The state Council on Revenues on Tuesday lowered the state’s revenue forecast for this fiscal year, expressing some doubt about the rate of Hawaii’s economic growth.
The council projected 3.3 percent revenue growth for fiscal year 2014, down from 4.1 percent in September, an estimated $43 million loss to the state. The council was unusually divided — the vote was 4-3 — because some members wanted to drop the forecast even lower, given signs that the economy is slowing.
"I think the council ultimately agreed that it looks like the economy is still doing pretty well," said Kurt Kawafuchi, the council’s chairman, who preferred a lower forecast.
The council voted unanimously to keep the projection of 7.4 percent revenue growth for fiscal year 2015, when construction is expected to accelerate.
State revenues are down 0.6 percent through November compared with last fiscal year, mostly due to accounting quirks related to replenishing the state’s hurricane relief fund and making county surcharge payments to Honolulu.
Economists and tax experts on the council believe the economy is still growing, but not at the same pace as earlier in the recovery. Tourism, in particular, has cooled after an impressive rebound from the recession.
Christopher Grandy, a University of Hawaii at Manoa economist who serves on the council, said the council has consistently underforecast the rate of revenue growth during the recovery, just as it had missed the extent of the decline during the recession. He defended the 3.3 percent growth projection when others argued for a further downgrade.
"I think, by its nature, forecasting is somewhat myopic. So we’re trying to look at past data and then take into account what we know about what’s happening now and make a guess about where we’re going," Grandy said. "But it’s awfully hard to catch the turning points."
The lower revenue projection was anticipated by state House and Senate leaders who have said they will cautiously weigh Gov. Neil Abercrombie’s requests for new state spending. The governor has proposed a $12.2 billion supplemental budget for fiscal year 2015, up $283.8 million, or 2.4 percent.
Lawmakers and the governor use the council’s forecasts as guides when drafting the budget.
The state closed the past fiscal year with a record $844 million surplus, but lawmakers are cautious about new spending because of the state’s unfunded liabilities in the public-worker health care and pension funds and relatively small emergency cash reserves. Lawmakers do not want to leave the state financially vulnerable to the next economic decline.
"When we are getting ready to prepare for the budget and session, this is what we’ve been kind of hinting at," said Rep. Sylvia Luke (D, Punchbowl-Pauoa-Nuuanu), chairwoman of the House Finance Committee, which is preparing the House draft of the budget. "The economic growth is not going to last forever."
Sen. David Ige (D, Pearl Harbor-Pearl City-Aiea), chairman of the Senate Ways and Means Committee, said the estimated $43 million loss from the council’s lower revenue projection is actually bigger than it appears because it lowers the base budget, compounding over the state’s six-year financial plan.
"It does seem like the growth in the economy is tapering, so I did think that the council’s projections were too optimistic," Ige said of the September forecast. "So I think (the new forecast) is in line with what my sense is."
