$58 million budget trim needed

By Gordon Y.K. Pang
Advertiser Capitol Bureau

The administration of Gov. Linda Lingle and state lawmakers will need to trim about $58 million from the state's $3.5 billion general fund budget for this year, and roughly $60 million in each of the upcoming years because of revised projections made by the Council of Revenues yesterday.

Yesterday was the 32nd day of the 60-day session.

Those new numbers do not include the potential effect of a war with Iraq, which likely would lead the Council to revise its growth forecast even lower and prompt further belt-tightening moves by the administration and the Legislature.

Council members also voted to keep their forecast for the upcoming two fiscal years starting July 1 at 5.7 percent and 6 percent growth.

They said they would take a closer look at those numbers when they meet again in June. Some observers predicted the panel may have to revise its forecast for those years lower, particularly if war breaks out between the United States and Iraq.

The state is mandated to base its budget on the revenues projected by the Council.

Senate Ways and Means Chairman Brian Taniguchi, D-10th (Manoa, McCully) said the panel's projection yesterday was not good, but expected. The $58 million reduction "is probably going to have a fairly large impact on the budget," he said.

Lingle attempted to cut $40 million through a 5 percent, across-the-board reduction in all agencies, but wound up able to trim only $24 million after allowing waivers to a number of programs.

"To do almost double that amount on top of that is going to be hard," Taniguchi said. He added that after declining to use $175 million from the Hawai'i Hurricane Relief Fund as proposed by former Gov. Ben Cayetano, the Lingle administration is "already razor thin" in its carryover, the balance remaining in the general fund, at the end of the next few fiscal years, which leaves little to grab from.

Taniguchi said the next step is for the administration to submit a revised financial plan.

"I think she's going to have to take a look at changing her stance on something, whether it be on the excise tax increase, the Hurricane Relief Fund, or the rainy day fund," he said.

The Senate has passed a bill that would increase the excise tax to 4.5 percent from 4 percent, a move that would raise an additional $180 million for state coffers. Both Lingle and the House have indicated a reluctance to raise the tax.

The state could also raid special funds beyond the $30 million already proposed by Lingle, he said, although he added that he did not expect more than $20 million more could be found from that strategy.

In a statement, Lingle said the latest forecast is in line with what the administration had anticipated. "We are fine-tuning contingency plans for this situation, which we have been working on since the January numbers were released," she said. "We are confident that adjustments can be made without adversely affecting core functions or compromising public safety."

Council members said they believe the economy is doing as well as they projected. Council Chairman Mike Sklarz pointed to robust retail sales, low unemployment, a continually strong housing market and high consumer confidence numbers.

What caused Council members to drop their forecast, Sklarz said, were new numbers from their staff showing that more companies and individuals are taking advantage of recently instituted tax credits, such as those for high technology, research and construction remodeling, than initially expected.

Council members said they factored into the equation the impact of the anxiety about a war but chose not to make projections based on the effects of an actual war. Sklarz said if it happens, the Council will reconvene to take another look at the numbers.

Ernest Nishizaki, the panel's newest member and chief operating officer for Kyoya Co., which owns a number of hotels, including the Sheraton Waikiki and Royal Hawaiian, told colleagues that the anxiety over war has already had a severe effect on local tourism. "Our numbers are actually showing that we are going to be extremely down," he said.

"Some of our hotels have lost at least 10 percent of what we were doing as of a month ago. And wholesalers on the Mainland aren't calling us. ... it's already starting; our hotels are starting to drop off."

Lowell Kalapa, president of the nonprofit Tax Foundation of Hawai'i, said he thought the Council erred in not forecasting a lower projection for the upcoming two years. "Given what Nishizaki put on the table, they should have at least given second thought to changing those estimates," Kalapa said, noting that the Legislature needs to finish putting the budget together before the Council meets again at the end of May.

Kalapa said he also would have lowered the current year's outlook further as well. "I would have been a little more dour," he said.