Shortfall revised upward to $876M


POSTED: Friday, August 28, 2009

Hawaii's state revenues are slipping even more than expected.

The new economic news from the state Council on Revenues means the state now is facing a shortfall of $876 million, according to analysts with the Legislature. Previously, the state had estimated that it had a shortfall of $786 million.

Gov. Linda Lingle said that although the new revenue estimates released yesterday show the economy will pick up in 2011, the state is still facing a crisis.

“;The reality is over the next few years, the state will have substantially less money to spend. Even with projected better forecasts in FY2011 and beyond, the state's general fund revenues will not return to FY2008 pre-recession levels until FY2012,”; Lingle said in a news release.

Economists with the Council on Revenues changed the growth rate on tax collections in fiscal 2010, which ends June 30, to minus 1.5 percent from 0. They also slightly raised the growth rates for the following five years, noting that the new increase will mostly be because of inflation.





        State revenue growth by fiscal year as projected by the Council on Revenues in March and yesterday:







Both Lingle and legislative leaders said the drop in state tax collections means that the state and the public employee unions need to quickly reach agreement on a new contract that cuts costs.

Lingle said the revenue estimates translate into a cut of an extra $98 million over the next two years, while the Legislature pegged the reduction at $90 million.

“;To close the remaining budget shortfall, we will need to reduce the state's labor costs, which comprise 70 percent of our operating budget,”; Lingle said.

House Speaker Calvin Say called for the four public employee unions and Lingle to bear down on negotiations, which have been going on sporadically all summer.

“;Today's council projections hurt their side of the bargaining,”; Say said regarding the four public unions' position.

The largest union, the Hawaii Government Employees Association, declined to comment.

Say added that he did not think the Legislature would raise taxes next year to meet the shortfall because it has already raised state income taxes and the hotel room tax this year. Also, 2010 is an election year.

“;Are members going to support a 6 percent GET (general excise tax) during an election year? My answer to you is no,”; Say said.

Lingle flatly warned that “;the public also needs to re-evaluate its expectations of what services government can provide given the realities of our current budget situation.”;

After yesterday's council meeting, Chairman Paul Brewbaker said he and other economists were concerned about the state's construction industry, noting that private construction is languishing and the hoped-for increase in state and federal construction has yet to show up.

“;The federal stimulus package just fills in the pukas and doesn't really add to the recovery scenario. Our models are telling us that there is a bit more revenue far in the current fiscal year,”; Brewbaker said.