Posted on: Sunday, November 18, 2001

Economy downturn
Drop in state revenue predicted

By John Duchemin
Advertiser Staff Writer

A two-year run of increasing state revenue may come to a close if economists' predictions hold up.

Hawai'i's general-fund revenues could drop about half of 1 percent this year in the wake of the Sept. 11 attacks, the Council on Revenues predicted last week. That's because the tax collections that make up most of that revenue — including general excise tax, income tax and the transient accommodations tax — will suffer as some businesses close or go bankrupt, and others lay off staff and absorb billions of dollars in losses.

If state revenues are to suffer a decline, it would be from a relatively strong point. After years of stagnation in the mid-1990s, revenues have increased in 1999 and 2000, even when inflation is taken into account. This has happened despite a series of tax cuts, and can be attributed to the relatively strong economic growth the state has enjoyed since 1999.

That growth rate was slowing even before Sept. 11 as the Mainland economy entered a recession and Japan's already stagnant economy worsened. After five straight quarters in which inflation-adjusted revenues grew 5 to 11 percent from previous year's levels, revenues rose 4 percent in second-quarter 2001, and were up only 1.5 percent in the third quarter, which ended Sept. 30.