean $155 million less in the current fiscal year, and that’s going to have an impact.”

Jack P. Suyderhoud, a member of the Council on Revenues, said some on the council felt the July-to-­November numbers were “an aberration,” and that collections will pick up significantly in the months ahead.

Other members, including Marilyn Niwao, disagreed, saying they expect total collections to fall well short of the projected 5.5 percent gain. In the end, the council members compromised by approving a new projected growth of 3 percent.

“The challenge is that we’re dealing with a relatively strong economy that’s not being reflected in the actual tax collections,” said Suyderhoud, who is is professor of business economics at the Shidler College of Business at the University of Hawaii at Manoa.

Possible explanations for the slower-than-expected growth in tax collections could include an increase in online retail sales that avoid the state excise tax, or an unusually quick turnaround by the state in November on income tax refunds. Those refunds were deducted from the total tax collections booked by the state for the first five months of the fiscal year.

Another possibility is that the council did not account for a tax settlement between the state and online travel companies that artificially increased state tax collections by tens of millions of dollars last year. That one-time injection might have thrown projections for this year out of whack.

SUYDERHOUD said he does not know exactly why growth in excise tax collections in particular would be growing more slowly than expected because “the underlying economy is so strong.” Hawaii’s excise tax is usually a good indicator of the overall health of the economy because the tax applies to almost all kinds of wholesale and retail transactions.

Maria Zielinski, director of the state Department of Taxation, said tax officials will know more in the next week or so after they receive preliminary collection numbers for December. The new data will provide more clues about whether tax collections will pick up or remain lower than projected.

Ige noted the lower-than-expected trend in tax collections when he announced his new two-year budget last month.

“In general we have seen an increase in revenues,” but it has not kept pace with the council’s projections from last year, Ige said. “So we definitely are monitoring and being aware of what the revenue picture looks like in determining what would be appropriate to submit in this budget.”

The Council on Revenues will update its projections again in mid-March.