State budget needs to hedge results of GOP tax reform

Budgeting for the state always involves some degree of educated guesswork, but not as much as it does this year. And that means 2018 calls for the legislators and executive of this state to be cautious and watchful on the spending front.

The reason, of course, is that the federal tax overhaul puts in question almost every assumption made in the past. President Donald Trump has signed the GOP tax cut bill into law, but much uncertainty remains.

How much extra money will be in Hawaii residents’ pocketbooks? Because these are the people who will spend any disposable income and boost the local economy, that’s a key question. That’s so, regardless of whether the increase results from changed withholding rules or a bump in pay awarded by employers, some of whom were vying for workers in a tight labor market, anyway.

How much long-term economic growth will this generate?

And perhaps the most central query for Hawaii politicians: How will this affect federal support for the state? This is a crucial consideration for myriad projects that require a hefty contribution from Uncle Sam to match the state allocation of funds.

In that context, the budget proposal Gov. David Ige released Monday is relatively modest for an election-year spending plan, but it still includes some add-ons that will require careful vetting as lawmakers confront fiscal realities in January.

The governor is proposing to spend about $175 million more from the general fund than it is projected to collect in taxes and other revenues in the year that begins July 1. Of course, those projections could change if tax reform at the federal level trickles down to more spending locally, meaning more pouring into state coffers from the general excise tax.

Ige’s proposal reflects some realities on the ground — and on the political landscape as well. Issues of housing and homelessness are sure to form battlelines for the primary election, and there are sizeable allocations in both.

Just to cite one example: Ige has alloted an extra $6 million to continue the state’s Housing First and Rapid Re-Housing programs, as well as $5 million for the sweeps of homeless encampments.

A $100 million cash infusion is on tap for housing, divided among funds for construction, repair and maintenance and lot development.

Neither of these priorities can be faulted, given Hawaii’s ongoing homelessness crisis, and its chronic shortage of housing, especially units priced for the lower-income groups.

The governor also seems resolute in pursuit of his promised tax modernization initiative, despite the recent upheavals in leadership at the state Department of Taxation over disputes on just that issue.

And, in fact, in an era of federal spending constraint that seems likely to follow tax reform, it makes sense to complete a project that should improve the effectiveness and efficiency of the state’s own revenue collections.

The $16.5 million in capital improvement project funds for the tax upgrades should get support at the state Capitol — as long as lawmakers are assured of better coordination between information technology and taxation staffers. A reordering of department processes is essential, but it needs to happen in a collaborative way.

Where the other priorities are being set — whether in education, infrastructure, agriculture or other concerns — a few questions should guide decisionmakers.

Can the state sustain this effort on its own, without federal help? Will this expenditure help to protect Hawaii’s social safety net, in the absence of federal funds?

The spending plans of the Trump administration and GOP leadership in Congress are not set in stone: Members of the Senate and House face an election year, too.

However, most signs now point to sharp reduction of revenue in at least the near term, with spending cuts the next imperative.

Overall, there likely will be less federal investment in social services. The private sector, those companies receiving the lion’s share of tax-cut benefits, should hear the call to be good corporate citizens, and look for opportunities to invest in their local community.

As for the local impacts of tax reform on Hawaii individuals and families: It’s acknowledged that their tax relief is not meant to be permanent, much of it expiring after 2025, but there’s some cause for hope in at least the short term.

According to the nonprofit, nonpartisan Institute on Taxation and Economic Policy, more than 598,000 of island taxpayers would receive at least some level of tax cuts. That surely will help many people with high-cost Hawaii.

For those who are not so lucky, or whose benefits are offset by losses of services, the state must look out for their interests, as well.