Coronavirus may cut state spending by $225 million

A panel of experts tasked with predicting how much the state will collect in taxes each year has dramatically scaled back its projections for next year, suggesting Hawaii will feel substantial economic pain from the worldwide coronavirus scare.

The projections approved by the state Council on Revenues Wednesday morning are critical because Gov. David Ige and state lawmakers are required to use them as the basis for the state budget.

The council slashed its projection for the fiscal year that begins July 1 from 4% growth to zero growth, predicting that state tax collections will be flat next year. That means the state will have about $225 million less to spend next year than Gov. David Ige expected when he prepared the new state budget.

Meanwhile, House Finance Committee Chairwoman Sylvia Luke said lawmakers are planning to boost state construction spending as a way of stimulating the local economy during what may be an economic downturn triggered by the COVID-19 scare.

The House last month gave preliminary approval to a construction budget that would boost total construction spending for this year and next year to $4.9 billion, including about $1.8 billion in funds that would be borrowed by issuing state general obligation bonds.

However, Luke said lawmakers have been warned the construction stimulus effort may not be as effective as it has been in the past, partly because of the impact the novel coronavirus has had on suppliers of construction materials in Asia.

“The caveat we were told is this is different from (the) response post-9/11 as materials may be in limited supply,” Luke wrote in response to questions from the Star-Advertiser.

Ige assumed when he developed his budget in December that state tax collections would grow by 4.1% to more than $7.4 billion in the fiscal year that ends June 30, which was based on the Council on Revenues projections at the time. The administration estimated tax collections would grow by 3% in the year that begins July 1, to more than $7.6 billion.

The Council on Revenues on Tuesday revised those estimates, predicting that tax collections will increase by 3.8% for the year that ends June 30, and be flat for the year that begins July 1. But council members acknowledged next year’s estimate was based on a guess at what the impact of the novel coronavirus might be.

“What matters — and we don’t have any clue on — is how long the outbreak is going to go on,” said University of Hawaii Professor of Economics Carl Bonham, who is a member of the council. Council members expect to have more information about the economic fallout from COVID-19 when they meet again to update their projections on May 28.

Until the coronavirus hit, it appeared likely the state would benefit from a hefty unbudgeted surplus this year, and Ige and state lawmakers made some ambitious plans to spend that extra money.

Ige joined lawmakers in January for a press conference to announce a bundle of bills dubbed the “Helping Working Families” package that included plans for a new state refundable earned income tax credit, and also an increase in a tax credit for lower-income households that is designed to offset the impact of the state excise tax on food.

That measure, House Bill 2541, would also increase the state minimum wage in a series of steps to $13 per hour by 2024.

The tax credits in that package are expected to cost the state about $75 million a year, and the Council on Revenues’ reduced tax collection projections announced Wednesday will make it much more difficult to find that money.

Still, Luke said last week that “right now we’re still committed to the package.”

“Regardless of what the economic response is, the most vulnerable population will be the working class and the low-income working families, so at this point in time it’s even more important for us to pass the wage (and) tax credit bill, because this is a time to really support those working families,” she said.

The House and Senate also have given preliminary approval to bills to increase the state tax credit for low-income renters and to restore adult dental benefits for an estimated 180,000 people on Medicaid.

The Medicaid dental benefit was cut from the state budget in 2009, and the renters’ tax credit — which is now $50 per person — has not been increased since 1981.

Both of those measures were proposed and then abandoned time and again in recent years, and there are many other pressing budget demands.

Laurie Field, Hawaii state director for Planned Parenthood Votes Northwest and Hawaii, has been warning state senators that her organization needs additional funding to offset the loss of federal Title X funding last year. Planned Parenthood quit the federal program in 2019 because of a Trump administration rule prohibiting clinics from referring women for abortions.

The Ige administration budgeted $1.6 million for family planning funding, but $2.4 million is needed to fully fund the program, Field wrote in an email distributed Tuesday.

“Even if our state is facing a budget shortfall, family planning is one of the best public investments the Legislature can make: every dollar spent on family planning saves $7 in future spending on health care and social services,” she wrote.