Modest growth seen for Hawai'i

By Gordon Y.K. Pang
Advertiser Capitol Bureau

Top Hawai'i economists yesterday told legislators that they feel cautiously optimistic about the direction in which the state is heading, backing up the Council on Revenues' estimate that the state's income will increase by about 6 percent in the coming year.

But they also continued to raise the caveat that a major event — such as war with Iraq — could throw Hawai'i's economy out of whack.

An index of leading economic indicators put out by the Department of Business Economic Development and Tourism, which signals changes in economic activity five to 10 months in advance, has been on the rise for eight straight months, said Glenn Ifuku, head of DBEDT's Research and Economic Analysis Division.

Trends locally, nationally and internationally all suggest some growth, Ifuku said.

"The trends in unemployment claims, construction permits, the national leading (economic) index and Japanese labor income have combined to suggest a return to stronger growth in Hawai'i," he said.

And although unemployment hovered at about 4 percent, personal income continued to rise during the year, and the construction real-estate sector was healthy.

DBEDT projects that visitor arrivals will rise 6.1 percent in 2003 over last year, when tourism numbers were heavily affected by the Sept. 11 terrorist attacks.

"This will still not bring us back to our year 2000 visitor count until 2004," he said. "As a result, we are forecasting moderate levels of growth for jobs and personal income growth."

Paul Brewbaker, vice chairman of the Council on Revenues and chief economist for Bank of Hawaii, said: "Much of the forecast revenue growth expected during the current fiscal year simply represents a recovery to revenues two fiscal years ago and a return to a growth path displaced by the Sept. 11, 2001, terrorist attacks. The underlying forecast assumptions reflect expectations of moderate growth with low inflation."

Brewbaker cautioned that "the predictability of tax revenues has been undermined by a proliferation of tax rate changes, tax credits, and shifts in the structure and timing of tax payments and receipts."

Further, Brewbaker said, "geopolitical risks" such as war could throw forecasts out of balance.

Bill Boyd, a labor economist with the University of Hawai'i's Center for Labor Education and Research, said Hawai'i's economy has performed better than expected over the past year. While forecasts called for growth of less than 2 percent and unemployment in the 5 percent to 6 percent range, actual growth is about 2.5 percent and unemployment is 4 percent.

Job growth in the upcoming year will remain weak, Boyd said, "but the decline in employment should bottom out in 2003, and there will be some modest growth."

House Finance Chairman Dwight Takamine, D-1st (N. Kohala, S. Kohala, Hamakua, N. Hilo, S. Hilo), said he was more confident about the Council on Revenues' projections after hearing the economists. The projection of a 6.1 percent growth in revenues has raised skepticism in the Legislature.

Meanwhile, Gov. Linda Lingle yesterday reaffirmed that she would not use the $175 million in principal from the $184 million Hawai'i Hurricane Relief Fund to help balance the state's general fund, but noted that she would allow $9 million in interest earned in the account to be transferred.

"We'll be using the interest in that fund but leaving the fund itself intact," Lingle said during her weekly call-in hour on KHVH radio's Rick Hamada Show.

Lawmakers last year approved legislation that automatically transfers interest earned in the hurricane fund into the general fund, and Lingle would had to have introduced a new law to stop it.

Former Gov. Ben Cayetano submitted a preliminary budget last month that includes taking the $175 million from the hurricane fund. Lingle, however, made not raiding the fund a cornerstone of her campaign.

Lingle also reiterated that her staff is going through each of the state's special funds thoroughly.

"We are going to have a lot of proposals on repealing a lot of these special funds because they have no purpose," she said.