$50m less in tax revenues predicted

Tourism, consumer slumps drop tax outlook

Fewer tourists and tightfisted consumers mean state tax revenues will be about $50 million less than expected in fiscal year 2009, which began July 1, top economists predict.

The Council on Revenues, a group of local economists that projects the state's tax intake, revised its forecast downward. The group's projections are used by the state government to plan spending for its fiscal year. Yesterday's council prediction likely means more cost-cutting for state agencies.

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By B.J. Reyes
bjreyes@starbulletin.com

Just one month into Hawaii's 2009 fiscal year, a slump in tourism and consumer spending has economists predicting about $50 million less in state tax revenues.

Lower predictions

Here is a look at the most recent forecast for the 2009 fiscal year by the state Council on Revenues. Gov. Linda Lingle asked the council to reconsider its May forecast two months ahead of schedule. One percentage point equals about $50 million in state tax revenue.

May forecast

FY 2009: 2 percent growth

FY 2010: 4.4 percent growth

July forecast

FY 2009: 1 percent growth

FY 2010: 4 percent growth

Yesterday, two months ahead of schedule, the state Council on Revenues revised its forecast for the 2009 fiscal year, predicting 1 percent growth, down from its 2 percent forecast in May.

Council members typically meet every quarter to consider the revenue forecast -- which sets the monetary base for government spending -- and its next meeting is scheduled for September.

The early meeting was convened at the behest of Gov. Linda Lingle, who two weeks ago asked the council to reconsider its May forecast because of lower-than-expected collections for the 2008 fiscal year that ended June 30.

According to the Tax Department, state revenues for fiscal year 2008 came in at $4.6 billion -- a record amount that was $55 million higher than the previous fiscal year, but roughly $100 million less than the council had predicted in May.

"In light of this development, I am requesting that the council provide updated dollar revenue estimates with particular attention to the projected revenues for FY 2009 through FY 2011. ... The timing is important for our budget preparation purposes," Lingle wrote in her letter to the council dated July 14.

Council Chairman Paul Brewbaker said the early reconsideration was rare, but not unreasonable.

"She sees the same thing we're all seeing," Brewbaker said. "She's seeing the compression on the tourism side. She's seeing the broadening effects of the housing crunch, the credit crunch, and she's obviously seeing the revenues."

Brewbaker said most council members were surprised by the drop-off in revenues at the tail end of the last fiscal year.

"There's been a pattern the last couple fiscal years -- maybe two or three now -- where positive surprises occurred at the end of the fiscal year," he said. "I have to say it's a bit of a mystery right now as to why this year it went the other way.

"It probably has to do with the same set of economic circumstances to which we can make reference and make sense of."

Council members cited two main reasons for the slowing of the economy: fewer tourists and less consumer spending.

The Hawaii Tourism Authority this week reported visitor arrivals for June had dropped 14.2 percent from a year ago.

Brewbaker and others said they were surprised at the attention being paid to the tourism slowdown only now, when passenger arrivals have been showing signs of significant slowdown since April.

"It's a significant compression in tourism that seems to be dragging on now," he said.

The other part of the slowdown is due to lower collections of the general excise tax as a result of a "consumer entrenchment," Brewbaker said.

"It's not going out as much, it's taking lunch to work," he said. "It's a whole pattern of behavioral shifts -- riding the bus more often, making fewer car trips, carpooling, everything."

Council members also revised the forecast for fiscal year 2010 downward to 4 percent, from 4.4 percent.

The downward forecast could mean less money for state agencies and programs.

This year's Legislature was forced to withhold millions traditionally set aside for grants-in-aid to support nonprofit groups.

The Lingle administration already has imposed 4 percent budget restrictions on nonessential spending for all state agencies on top of cuts imposed by the Legislature.

Lingle also has told departments to find ways of conserving energy, noting that she has no plans to seek emergency funds next year for utility costs. This past session, the administration requested and received $1 million in emergency funds for electric bills and other utility costs.