The state's budget deficit grew by about $40 million as the Council on Revenues reduced its revenue forecast by one percentage point, predicting tax money for the 2010 fiscal year to come in about 2.5 percent lower than a year ago.

The Council had predicted in September a decrease of 1.5 percent.

But the news from yesterday's council forecast was not all gloomy.

Council members predicted a bounce back in the 2011 fiscal year, which begins July 1, based on signs that show tourism numbers and housing sales might be recovering. Revenues were predicted to grow in FY 2011 by 7.6 percent. The Council had in September predicted 6.5 percent growth in FY 2011.

The overall net effect on the current fiscal biennium is a loss of about $40 million.

“;There's a pattern of stabilization and maybe even a little bit of rehabilitation going on that sets the stage for the hard work that it's going to take to get back to economic growth in the coming calendar year or two,”; said Paul Brewbaker, council chairman.

  State Budget Council Reviews Revenues Report

 

Tax collections were worse than expected in the first three months of the fiscal year creating a lower forecast for the rest of the year.

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“;At some point you have to realize that the recession is over and you move to economic recovery, and we have to build that into the forecast scenario.”;

Actual tax revenues are lagging behind the forecast. According to the state Tax Department, collections for the first five months of the fiscal year are 6.5 percent below where they were a year ago.

Rep. Marcus Oshiro, House finance chairman, said the forecast was more optimistic than he expected.

“;It's not good, but it's not as bad as it could have been,”; said Oshiro (D, Wahiawa-Poamoho).

The Legislature already was facing a shortfall of $680 million in the current fiscal year and a $1.1 billion budget hole over the next two years.

“;That's about $720 million for this year that has to be addressed within the next eight months,”; he said. “;So the governor and the Legislature have their work cut out for them.”;

Gov. Linda Lingle's office did not immediately comment on the council's projection.

The governor is expected to deliver her supplemental budget proposal to the Legislature on Monday.

Oshiro stopped short of saying a tax increase would be needed.

“;We'll look at probably cutting some services or reducing the scope of some services and maybe looking at some other sources of revenue if we want to have those services,”; he said. “;I'm going to say at this point in time all options should be on the table.”;

Lawmakers are scheduled to call the panel before the Legislature's money committees on Jan. 5 for a briefing on the state's economic condition.

Brewbaker cautioned that lawmakers should consider the forecast to have some margin of error of perhaps one percentage point in either direction.

“;We should hope for the best but plan for the worst in a situation like this,”; he said.