State of Hawaii

State tax revenues
drop $88 mil
below projection

Further budget cuts may be
needed to make up the shortfall

By Pat Omandam and Richard Borreca

Tax revenues paid to the state over the past year plummeted $88 million more than projected, prompting the Cayetano administration to see if further budget cuts are needed to make up the shortfall.

It is the biggest drop in projected tax revenue since 1995.

"Today's news is a clear reminder that we must continue to closely watch the way we spend these taxpayer dollars and be judicious in the way we give new tax breaks," Gov. Ben Cayetano said yesterday.


State Tax Department figures released yesterday for fiscal 2002, which ended June 30, showed tax revenue was down $33.3 million last month compared with June 2001. Last month's decline brought the total drop in tax revenue during the fiscal year to $109 million, or 3.5 percent behind the previous fiscal year's total.

The state Council on Revenues had projected fiscal 2002 tax revenue would decrease by just 0.7 percent, or about $21 million, from the previous year.

Since the state budget is based largely on the council's projections, state officials must find ways to make up the $88 million difference.

Already, the state Department of Budget and Finance is analyzing the new revenue figures and its impact on the state's financial plan before the governor decides if further budget restrictions are necessary.

State tax officials said the last time projected revenue figures fell this short was in fiscal year 1995, when revenue fell 1.1 percent, or about $30.3 million more than expected.

Yesterday's release showed that state general excise tax collection was down nearly $28 million, or 1.7 percent, from the previous year. The state's hotel room tax fell $19.5 million, or 11 percent, behind the fiscal 2001 figure.

Cayetano said every state is experiencing financial hardships and decreased tax revenue as a result of the Sept. 11 terrorist attacks. But, he said, Hawaii's economy was recovering quicker because of emergency measures enacted after Sept. 11 and the ongoing tax reforms in place over the past six years.

Galen Fox, House minority leader, said the attack's impact on air travel was three times as bad as the Persian Gulf conflict.

"Sept. 11 was a really serious event in Hawaii, no sense in minimizing it," said Fox (R, Waikiki), an economist. "The hit was direct, immediate and severe."

Other legislators were equally shocked to hear state finances had dropped so much below what had been predicted.

Just three months ago, the Legislature finished the budget, saying in its committee report that "that the worst is behind us." That budget, which has been cut $315 million, "will balance the state's revenues and expenditures for the present until the expected upswing of the state's economy in the upcoming years," the Legislature said.

Now tax collections have not matched the expectations of either the Legislature or the Council on Revenues.

"I didn't expect it to be that much of a drop," said Senate President Robert Bunda. He urged Cayetano to hold the line in state spending.

"Spending restrictions is the key option," Bunda (D, Wahiawa) said.

Sen. Brian Taniguchi, Ways and Means Committee chairman, said the drop in taxes can probably be handled within the budget, but next year "is going to be tight."

"I think it can be done without going to the point of adjusting the entire financial plan," said Taniguchi (D, Manoa).

Senate Vice President Colleen Hanabusa (D, Waianae) said the state must do more, including stimulating the economy with tax incentives to encourage construction.

Hanabusa has filed a state Supreme Court challenge to Cayetano's veto of the $75 million tax credit for hotel and aquarium development at Ko Olina.

"The governor is looking at watching tax credit, but we should think about creative ways to boost the economic base," Hanabusa said.

Bunda agrees with the tax encouragement plan, noting that the state has already passed a number of bills to encourage development and construction.

Senate Minority Leader Sam Slom (R, Hawaii Kai) called the drop in tax collections "significant" and added that the Legislature had done little to help the economy.

"Everybody has been talking about things getting back to normal; that just isn't true," he said. "We have not done the things to get the state turned around, and it is going to take another administration to get things right."

State of Hawaii

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