As 2010 dawns, so does an election year with the state's top prize in play for the first time in eight years.

But candidates will be vying to take over a downsized state government facing a billion-dollar-plus budget hole that might be balanced off the backs of the counties.

The state's fiscal condition is likely to dominate headlines in the coming year.

Already facing a $720 million shortfall that has to be made up in the next six months, revenues could get worse once the effects are felt from the loss of big-ticket events such as the Pro Bowl and the LPGA's SBS Open. The shortfall for the next fiscal year that starts July 1 is projected to be another $510 million.

Gov. Linda Lingle already has proposed a scoop of the state's hotel room tax money — taking it away from the counties and using it to plug the budget hole. The proposal has backers in the Legislature, including House Speaker Calvin Say.

The counties fought hard to keep the money last year. In such dire economic times, the fight will be harder in 2010.

Hotel room tax collections — known as the transient accommodations tax, or TAT — are estimated to be $99.4 million in the coming fiscal year.

Economist Paul Brewbaker notes counties have relied on the TAT money — even though it is not set in law that they are to receive any of those funds — rather than take the politically unpopular move of raising taxes. The TAT grab by the state could change that.

“;The problem for county governments is that through the years they have reduced residential property tax rates, making them ever more dependent on revenue-sharing schemes with the state,”; Brewbaker said in response to an e-mail.

Aside from potential tax hikes are proposed cuts.

Lawmakers at the state and county levels already are talking about the need to define “;essential”; services and cut programs that are unaffordable in such lean times.

Against that backdrop will be a political race by candidates likely to pledge they know how to get the state out of its financial mess.

To date, the only two declared major candidates for governor are U.S. Rep. Neil Abercrombie on the Democratic side and Lt. Gov. James “;Duke”; Aiona Jr. for the Republicans.

Honolulu Mayor Mufi Hannemann has set up an exploratory committee for the office and is widely expected to join the race against Abercrombie in the Democratic primary.

Once the Democratic race is set, veteran University of Hawaii political scientist Neal Milner says to keep an eye on Aiona.

“;Even though there's not going to be a serious primary for him, it's going to be interesting to see how he steps up and tries to become more visible,”; Milner said.

Although Aiona may have expanded the socially conservative voting base through his stand against gay marriage and civil unions, “;he's got a problem on his hands because a Republican always starts at a disadvantage because of the voting habits here,”; Milner said.

Meanwhile, for Oahu residents, 2010 also is expected to bring the first shovel of dirt on the city's rail mass transit system.

Hannemann says he still aims to break ground at the end of the month. The project still awaits the completion of a final environmental impact statement — which is in the state's hands — and then a formal record of decision from the federal government.