Economic
downturn fails to
dampen optimism

Economists believe financial
windfalls will offset lost taxes

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By Richard Borreca
rborreca@starbulletin.com

A group of the state's top economists continues to have faith in Hawaii's economy despite a downturn expected in the first half of the coming fiscal year.

Michael Sklarz, chairman of the state's Council on Revenues, said yesterday that the council changed the predicted growth rate to 4.1 percent from 5.1 percent, but the reduction was to accommodate a change in state taxes.

Each percentage point of change amounts to about $30 million in the general treasury, according to calculations by legislative staff.

The Council on Revenues met yesterday to issue its September forecast for state taxes.

The unpaid seven-member council was set up under the state Constitution in 1978 to make quarterly tax revenue projections.

State officials use the figures to plan the state budget for the coming year.

The change in state taxes stems from a lawsuit filed by former Big Island Mayor Steve Yamashiro.

The Legislature shared the state's utility tax with the four counties this spring after Yamashiro sued the state, saying the tax on utilities amounted to gas, phone and electric companies paying property tax, and property taxes belonged to the counties.

The change means that $30 million a year in taxes that had gone to the state now goes to the counties, which lowers the state's estimated tax collections by 1 percent.

Some panel members said they expect the downturn to be offset by the federal income tax rebates, one-time increases in federal cost-of-living adjustments, as well as windfall profits from the recent sale of BancWest to BNP Paribas.

The sale was valued at $2.45 billion, and council members said money from that deal could result in windfall tax collections from local bank employees.

At the same time, Bank of Hawaii economist Paul Brewbaker said the "issue is whether Hawaii can get through this fall with what looks like some revenue loss."

Brewbaker said the national economic slowdown, coupled with the international economic problems, will take its toll on the local economy.

However, he thinks the federal tax rebates and the on-time federal cost-of-living adjustments should help keep local revenues afloat.