State budget needs trim as revenues contract
State lawmakers will have about $45 million less to work with as they go about crafting the supplemental budget for the current two-year budget cycle.
A look at the state Council on Revenues forecasts for fiscal year 2008, which began July 1. One percentage point equals about $45 million in state revenues.
May 21: 6 percent
Aug. 28: 5.7 percent
Jan. 9: 4.9 percent
Yesterday: 3.9 percent
Source: Council on Revenues
The Council on Revenues, the panel of economists that forecasts the amount of tax collections and other funds available for the state's operating budget, revised its forecast yesterday of economic growth to 3.9 percent in the current 2008 fiscal year, one percentage point lower than its January prediction.
That revision is likely to mean further cuts in Gov. Linda Lingle's proposed $5.4 billion supplemental budget for the state.
House lawmakers already have trimmed $67 million, about 1.3 percent, from the proposal, House Bill 2500, which is now in the Senate.
Sen. Rosalyn Baker, Senate Ways and Means Committee chairwoman, said the downward forecast was not a complete surprise.
"It's a little bit more than some of us were hoping for or anticipating, but given all of the warning signs, it's not unexpected," said Baker (D, Honokohau-Makena). "The Senate now is in the unenviable position of having to cut more out of the budget than the House did."
The House advanced the budget bill on Monday. It did not include any new spending proposals and cut the general fund operating budgets of most state departments by about 4 percent, according to the Finance Committee.
"We're going to probably have to look at a somewhat similar approach that the House took," Baker said. She added she was hopeful for cooperation from the Lingle administration "to assist the Legislature in using a scalpel on the cuts rather than a meat cleaver."
Yesterday's Council on Revenues prediction marked the third straight downward revision since the panel forecast revenue growth of 6 percent last May.
Council members were optimistic that actual tax collections, which are up about 3.1 percent through the first eight months of the fiscal year, will reach the target of 3.9 percent.
Higher inflation, driven mainly by rising oil and energy costs, along with slowdowns in job growth, tourism and residential construction projects, all have contributed to the lower forecasts, said council Chairman Paul Brewbaker.
The higher inflation has translated into consumers spending more on necessities and cutting back on "big ticket" items, such as electronics or vacations, he added.
"Consumers are having to deal with higher energy costs, higher food prices," said Brewbaker, chief economist for Bank of Hawaii. "Because those are more of the fixed part of a consumer's budget, it means the discretionary part of their budget has to contract."
The council left unchanged its forecasts for the upcoming fiscal years.
Those forecasts predict increases of 4.1 percent in 2009 and 4.9 percent in 2010. However, those increases would be on a smaller base amount, meaning the increases would not be as large as originally forecast in January.