EDITORIAL
Yellow caution light still on for economy

There shouldn't be any major sighs of relief at the Capitol following word from the Council on Revenues that tax collections for the current year should be up a healthy 6.1 percent.

The number looks good on paper. But in truth, the state's economy remains relatively flat and should stay that way for some time to come.

As lawmakers and the new Lingle administration sit down to write a budget, they should keep to the conservative side of estimates and projections. In other words, it should focus on budget growth that is in line with real economic growth, not technical increases in tax collections.

And real economic growth for the year will be around 2.5 percent, according to the Council on Revenues. That 6.1 percent projection for growth in tax collections reflects a number of technical factors that do not signal the health of the actual economy:

• This year's growth is against last year's fairly dismal post-Sept. 11 performance by the economy.
• Annualized tax collections for the first six months are running about 4.4 percent ahead of last year. The actual performance of the economy during the second six months is expected to be about the same, but technical factors are expected to drive up collections to close to 6 percent over the second half.

That's a long way of saying the projection does not reflect an economic turnaround, but rather more of the same.

A further reason for caution by budget-writers is that there are factors beyond our control that quite possibly will impact the Hawai'i economy. The most immediate is the possibility of war with Iraq, which would drive up oil prices, depress travel and take free-spending military personnel away from home.

All this is not to suggest that we begin this year on an economic note of doom and gloom. Hawai'i's economy is fundamentally sound and is facing modest but real growth.

It is that cautious scenario that should drive budget policy during the 2003 session.