Remember the green shoots of economic recovery, back in the years following the Great Recession of 2009? That grass soon filled in nicely, but now the lawn is starting to look brown around the edges.
While there’s no need to panic, it is time for Hawaii’s leadership to exercise fiscal caution.
The tourism numbers are stronger, and the advent of Southwest Airlines’ service to the islands means they’ll likely continue that upward trend.
However, the tax streams filling state coffers have sputtered a bit, so it’s not smart to kick back carelessly. The state Council on Revenues, which guides state lawmakers in crafting a balanced budget, on Tuesday lowered its estimate for how much the state will collect. Projected revenues for the year are down by about $81 million.
State Rep. Sylvia Luke, who chairs the House Finance Committee, acknowledged that the revised projections convey a reason for concern. Fortunately for the short-term planning, the carryover balance from the end of this fiscal year should be able to fill the gap, she added.
But it’s not the short term that should worry legislators: It’s overcommitting the taxpayer to ongoing costs into the future, especially when that future is starting to look a bit murky.
It is gratifying to see that there has been some anticipation of trouble downstream, making accommodations easier. Gov. David Ige last year asserted that tax revenues would be “uncertain going forward.” Although revenues are still rising, he assumed only a 3.5 percent increase for his budget.
Among the warning signs Ige undoubtedly is watching is the drop in visitor spending despite an increase in the tourist census.
Figures for January, released Feb. 28 by the Hawaii Tourism Authority, show a 3 percent uptick in arrivals but a nearly 4 percent drop in spending, compared with the same month last year. It’s true that the early months of 2018 were superheated, so a relative drop this year seems magnified, said HTA President and CEO Chris Tatum.
But there is a trend underlying spending statistics: More visitors are coming “on the cheap,” staying in vacation rentals, shopping and dining less lavishly than a resort-district tourist typically would — a pattern likely to persist.
There are two predictable paths for legislators to follow: Raising more revenue and spending less.
On that first track, some holes could be plugged, retaining more tax dollars for this state. For example, legislation to disallow the real estate investment trust (REIT) deduction for dividends paid are still alive (Senate Bill 301 and House Bill 475); this change should be given serious consideration.
Or, new sources could be tapped: Taxing online retailers for sales made in Hawaii (SB 495) is another idea whose time has come.
Increases to the general excise tax, however, should be avoided, as this tax is broad-based and compounds costs through the economy, hurting the low-income taxpayer disproportionately.
As for spending, lawmakers should be cautious about expanding the size of government. Adding staff positions should be done only if essential, as these incur not only salaries but future liabilities for retirement and health-care benefits.
Of necessary spending, repairing infrastructure rises to the top of the list. Hawaii’s recently earned low ratings for its physical plant, underscoring the need for such a critical investment. For the moment, fixing what we have should take priority over starting new projects.
Yes, 2018 might have been a fluke — storms and eruptions did not lay out the welcome mat for tourists. Perhaps the slight economic dip is a one-off — but the state needs to plan as if it’s a sign of things to come.