State tax collections $60M off projection

By Kevin Dayton
Advertiser Capitol Bureau Chief

State tax collections took a steep drop last month in a development that may mean the state treasury will have about $60 million less than expected at the end of this fiscal year.

The state is projecting a cash surplus of nearly $200 million when it closes the books on this year on June 30, which means the shortfall won't trigger an immediate crisis.

But at least some of that surplus is required to protect the state's bond rating and may be needed to cover expenses such as public worker raises.

So unless tax collections pick up quickly, the cash shortage could prompt Gov. Ben Cayetano to impose new restrictions on state spending in the fiscal year that begins July 1.

Cayetano, who was traveling in South Korea last night, said through a spokeswoman that he will have to take a "hard look" at the situation when he returns.

Tax collections for May were down 15.4 percent from May 2001.

An abrupt decline in payments by taxpayers who filed their 2001 tax returns did most of the damage, causing state income tax collections for May to slide by almost $25 million from income tax collections for May 2001.

State Tax Director Marie Okamura said most of that drop in income tax collections was from smaller-than-expected tax payments made as taxpayers filed their 2001 returns.

Payments with returns last month declined by $18.6 million from the amount the state collected with returns in May 2001.

That drop in income tax payments likely reflects the loss of income for workers who were laid off or saw their hours reduced after Hawai'i tourism plunged after the Sept. 11 attacks. It also may be a reflection of stock market losses last year that reduced people's taxable incomes.

State tax officials also blamed the drop in tax collections in part on a law passed as a result of the Sept. 11 attacks that allowed many taxpayers to delay paying their payroll, excise, vacation rental, and car rental taxes by two months or more.

The new law was supposed to help businesses and individual taxpayers by putting off some their tax payments, which lawmakers hoped would be a help for people struggling to make ends meet.

But it also means the state has to wait until after the new fiscal year begins July 1 to collect money it otherwise would have collected last month and this month.

Overall, state tax collections for the 11 months ending in May were $2.85 billion, a drop of 2.6 percent from last year's collections for the same period.

The state budget for this year was drafted assuming tax collections would decline by only seven-tenths of 1 percent.

The difference between the expected decline and actual decline in tax collections means that the state is on a course to collect 2 percent less in taxes than lawmakers expected.

Each percentage point amounts to about $30 million.

General excise tax collections, which are generally seen as a good indicator of the overall economy, declined by nearly 6 percent in May from collections for May 2001.

Reach Kevin Dayton at kdayton@honoluluadvertiser.com or 525-8070.