It must be a first: This is not the time to worry because of a disagreement — instead, we should worry because of an agreement.
First up, the agreement is that we should collectively worry about how lousy the economy appears to be.
There is serious consensus that Hawaii is likely to follow the nation into a recession triggered by three things. First there are changes in the economy, then a change in the national power structure, and finally the always controversial issue of political tax policy.
According to a new Star-Advertiser report, the state’s Council on Revenues, which shapes local revenues, just unanimously decided to drop its general fund tax revenue growth forecast to 5% from a prior 6.4% in the current fiscal year ending June 30.
The state economy is like steering an ocean liner: you just don’t stop and change course. Slow and gradual is the way you move. The Council on Revenues is the ship’s bridge where the captain plots the state’s course.
So the first worry is the prediction that Hawaii’s tax collections will shrink “2.25% in the fiscal year beginning July 1,” according to the report.
“A 2.25% revenue decline would shave $226 million from what is expected to be $10 billion in general fund tax revenue this fiscal year,” according to the article by Star-Advertiser reporter Andrew Gomes.
This worry was triggered by President Donald Trump’s plans to remove federal workers from local payrolls.
Cutting jobs is never good news, especially when they are solid, stable positions such as those offered by the federal government.
This is going to hurt the amount of money to be spent in Hawaii. Observers say stopping federal program funding means fewer jobs, and that will hurt major Hawaii industries such as tourism, construction and real estate.
“By many measures, it’s the worst it’s been,” said Carl Bonham, a revenues council member and director of the University of Hawaii Economic Research Organization.
Bonham added that such a drop is rare. The last time there was such a drop, he recalled, was “during the first year of the coronavirus pandemic in 2020, and before that in 2002 after the 9/11 terror attacks.”
The second concern is that the Legislature and Gov. Josh Green just concluded a major cut in taxes. That was done to answer those who say Hawaii’s taxes are too high, but does nothing to answer the question of whether the state has enough money to operate in the face of a major economic downturn. If folks are losing jobs, should the state be looking at ways to prop up the economy or continue cutting taxes? That is a question for which the Legislature doesn’t appear to have a ready answer.
And finally are the questions about what to do regarding Trump’s calls regarding international tariffs and budget cuts.
As I write this, the Legislature is tentatively saying it would go into a special session to address whatever fallout is caused by Trump’s possible funding cuts. With massive possible layoffs in the government service sector, the future is unpredictable and mostly a new worry.
Will that money spent on tax cuts now be suddenly needed to patch up a Trump-damaged economy?
As it stands today, the questions are building and the answers are few.
Richard Borreca writes on politics on Sundays. Reach him at 808onpolitics@gmail.com.
