July sees 21 percent fall in tax revenues
By Gordon Y.K. Pang
Advertiser Capitol Bureau
A drop of about $59 million, or 20.6 percent, in state revenues this July from last July should be monitored, but not cause alarm, said state Tax Director Kurt Kawafuchi.
The state took in $227.4 million last month, the first month of the 2003-04 fiscal year. That's in contrast to the $286.3 million the state received in the first month of the past fiscal year.
But about half of that drop, roughly $30 million, was because June 30, 2002, fell on a Sunday. That meant that the July 2002 numbers were inflated — what's known as the "weekend effect," Kawafuchi said.
Also as a result of the so-called "weekend effect," transient accommodations tax collections dropped $4.7 million from a year ago.
Kawafuchi said the public should not read too much into monthly numbers. "Monthly revenues are very volatile," he said, noting that June 2003 numbers were up 62 percent over the previous June. "But then in July, it's gone down 20 percent."
One month's revenues cannot be used as a forecast for what the entire year's revenues will be. "It's too soon," he said.
Republican Gov. Linda Lingle and Democratic legislative leaders have sparred publicly about the revenue picture in recent months.
Lingle instituted statewide budget restrictions after declaring a $152 million shortfall in May following the latest projections by the Council on Revenues, which makes the revenue forecasts on which the state budget is based.
But when the June tax revenues showed a 62 percent surge from June 2002, thus allowing the fiscal year to end 4.3 percent ahead of the previous year, House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo, Wilhelmina Rise), and Senate President Robert Bunda, D-22nd (North Shore, Wahiawa), said Lingle had overreacted the previous month.
Yesterday's figures showed the largest percentage drop in July came in the area of corporate income taxes, where more money is going out than coming into the state treasury. The category collected $1.8 million in July 2002 only to give out $2 million this July due to tax credits, refunds and decreases in estimated revenues.
"We're still trying to get a better handle on our shrinking income-tax base," Kawafuchi said. Part of the decrease is because of corporations reducing their payments by taking advantage of the Act 221 research and technology tax credits, he said, but exactly how much is unclear. Other tax credits may also be factors, such as the residential-development tax credit, he said.
Kawafuchi believes he will be able to get a better breakdown sometime early next year, after those corporations that have filed for extensions turn in their returns and the Tax Department has a chance to evaluate the numbers.
He said yesterday's figures showed "some positive indicators." General excise and payroll tax revenues appear steady, he said, while construction and tourism are "doing pretty good," he said.
"It's not a positive sign when it drops 20.6 percent, but it's only one month," he said. "I don't think we want to jump to any kind of conclusions and say we're alarmed about anything yet. However, if the trend continues for several more months, then we'll start to get more and more concerned."
The Council on Revenues is expected to make its next projections in September. It should have August numbers available for review by then, Kawafuchi said.
Reach Gordon Y.K. Pang at gpang@honoluluadvertiser.com or at 525-8070.
