Panel predicts budget shortfall won't worsen

By Kevin Dayton
Advertiser Capitol Bureau Chief

The state economy is bouncing back as expected, meaning the state budget shortfall probably won't get any worse, a panel of economists concluded yesterday.

The state Council on Revenues, which is charged with predicting state tax collections each year, decided to stick with its prediction that state tax collections for the current fiscal year will be about one-half of 1 percent less than last year's collections.

The council also declined to change its prediction that tax collections will increase by more than 5 percent in the year that begins July 1.

Michael Sklarz, chairman of the council, said the state economy seems to be rebounding from the Sept. 11 attacks quicker than expected.

"All the indicators we're watching are actually ahead of schedule based on our forecast from last fall," Sklarz said. "Visitor arrivals continue to actually come in better, real estate activity continues quite strong, construction is holding up, personal income seems to be doing well, and the job situation after a sharp fall last fall seems to have stabilized.

"The real test will be in the next few months to see if we get the rebound that we think we will."

Before Sept. 11, the council predicted state tax collections would grow by about 4.1 percent this year and the budget for the current fiscal year was based on that prediction. After the attacks, the council adjusted that forecast to predict tax collections would actually decline this year by seven-tenths of 1 percent.

That meant state government would have about $150 million less this year and next year than lawmakers had expected when they drafted the budget, for a total budget shortfall of about $300 million over the two years.

To cope with that shortfall, Gov. Ben Cayetano has proposed a combination of budget cuts, and increase in liquor taxes and spending the $213 million in the Hawai'i Hurricane Relief Fund.

Republicans and some Democrats in the Legislature oppose that plan because they want to preserve the hurricane fund.

However, House members have proposed spending $100 million from the hurricane fund, and lawmakers are also considering raising tobacco taxes and some fees to help balance the budget.

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