Tax collections tank as Hawaii lawmakers plan budget fixes to avoid public worker furloughs

State tax collections collapsed even more quickly than expected last month as tourism and much of the rest of the economy shut down in response to the new coronavirus pandemic, according to tax data released Friday.

Meanwhile, House and Senate lawmakers said they have cobbled together a $1 billion package of state budget fixes they say will make it unnecessary for Gov. David Ige to impose public worker pay cuts and furloughs next year.

Lawmakers also plan to authorize Ige to borrow billions of dollars more from the federal government to help get the state through the pandemic but predict that if the latest budget projections hold, the state won’t immediately need that money to balance the budget in the fiscal year that begins July 1.

“We’re not cutting from existing operations,” said Senate Ways and Means Committee Chairman Donovan Dela Cruz. “The whole point was so that we could avoid the furloughs and the kind of drastic cuts that were previously announced. This gives another option so we can still keep government intact, fill the puka, and gives us options for later.”

But the tax collection data released Friday suggests even the latest grim budget projections may be too optimistic.

The state Council on Revenues, a panel of experts tasked with projecting state tax collections, predicted in early March that total taxes collected in the fiscal year that ends June 30 would grow by 3.8% over last year’s collections. Their guess was that since the pandemic hit late in the fiscal year, most of the economic impact would be felt the following year.

But the April tax collection data released Friday shows collections are essentially flat, growing at just two-tenths of 1% during the first 10 months of the fiscal year as compared to last year. Each percentage-point change in tax collections amounts to about $70 million, which means the state is on track to collect about $250 million less this year than the council projected just two months ago.

Ige has said the state is confronting a budget shortfall of about $1.5 billion for this year and next year.

In a written statement released with the new tax data, Ige said that “due to the COVID-19 emergency and the actions taken in Hawaii to flatten the curve in March, we were bracing for lower tax collections in April 2020 due to the decline in economic activity.”

The state imposed a mandatory two-week quarantine on all people arriving in Hawaii effective March 23, which caused the visitor count to drop from about 30,000 arrivals per day to just a few hundred or less. That sent hotel room and excise taxes into a steep dive. The state also allowed residents to delay paying their income taxes from April 20 to July 20.

The stay-at-home order that took effect March 24 also dramatically reduced economic activity and tax collections, and “a further decline is expected to be reflected in May 2020 tax collections,” according to Ige’s statement.

Last month the governor told leaders of the public worker unions he intended to impose 20% paycuts for state employees including teachers, a plan that was immediately opposed by House Speaker Scott Saiki and Senate President Ron Kouchi.

Union leaders and other critics argue that cutting the pay of public workers would do further harm to the stricken state economy, and might even prolong the crisis.

The Legislature will return to the state Capitol on Monday to take up a package of five bills to try to prepare the state for the hard times ahead while persuading Ige that pay cuts for public workers aren’t necessary. Lawmakers say they calculate the budget shortfall is actually about $1 billion, not the $1.5 billion the governor has cited.

Dela Cruz said the plan is to amend the budget bill House Bill 2200 to scoop up $71 million that was budgeted for salaries for vacant state government positions. They expect an additional $286 million will be left unspent from this year’s budget, largely because of spending restrictions imposed by Ige.

Lawmakers also intend to substitute borrowed money for $270 million in cash that was budgeted last year for the Rental Housing Revolving Fund and work at Aloha Stadium, which will free up that money to make it available to spend on government operations, Dela Cruz said.

All that, combined with $25 million taken from the mental health and substance abuse special fund and $395 million in the state’s “rainy day” budget reserve fund, should be enough to cover the shortfall for next year, he said.

The message to the administration is, “If you need $1 billion, here’s $1 billion,” said House Finance Committee Chairwoman Sylvia Luke. “I think they just had difficulty identifying where the pots are, and we’re just doing the administration’s work in identifying” the available funding.

In one change that will be felt in the community, lawmakers customarily distribute $10 million in grants each year to nonprofits statewide, but that won’t happen this year, Dela Cruz said. Instead, Luke said Hawaii nonprofit organizations can apply for billions of dollars in federal funding that has been made available through the CARES Act.

The state has received $862 million in federal funding under the CARES Act to support state and local governments during the pandemic, and Luke said lawmakers will appropriate $80 million of that for Hawaii County, $66.5 million for Maui County and $28.7 million for Kauai County. Honolulu has already received an allocation of federal funding from the CARES Act.

Lawmakers also will use House Bill 2725 to ratchet up the state construction budget to $2.1 billion in an effort to stimulate the economy, Dela Cruz said. And they plan to amend House Bill 1631 and Senate Bill 75 authorizing Ige to borrow and spend billions of dollars in federal Municipal Liquidity Facility funds if necessary. That money must be repaid within three years.

A spokeswoman for Ige said Friday the governor had not yet seen the package proposed by lawmakers and could not comment on it.