Hawaii tax collections turned red in April

State tax revenue appears headed for a small drop this fiscal year after a serious tumble in April, reversing prior expectations for growth.

The state Council on Revenues at a Monday meeting projected that Hawaii tax collections for the fiscal year ending June 30 will slip 1%.

The new forecast continues a weakening trend in how much money the state should have to spend in the current fiscal year.

In September, the council projected a 6.5% increase but dialed back expected growth to 5.5% at a January meeting and then to 2% in March based on updated tax collection data and evolving economic factors.

For instance, total general fund tax revenue in the six months through December had been up nearly 10% over the first half of the prior fiscal year when the council met in January.

Driving much of the new forecast for a 1% decline was actual state personal income tax collections in April falling 22.3% from the same month last year. April represents the single biggest month for such revenue given the tax filing deadline in April.

Through the first 10 months of the current fiscal year through April, personal income tax revenue was down 18.5%.

Two other major revenue sources for the state’s general fund, general excise and transient accommodations taxes, were up during the 10 months through April over the year-earlier period, rising 11.8% and 21.3%, respectively.

“The GET and TAT are mitigating the fall in income (taxes),” Seth Colby, a tax research and planning officer at the state Department of Taxation, said at the council meeting.

Corporate income tax collections also were up 32.2% in the recent 10-month period from a year earlier.

A 1% total tax revenue decline for the full fiscal year would represent about $90 million less revenue, or roughly $9.27 billion instead of $9.36 billion.

If this fiscal year ends with such a revenue decrease, it would be a relatively small one but could affect spending decisions by Gov. Josh Green.

Carl Bonham, a council member and executive director of the University of Hawaii Economic Research Organization, said during Monday’s meeting that an ongoing drop in local home sales volume running close to 40% during this fiscal year is a major factor in the income tax decline given how many people including brokers, appraisers and others work in the industry.

“A big piece of the estimated tax decline is almost certainly coming from the collapse of home sales,” he said.

The seven-member panel agreed unanimously on an expected 1% tax revenue reduction for the current fiscal year.

The council decided not to alter its previous forecast for 4% revenue growth in the 2024 fiscal year that begins July 1.

Council members discussed the prospect of a national recession during the upcoming fiscal year and, if so, then what effect it would have on the local economy.

“My question to Dr. Bonham and Dr. (Jack) Suyderhoud is are we going to have a (national) recession in ’24 — the first half of ’24,” said Kurt Kawafuchi, a former state tax director who chairs the council.

“Yes,” answered Bonham.

“Some people think we’re already in a recession,” added Suyderhoud, an emeritus UH business economics professor.

Bonham said the anticipated national recession is expected to cause only a modest slowdown for Hawaii’s economic rebound but not a local recession where the economy contracts.

Bonham said UHERO’s latest state economic forecast published Friday expects that the local economy in the 2024 calendar year will grow 4%, with about half of the gain from inflation back at a historically normal level.