Hawaii’s state budget
among those hard
hit by attacks

Many states' estimates must be
revised because less business
means less tax revenue

---

Staff and wire reports

Washington >> For every Polynesian Adventure Tours bus that drives through the front gates of Hawaii Volcanoes National Park, the state collects $200. Every adult passenger supplies $1.84 in addition to that.

So, when daily trips fell to two buses after Sept. 11 from the normal five or six, that wasn't just a problem for company President Michael Carr. It became Hawaii's problem as well.

"We're working under the assumption that anything resembling normal business won't reappear until after New Year's," said Carr, who estimates that his main business of busing corporate travelers around the islands is off 75 percent since the terrorist attacks on New York and Washington. "We've had massive cancellations, and no rebookings."

The damage to tourism, aviation and consumer spending will worsen budget shortfalls in states where a slowing economy was already causing tax revenue to slip. States such as Indiana, Michigan and Tennessee are rescinding pay raises, cutting spending or considering new taxes.

"Sept. 11 accelerated the direction that things were going," said Arturo Perez, senior policy specialist with the National Conference of State Legislatures. "Nobody could have predicted this in their budget estimates for the year."

Smaller budgets endanger more than services. Spending by state and local governments last year amounted to $1.2 trillion, or about 12 percent of U.S. gross domestic product.

Hawaii's government counts on sales-tax receipts generated by visitors for more than 25 percent of its revenue. To make up for the lost business, Gov. Ben Cayetano is proposing that the state move $213 million from its Hurricane Relief Fund and $53.5 million in tobacco-settlement receipts to an emergency fund. Cayetano also is asking legislators to borrow $1 billion for new construction to help weather the slowdown.

If tourism losses bring a 30 percent downturn for the rest of the year, as some observers predict, Hawaii could suffer layoffs exceeding 25,000, and as much as a $1 billion loss in the gross state product, according to Seiji Naya, director of the state Department of Business, Economic Development and Tourism.

Already, layoffs are running up to 20 times normal in tourism jobs, said Naya. In the two-week period following the Sept. 11 terrorist attacks, 3,607 workers in hotel and related industries filed for unemployment benefits. In the same period one year ago, there were 184 applicants.

As September sales figures trickle into budget offices, more states will probably announce spending cuts and other means of making up for lost revenue, Perez said. Among the 50 states, only Vermont isn't legally required to balance its budget.

Sales taxes make up approximately one third of revenue for most states, and account for even more in those with no or limited income taxes.

Seventeen states already had to cut spending in fiscal 2001, which ended June 30 in all but Alabama, Michigan, New York and Texas. Only Kansas reduced expenditures in fiscal 2000. More prosperous states may be able to tap savings that had been diverted to so-called rainy day funds. Others may schedule maintenance projects or shift paydays to account for them in the next fiscal year.

"There are a whole bag of tricks available to some states," Perez said.

Moves like those weren't enough to erase deficits in fiscal 1992, when the last recession created a $16.2 billion revenue shortfall for states, some of which were forced to raise taxes to make up the difference and balance their budgets.

"It's a very real possibility that state legislatures could be dealing with the largest budget gaps in a decade," Perez said.

New York alone could be facing a shortfall of between $3 billion and $9 billion over the next 18 months because of lost taxes and other revenue, state officials estimate.

Then there's the hit to states that rely on tourism dollars.

Florida Governor Jeb Bush announced a special legislative session to consider spending cuts. Before the attacks, the state faced an estimated $673 million budget shortfall. Bush has since indicated Florida may need to cut more than $1 billion in spending.

"We were devastated by the events of Sept. 11," said Michelle Harris, marketing director for Gatorland, a 52-year-old theme park about a 15-minute drive from Walt Disney World. Attendance has since picked up, helped by coupons targeting people living within a five-county radius.

That isn't an option in Hawaii, where most visitors hail from the U.S. West Coast and Japan. And visitor arrivals are down 20 percent from the mainland and even more from Japan. Last year, 5,000-6,000 Japanese tourists arrived daily. This year, inbound tourists from Japan number 3,000-4,000, according to DBEDT statistics.

And the airlines don't expect a full recovery any time soon.

Japan Airline last week cut 17 of 75 weekly flights to Hawaii through November. Hawaiian Airlines announced earlier it would cut its flight schedule by 20 percent. And Aloha has cut its interisland schedule by 25 percent.

"I'm usually an eternal optimist, but my faith has been severely shaken this time," said Carr of Polynesian Adventure Tours.