Economic forecast darkens for state
POSTED: Thursday, October 30, 2008
State lawmakers are facing an additional $75 million budget shortfall after the state Council on Revenues again revised yesterday its economic forecast for the current fiscal year.
State Fortunes decline
A look at the state Council on Revenues forecast for the 2009 fiscal year. The council is required to make a forecast every quarter, but Gov. Linda Lingle and the Legislature had asked for interim forecasts in July and this month, respectively. (Note: One percentage point equals about $50 million.)
The $75 million shortfall is on top of a $155 million deficit forecast just two months ago.
Gov. Linda Lingle already had imposed a 4 percent restriction on nonessential state spending and said her administration is looking at all departments to find more areas to trim.
"We are currently in the process of reviewing plans by each department to reduce their discretionary spending further by 10, 15 and 20 percent, and we will be reaching out to the groups that could be impacted by these reductions to get their input," Lingle said yesterday in a written statement.
In addition to the cuts that would be needed for the current 2009 fiscal year, Lingle's office had projected a budget deficit approaching $900 million by June 2010 if more cuts were not made.
Senate President Colleen Hanabusa said she believes the budget for the next biennium - which Lingle is required to submit in December - likely will include $1 billion less than what the Legislature approved this past session.
No one has speculated on whether state jobs would be cut.
"I do not want people to be afraid of what this all means," Hanabusa (D, Nanakuli-Makua) said yesterday. "However, I think people should be very cautious as to what it could mean.
"For those who are employees of the state, they need to check with their respective departments as to what and how these additional cuts are going to affect them."
The council predicted yesterday that state revenues for the 2009 fiscal year, which ends June 30, would be 0.5 percent less than last year.
The council's forecast has steadily declined since March, when state revenues were projected to grow by 4.1 percent.
House Speaker Calvin Say said he could not remember any previous time when the council had made a negative prediction of revenue.
He said lawmakers would try to work with the Lingle administration to identify other ways to save money - such as limiting tax credits or transferring special funds to the general fund. Lingle has been a staunch opponent of raiding emergency sources such as the Hawaii Hurricane Relief Fund, with an estimated balance of $180 million.
"The concern is basically for the welfare of our residents in the state of Hawaii," said Say (D, St. Louis Heights-Wilhelmina Rise-Palolo Valley).
The Council on Revenues, a panel of top state economists, sets the quarterly forecast for tax revenues that Lingle and the Legislature use for crafting the state's biennial budget.
Council members debated whether to make a negative revenue prediction, noting the volatility of financial conditions throughout the world.
"There are both positive and negative uncertainties, and it's not entirely clear which ones dominate," said Council Chairman Paul Brewbaker, chief economist for Bank of Hawaii. "We think, based on the information we have right now, the downward revision in the revenue forecast is appropriate."
The lower forecast was based primarily on a decline in tourism that is expected to continue through at least the first three months of the new year.
Brewbaker noted that yesterday's forecast came two months ahead of schedule at the request of the Legislature. Lingle also had asked the council to issue an interim forecast in July, in between the regular reporting dates of May and September.
Come January, when the council is scheduled to issue its next regular general fund forecast, Brewbaker said it expects to have a better handle on global economic conditions.
"When things are unfolding as quickly as they have been in the financial markets, it's hard to sort of benchmark it," he said. "We're looking forward to a two- to three-month period prior to the legislative session before we'll revisit the forecast and look at economic data that we're hoping will have settled down by then."