State budget outlook
worsens as
tax revenues
plummet by 9%

Current trends would increase a
projected shortfall by $20 million

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By Bruce Dunford
Associated Press

State tax revenues took a nosedive last month, putting the take thus far in the fiscal year substantially below the forecast from a panel of economists, making it even harder for state lawmakers to balance the state budget.

February's take of $236.7 million was down 9 percent from February of last year, the Department of Taxation reported yesterday.

Through eight months of the fiscal year, the tax take of $2.106 billion is down 1.4 percent from the same period last fiscal year, twice the 0.7 percent decline forecast in January for the entire fiscal year by the state Council on Revenues.

It will meet again next week to take another look.

Based on the council's January forecast, Gov. Ben Cayetano and state lawmakers have been projecting a $330 million revenue shortfall in the two-year budget approved last year.

If the decline through February is sustained through June 30, it would put the shortfall at $350 million.

The state House has approved using $100 million from the Hawaii Hurricane Relief Fund and $103 million from a variety of special and revolving state funds, and expects a 4 percent spending cut in the next fiscal year to balance the budget, according to House Speaker Calvin Say.

The Senate, which gets the House's version of the budget in two weeks, has yet to draft a financial plan beyond a 50 percent increase in liquor taxes for $20 million and capping the hotel room tax revenues going to the Hawaii Tourism Authority to get another $10 million.

The February decline was led by a 6.2 percent drop in revenues from the general excise and use taxes, which account for about half of the total and reflect state business activity.

Tax officials said a $10.9 million decline in the "all other" tax category in February, including an $8.5 million drop in the public-service company tax revenue, can be attributed in part to monthly fluctuations in payment patterns.

Meanwhile, February saw a 22.3 percent drop in hotel room tax revenues, putting the eight-month take at 9.9 percent below the same period last year.

The declines "clearly show the effect of the economic slowdown in the wake of last September's terrorist attacks," said Tax Director Marie Okamura.

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State of Hawaii