Expansion seen
for Hawaii economy

An isle economist says that
the state's stagnation has ended

By Bruce Dunford
Associated Press

Several of the state's top economists are telling lawmakers the same story: Hawaii's economy is improving.

In fact, Paul Brewbaker of Bank of Hawaii said yesterday, the economic recovery from nearly a decade of stagnation has ended and the economy is now poised to enter an expansion mode. Now is the time for businesses to think of investing and expanding, he said.

"If you think that the recovery is going to drag on for another couple of years and you sort of sit back and wait to do something to capitalize on it, you run the risk at this juncture of missing out on it," Brewbaker told the state Senate Ways and Means Committee.

The economists were uniform in response when Sen. Brian Taniguchi, D-Manoa-Moiliili-McCully-Pawaa, posed the possibility of reducing some of the income tax cuts approved in 1998.

That would be a "bad idea" and undermine efforts to get new investments in Hawaii, the economists agreed.

"This would be a very dangerous thing to do," Brewbaker said. "You would be reneging on a commitment" and damaging the credibility of the state for any future long-range policy.

While Brewbaker, state economist Pearl Iboshi and labor economist Lawrence Boyd forecast slow but steady economic growth, Tax Foundation of Hawaii President Lowell Kalapa sounded a note of caution.

A lack of consumer confidence could mean that an anticipated increase in Japanese visitors will not necessarily result in the same level of spending as before, he said.

"While arrivals may creep back to the previous levels, the profile of that visitor will be dramatically different from those Hawaii knew in the early part of this decade," Kalapa said.

He also cautioned not to use recent growth in tax revenues over the same period last year as a gauge of the state's economic growth.

While the first phase of state income tax rate cuts took effect Jan. 1, 1999, it's uncertain how many taxpayers adjusted their withholding to the lower rate, he said.

That means state refunds to taxpayers this spring could wipe out the revenue gains thus far, Kalapa said.

"It sounds as if our economy has turned around, bottomed out and is on the way back, revenue is on the upswing, personal income is on the upswing," said Sen. Andy Levin, D-Kau-South Kona, co-chairman of the Ways and Means Committee.

As for the possibly of repealing tax cuts to increase state revenues, Levin said "going back on commitments that have already been made in terms of tax cuts would send a very negative message." Iboshi said the highlights of Hawaii's economic recovery have been Maui and Kauai, where construction activity and job growth outdistanced the rest of the state last year.