Tax revenue shortfall expected
| • | Bills that are alive, or failing, at the Capitol |
| • | Chart (opens in new window): How state revenue forecasts differed from actual revenues |
By Gordon Y.K. Pang
Advertiser Capitol Bureau
Updated projections expected Thursday from the state Council on Revenues could leave lawmakers and budget analysts with the grim task of finding an estimated $60 million this year and $120 million in the next two years to balance the state's budget.
That could mean another, deeper round of cuts in state programs, higher taxes or both.
It is the job of the seven-member council to forecast the state's tax collections that lawmakers are bound to use as a guide in preparing a balanced budget. The last projection was that state coffers would grow by 6.1 percent for fiscal 2003, which ends June 30.
But state leaders from Gov. Linda Lingle to House Speaker Calvin Say, backed by numbers issued last week by the Tax Department, are predicting the council will revise its growth projection downward to about 4 percent.
A memo issued to top lawmakers last week by Deputy Taxation Director Kurt Kawafuji said his department is now looking at a 4.1 percent growth rate.
The Cayetano administration turned in its budget in December based on the 6.1 percent estimate, as did the Lingle administration in recent weeks.
The state collects just over $3 billion annually in tax revenues, and 2 percent translates to about $60 million less in anticipated revenue.
Seeking new cuts to the budget won't be easy. Lingle's refusal to use $175 million in the Hawai'i Hurricane Relief Fund, which Cayetano wanted to use, means Budget Director Georgina Kawamura already has had to cut programs. The most notable are across-the-board restrictions on all administrative agencies. The education and social service sectors are raising strong objections.
The Senate, in anticipation of the lower revenue forecast and the prospect of war with Iraq, last week moved out a bill that would raise the general excise tax by 0.5 percentage point to 4.5 percent, a plan estimated to take in about $80 million more annually, in large part to bolster education programs.
But Lingle and House leaders do not appear ready to embrace a tax hike.
"There are two things that I feel . . . we won't be discussing and that's the Hurricane Relief Fund or any employee layoffs," Lingle told The Advertiser last week.
She did not rule out a tax increase entirely, but said she would not support such a move for new proposals. She added, quickly, however: "I don't think it's necessary unless ... you're looking at new spending. I believe we could do it without raising taxes."
The governor said she will meet with Senate Ways and Means Chairman Brian Taniguchi, D-10th (Manoa, McCully), this week to begin looking at solutions to the problem.
"We'll probably have some scenarios to offer at that time," she said. That could entail delaying some of her own initiatives and she noted that both houses had already rejected her plan to hand over revenues from unadjudicated traffic fines to the counties. "There's an extra $4 million," she said.
Say, D-20th (St. Louis Heights, Palolo, Wilhelmina Rise), said he's skeptical there will be enough House support for a tax increase and suggested the House won't look at it seriously unless Lingle is willing as well.
House Finance Chairman Dwight Takamine, D-1st (N. Hilo, Hamakua, N. Kohala), said: "It's a real dilemma we're in. There are services that are important, such as education, there are social services which are also important. Yet, knowing that war is looming (and) the kind of impact that will have on the people of Hawai'i, do we impose any further burdens at a time when people could be losing their jobs?"
Council of Revenues chairman Mike Sklarz and longtime member Paul Brewbaker would not speculate on what their projections will show come Thursday's meeting.
Sklarz said Lingle's widely reported 4.1 percent prediction is "probably a good guess."
While growth in the first five months of the current year, through November 2002, were slow, it took a strong turn upward in December that led in part to the council's decision in January to maintain the 6.1 percent projection it had first given in September.
Also in January, it was still not clear whether the United States would invade Iraq. "Now we know it's probably more likely that there's going to be some kind of action," Sklarz said.
On the other hand, he said, signs from January that were more positive are still evident, such as a continually strong real estate market, low interest rates, increasing rents and high retail sales.
Lowell Kalapa, president of the nonprofit Tax Foundation of Hawai'i, thought the forecast was too optimistic, but he added that he understood where the council was coming from.
"I think almost all of us were hoping that the economy would turn around because it's been over 10 years," he said.
Besides geopolitical issues such as Sept. 11 and the tensions in the Gulf, there are new tax laws that went into effect in recent years, which have effects that are hard to quantify, Sklarz said. "You do your best in trying to incorporate these effects."
Reach Gordon Y.K. Pang at gpang@honoluluadvertiser.com or 525-8070.
