Panel forecasts 6 percent growth in tax revenues
By Gordon Y.K. Pang
Advertiser Capitol Bureau
A state panel of economists is continuing to forecast a 6.1 percent growth in tax revenues through June 30, good news for Gov. Linda Lingle and the Legislature as they tread through a perplexing budget year.
Some experts, however, believe the forecast yesterday by the Council on Revenues is overly optimistic with the possibility of a war with Iraq and other ominous signs over the horizon.
The council is charged with coming up with the forecasts for taxes flowing into the state coffers. It is from those forecasts that the administration and state Legislature predicate how much is in their biennial budget.
The 6.1 percent growth translates to an estimated $185 million more in taxes this year than last year, when $3,048,530,000 was collected.
The council also voted to stick to its September forecast of between 5 percent and 6 percent annual growth through fiscal year 2009.
The administration had been pinning its hopes on an optimistic forecast. Not only are fixed costs on the rise, but Lingle has vowed to return $175 million that former Gov. Ben Cayetano shifted from the Hurricane Relief Fund. She has also proposed a series of other initiatives that would put a dent in state coffers.
Monthly revenue "seems to be on track for what our forecast is," said Mike Sklarz, chairman of the Council on Revenues.
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Lingle's state Budget Director Georgina Kawamura yesterday said her agency, in preparing revisions to the budget by Cayetano, has been working under the assumption that there would be no change in the forecast.
State Budget Director Georgina Kawamura said her agency assumed the 6 percent growth forecast would not change.
Kawamura noted that the administration has already tried to rein in the budget through cost-cutting measures including a 5 percent, across-the-board cut on non-essential money for all stage agencies and a freeze in non-essential hiring.
Kawamura said other initiatives will be announced Tuesday when she goes before the Legislature for the first time.
Meanwhile, Sklarz said after yesterday's meeting, the economy also appears to be moving forward. "Some of the things that seem to be positive are record real estate sales activity, very decent retail sales, decent tourism numbers and a seemingly improved degree of confidence in the overall economy."
The council agreed to a caveat to return for an emergency session if the United States goes to war with Iraq or some other "unforeseen political events."
As for the council's optimism for 5 percent to 6 percent growth over the next two years, Sklarz called it "nothing outrageously optimistic" based on a minimum of 2.5 percent economic growth and 2.5 percent inflation. Still, he cautioned, the council may need to revisit those numbers in the future, possibly at its next meeting March 13.
One positive weather vane is housing sales and rental prices, which make up about 30 percent of the Consumer Price Index, Sklarz said. "Clearly, those numbers are going up quite significantly so that should start rippling into the system over the next several years," he said.
Others were dubious about the council's forecast.
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"I'm very skeptical," said House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo, Wilhelmina Rise). With revenue growth nearly flat during the first part of the fiscal year, "we've got to come up with double-digit growth in the coming months if we're going to come up with the 6 percent."
House Speaker Calvin Say said he was "very skeptical" to the 6 percent growth forecast.
Say cited the tensions with Iraq and growing problems with the airline industry. He said House officials are already looking at transferring money from "every alternative possible," including special and evolving funds. "I want to be optimistic, but when you look across the country, a lot of states are in a budget deficit," he said.
Lowell Kalapa, president of the Tax Foundation of Hawai'i, said he also has a hard time with the council's optimism. "I think they're making a lot of assumptions ... in order to get to where they think they're going to be," he said.
"I think they are discounting, without real seriousness, the possibility of going to war and the fact that we are probably going to be affected."
He noted that during the 1991 Persian Gulf War, Hawai'i armed services personnel were called up, leaving a void in spending. Additionally, he said, the possibility of war could mean a lot of potential visitors to the state will stay home.
Reach Gordon Y.K. Pang at gpang@honoluluadvertiser.com or at 525-8070.
