State revenue growth
is likely to slow

The official estimate is 6 percent, far below
the 16 percent jump seen in fiscal 2005

Hawaii's soaring economy will remain strong, but revenue growth will level out before the end of the fiscal year in June, according to the state Council on Revenues.

A slower visitor count and construction market will mean slower growth. Revenue still will gain about 6 percent, the council said yesterday in its first projection for the fiscal year.

The actual growth rate for fiscal 2005, which ended June 30, was an unusually high 16 percent, said Jack Suyderhoud, council vice chairman, who called it "really not a sustainable rate of growth."

But 6 percent is still a respectable rate, council members said.

With economic expansion beginning in the late 1990s, the state needs to face the prospect of reaching an economic peak, said Paul Brewbaker, council chairman.

Slower visitor numbers are the logical consequence of Hawaii's hotel rooms already closing in on capacity. And housing values will reach a ceiling at some point, after which construction will begin to slacken, Brewbaker predicted.

Part of last year's huge growth rate can be attributed to a handful of unforeseen factors, he said:

» An extra $40 million dollars showed up in the state's coffers in fiscal 2005 instead of 2006 because of a new law that changed the schedule for some businesses to pay withholding taxes on wages.

» In fiscal 2005 the state launched a campaign to pursue delinquent taxpayers more vigorously, which brought in more cash.

The council, a panel of economic experts appointed by the governor and Legislature, has the task of predicting how much tax revenue the state will have to spend.

Last year's high growth -- and the council's failure to predict it -- has led some members to question the accuracy of the model they use to calculate growth.

In its initial forecast, the council had predicted a growth rate of 8.8 percent for fiscal 2005. That was later raised to more than 14 percent and ended up at 16 percent.

There are "maybe as many as four percentage points that reflect the fact that there's a possibility that our modeling can't quite keep up with the actual revenue growth," Brewbaker said, noting that members plan to meet to look over the council's models.

Some council members voiced concerns that the current forecast of 6 percent might again be too low.

But the council could not justify boosting the number, given the risks that the economy faces, he said. The high price of gas and oil could leave people with less money for non-energy needs, increase airline fares and affect the economy long after prices go down -- if they do.

Hurricane Katrina is a much smaller threat to Hawaii's economy -- and could even redirect a few tourists to the islands, Brewbaker said.

Lowell Kalapa, president of the nonprofit Tax Foundation of Hawaii, said he felt the council was undervaluing the impact of oil prices and the hurricane on Hawaii.

High oil prices could drive up the cost of goods, as well as the price of a trip to Hawaii, he said. "I'm not quite encouraged," he said.