State revenues falling short
By Kevin Dayton
Advertiser Capitol Bureau Chief
Continuing fallout from the Sept. 11 terrorist attacks is being blamed for another slide in state tax collections in June, with the state closing out the fiscal year with $109 million less than was collected the year before.
Gov. Ben Cayetano said his administration is studying the impact of the weak tax collections before deciding if he will impose spending cuts in the new fiscal year that began July 1.
Lowell Kalapa, president of the Tax Foundation of Hawai'i, predicted that unless Cayetano imposes cuts, the Legislature and the new governor will be stuck with a major budget mess next year.
"If they balanced the budget for the end of the (fiscal) year 2003, $100 million is a huge vacuum to fill," Kalapa said. "So their choices are either you cut programs, or you raise taxes."
The state general treasury collected about $3.05 billion in the year ending June 30, down almost 3.5 percent from the $3.16 billion the previous year.
The state budget was based on a prediction by a panel of economists called the state Council on Revenues, which predicted that tax collections would shrink by only 0.7 percent last year as a result of the terrorist attacks.
Since each percentage point would amount to about $30 million, actual tax collections were about $84 million less than lawmakers and Cayetano expected when they approved the budgets for this year.
While the loss presents a serious problem for lawmakers, it won't be an immediate crisis because the Cayetano administration expected to close the books on June 30 with a cash balance of about $200 million.
However, at least some of that $200 million was earmarked for expected cost increases such as promised public worker raises for this year.
The state does have other pools of cash it could dip into, but it is unclear whether it will be politically possible to use the money to balance the budget.
There is more than $200 million in the Hawai'i Hurricane Relief Fund, and tens of millions more in the so-called "rainy day" fund that is financed out of the state's share of a lawsuit settlement with the tobacco companies. But lawmakers have resisted efforts to tap both funds.
"Virtually every state, including Hawai'i, is experiencing financial hardships and decreased tax revenues as a result of Sept. 11th," Cayetano said yesterday. But he said Hawai'i's economy has been recovering from the downturn faster than many anticipated, in part because of emergency measures enacted last year and tax cuts passed in previous years.
"While helpful to Hawai'i's consumers and businesses, however, the tax cuts have added to the current decline in state tax revenue," Cayetano said.
The largest decrease in tax collections for last year was in income taxes, which dropped by about $34 million for the year or about 3 percent.
While state income tax cuts enacted in 1998 certainly had an effect, tax officials said income taxes also declined as people lost their jobs or saw their work hours reduced as a result of the Sept. 11 attacks. The decline in the stock market probably also had an effect on personal income tax collections.
Excise tax collections — which are generally considered a good overall indicator of the state of the economy — declined by $28 million for the year, or about 1.5 percent.
Hotel room tax collections declined by almost $18 million for the year, or about 10 percent.
Reach Kevin Dayton at kdayton@honoluluadvertiser.com or 525-8070.
