The culprit is a sharp decline in income tax revenues, according to projections released by the Department of Taxation this morning.

Individual income tax collections dropped by 56.3 percent, or $68.5 million, in April compared with the same time last year. Corporate income tax collections also declined ­ by 36.9 percent, or $6.1 million, from April 2002.

Tax Director Kurt Kawafuchi blamed tax credits for the drop in revenues. "We've known for months that Act 221 and other uncapped tax credits turned out to be far more generous than the Legislature realized when enacting them two years ago," Kawafuchi said in a release. "If this trend continues, we expect that tax revenues will increase by only 0.7 percent for the entire fiscal year, which is about $100 million less than projected by the Council (on Revenues) just two months ago."

The council, which makes the revenue projections on which the state must base its budget, projected revenue growth of 4.3 percent for the total year. When the council meets again on Friday, it will likely revise its numbers downward to reflect today's figures. The council, as late as January, had been predicting a 6.1 percent revenue growth.

While income tax revenues are declining, the amount of general excise tax collections are up 8.7 percent from a year ago, reflecting a solid economy.

"It's a very serious situation and one that we're working on really hard right now to make certain that we maintain basic health and safety services, but it's clear that the budget the Legislature passed simply cannot be funded because the money is not going to be there," Lingle said today during her weekly radio program. The administration will be able to "manage our way through" until next year's legislative session, she said, adding that the expense of a special session can be avoided.

Lingle said it is the first time in state history that corporate income taxes have dropped this much in this length of time and blamed the high-tech tax credit law known as Act 221 for the decrease.

"We tried to highlight this problem to the Legislature, to the leaders in the House in particular," she said. "We tried to tell them that without some closing of the loopholes of the high tech tax credit, and without stopping this practice of having open-ended tax credits with no caps we wouldn't be able to control the budget because we would never know what was going to be claimed from month to month. That's exactly what's occurring right now."

The House refused to hear a bill that would have incorporated Lingle's proposed changes. House leaders said the administration overstated the revenue impact by underestimating the increased business generated by the tax credits.

"The Senate caught on in the end and they supported our suggestions and our tax office was so articulate on this matter and yet the House, I think they were just stubborn about it and just didn't want to face reality and now reality is facing us," Lingle said.