State expects surplus to grow
The state's whopping surplus looks set to get even bigger by 2007 than the latest estimates of more than half a billion dollars.
The Council on Revenues revised its estimate for Hawaii's revenue growth for the remainder of fiscal year 2006 to 9.5 percent yesterday, up from the 8 percent predicted for in December.
However, council members say the growth for fiscal year 2007, which begins July 1, will be a bit slower, and revised their estimate for next year down to 6.5 percent from 7.5 percent.
The growth increase for the months between now and July is based in part on the expectation that recent windfalls -- such as those resulting from the state's more diligent collection of delinquent taxes -- will continue.
But members also anticipate that those infusions of revenue will not be dropping out of the sky forever, and so revised down their estimates for 2007.
"A big problem in general in recent years has been these windfalls of revenue. They've been just outsized. I mean, they're like way over the top of what anybody would have estimated. And we kind of have to assume that that won't continue," said Paul Brewbaker, chairman of the council.
A better computer system has helped the state Tax Department track down businesses and residents who have not been paying their taxes. The result was a surprise $260 million showing up in the state coffers last year and a growth rate of 16 percent by year's end -- far ahead of the council's initial projections of 5.3 percent.
A major contributor to the latest upward revision of the 2006 estimate is also the council's previous underestimation by about a half-percentage point of inflation in Honolulu, Brewbaker said.
That means members did not account for higher revenues coming into the state based on higher prices in the state.
Gov. Linda Lingle's estimate of a $574 million surplus in 2007 already accounted for the actual growth numbers being a little higher than what the council had been predicting. But the council's latest numbers would likely mean even more money would be flowing into the general fund.
Senate President Robert Bunda said the council's latest predictions underscore the need for the Legislature to implement tax reform in Hawaii. Bunda (D, Kaena-Wahiawa-Pupukea) has long been pushing for an increase to the state's standard income tax deduction and a revision of the state's income tax brackets to ease taxes on the poor and middle class.
"I think that for the Legislature it is time ... to map it out. We need something at least to help those who are actually shouldering the burden, the tax burden, of the state, and that is the middle-class people, including the working poor," he said.
However, Lowell Kalapa, president of the Tax Foundation of Hawaii, said the council might be too enthusiastic about the future.
Hotel occupancy has not been as high as hoped since the holiday season, and building construction has begun to slow down. Also, a number of hotel workers' contracts will be expiring this summer, adding some unpredictability to revenues, he said.
Brewbaker said his advice to lawmakers is to recognize that for reasons that are difficult to pin down, the forecast's margin of error has been widening in recent years.
"Lucky for them we were too low. ... You wouldn't want to wake up in July and find out that it was as big in the other direction," he said.
Among the risks to the forecast are the threat of pandemic avian flu, he said.