Brighter fiscal picture no huge breakthrough

In a break with recent history, the Legislature that convenes at the state Capitol later this month will be greeted with less-than-dismal economic news.

For most of the past decade, the numbers facing lawmakers have been grim. The state’s economy has been in a slump and tax revenues have represented that fact. No growth in tax revenue means no growth in the budget; in fact, it means cuts because fixed costs continue to rise no matter how the state economy has performed.

This year, the picture is slightly better. The state has seen tax revenue collections running ahead of projections. And the official word from the state Department of Business, Economic Development and Tourism is for another year of modest but steady growth in the Island economy.

This brings stability and a greater sense of opportunity to the Legislature.

In addition to those modest numbers, there are signs that the national economy may get at least a temporary jump-start as the result of the unexpected decision yesterday by the Federal Reserve to cut interest rates by half a percentage point.

That sent a jolt of enthusiasm through the national stock markets.

All of this "good" news is, however, relative. It adds up to a sign of modest optimism after a period of relatively unrelieved pessimism. It is not a sign that the economy — in Hawai‘i or nationally — has completely turned around or is set for another boom.

That should add up to a cautionary thought as lawmakers sit down to write the new state budget. The uptick allows greater room for the budget to do what it has to do; it hardly opens the door for everything lawmakers and the public would like it to do.

In fact, the local recovery might be seen as a direct result of the fiscal restraint the state has imposed over the past several years. Lids on state spending and a series of tax cuts (the latest personal income tax reduction just went into effect) probably had about as much to do with our tentative recovery as did any systemic change in our economic structure.

The 2001 session, then, should be a season of further government reform, further streamlining and modernization of our regulatory and tax structure and further exploration of new, sustainable economic options for Hawai‘i.

If, in the end, there is a little extra cash, the place to put it is obvious:

Education.

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