State’s revenue Hawaii's public schools may have to reduce services, state taxes may go up and tax credits may have to be canceled because of a decision made yesterday by the state's Council on Revenues.
forecast is bleak
A $54 million yearly decline
in expected income may
take its toll on the budgetBy Richard Borreca
rborreca@starbulletin.com
The independent group of economists that comes up with an estimate for state revenue dropped the projected 6.1 percent growth rate to 4.3 percent, which will mean a loss of $54 million a year.
The drop, said Michael Sklarz, council chairman, comes not because of a problem with Hawaii's economy, but because of a series of tax credits approved by the Legislature during the past three years.
Sklarz added that war with Iraq would mean a further decline in the state economy about five to six months from now.
"We are in dire straits," Senate President Robert Bunda said after hearing the new prediction.
Bunda said Senate financial figures show that the state could be running a deficit of $106 million by the end of the next fiscal year if nothing is done.
The responsibility now rests with Gov. Linda Lingle to propose a way to balance the state budget, Bunda said.
In a news release yesterday, Lingle said the administration had anticipated the Council on Revenues projection.
"We are fine-tuning contingency plans for this situation, which we have been working on since the January numbers were released. We are confident that adjustments can be made without adversely affecting core functions or compromising public safety."
Sen. Brian Taniguchi, Ways and Means chairman, called the council's revised estimate the "first of two possible tidal waves to hit us."
The second wave of bad economic news, Taniguchi said, would be a sharp decline in tourism, something that hotelier and Council on Revenues member Ernest Nishizaki said may be occurring.
Nishizaki, chief operating officer for Kyoya Co., which owns the Sheraton hotels in Waikiki, said worries about a war with Iraq have already started to show up as a drop in bookings.
"Our central reservation office is slow, we have lost tour group bookings and April will be the worst April in a long time," Nishizaki said.
Sklarz said some of the council economists have factored some tourism decline into their economic predictions, while others are saying it is impossible to predict the effect of a war that has not yet happened.
Yesterday's reductions were only because of the state's new tax credits for investing in high-tech businesses, for residential homes repair or for hotel construction and remodeling.
"The economy has been quite good," Sklarz said.
Taniguchi said the report means that the Legislature will have to rethink the continuation of the existing tax credits, and it also does not encourage lawmakers to approve new credits.
Economists could not say, Sklarz added, what effect the tax credits had in bolstering Hawaii's economy after the terrorist attacks in New York and Washington.
"I'm not saying the credits are bad. There is an up side on the credits," Sklarz said.
Taniguchi (D, Moiliili-Manoa), however, worried that if the state had to cut the budget, it would immediately affect public schools. Officials are already asking about the budget because they need to know how many teachers to hire for next year, Taniguchi said.
The Senate is proposing raising the excise tax 12.5 percent, to 4.5 percent, and earmarking the new funds for education, but Lingle has said she disapproves of the tax increase. She is also rejecting a raid of the state hurricane fund or laying off state workers.
"We don't know how she is going to restore her financial plan," Taniguchi said.
State of Hawaii