Hawaii economy
resilient, study says

The state is weathering a national
downturn better than others

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Staff and wire reports

Hawaii's state government was not hit as hard as many on the mainland by the onset of the current economic malaise, according to a report released yesterday.

Nationwide, income weakened, spending rose, budget gaps increased and savings shrunk in fiscal 2000-01, according to an assessment of state finances by the National Conference of State Legislatures.

It reviewed the budgets of 46 states for the fiscal year that, for most, ended in June and the current year that began in July. Massachusetts, New York and North Carolina had not passed budgets in time for the report, and Tennessee's budget remains unresolved.

The immediate financial future promises to be even tighter, although the group concluded states were doing a good job of managing the shortfall.

Hawaii, in particular, seemed to be weathering the downturn better than most, according to Arturo Perez, a conference senior policy analyst and co-author of the study.

"Hawaii is above average, it's done very well," he said. "It seems to come into (economic cycles) later."

The group's annual review also found states continued to cut taxes despite the worries.

Hawaii, for example, was noted for continuing a three-year easing of parts of the excise tax and a phased-in reduction in the personal income tax rate, though the latter faced a repeal campaign during this legislative session.

As the fiscal year ended in 2000, budget surpluses were the states' biggest financial headaches, the study noted. Autumn brought the first signs of weakness, with poor holiday sales taxes in the winter and revenues clearly sliding by February.

By midyear, budget shortfalls were a problem for more than a third of the states. Nine states slashed budgets, from $121 million cut in Kentucky to a 6.2 percent reduction in Alabama's education trust fund.

The economy made balancing the states' 2001-02 budgets difficult, too, as 20 states had to either tap reserves, cut spending, increase taxes or delay purchases.

"This is a stark contrast to past years," said Perez. "For many years, states had the ability to do it all -- tax cuts, spending increases, teacher and employee pay increases."

In the fiscal year that ended in June, states' spending was up 9.1 percent but revenue grew only 4.5 percent.

But not all the states were in the red, the report found. Increased energy prices helped the economies of Texas, Oklahoma and New Mexico. New York and Connecticut fared better than their neighbors.

Twenty-two states reported end-of-year budget surpluses, and the review found that overall, states "are managing the current economic situation rather well ... cushioned by healthy but diminishing reserves."

Hawaii used a portion of its surplus to provide a high-tech business tax credit and exempt aircraft leases from the general excise tax.

The Aloha State ended the year with a balance of 11.2 percent of spending, one of 36 to close above the 5 percent level recommended by Wall Street analysts and one of only a dozen above 10 percent.

The state is projecting a balance of 7.4 percent at the close of this fiscal year, according to the report.

While the situation is becoming tougher, it is nowhere near as bleak as the recession of the early 1990s, when overall surpluses were down to 1 percent and some states had run out of reserves, said Perez.