State growth forecast upbeat
By Gordon Y.K. Pang
Advertiser Capitol Bureau
The state's cash picture appears rosier than it did in the spring, according to the state Council on Revenues forecast released yesterday.
The forecast prompted Democratic lawmakers to urge Gov. Linda Lingle to ease restrictions she made to state agencies, including the Board of Education and University of Hawai'i system.
The council, which makes forecasts that the Legislature uses to write the biennial budget, yesterday revised its growth forecast for fiscal year 2004 to 6.2 percent, up from the 5.2 percent growth it projected in May.
Each percentage point of growth represents about $30 million more in annual revenues generated for the state's general fund budget.
"It's very hopeful news for Hawai'i's economy, and we think this puts us in a better position to avoid cuts to the University of Hawai'i and the education system," said House Majority Whip Brian Schatz, D-25th (Makiki, Tantalus). "There are some severe cuts being considered, and these revenue projections should help us avoid those cuts."
House Majority Leader Scott Saiki, D-22nd (McCully, Pawa'a), was more pointed. "The council's projections show that the governor was wrong when she accused us of passing an unbalanced budget, and she is wrong to impose these severe cuts on our education system."
Lingle was on Maui and could not be reached for comment. But Georgina Kawamura, director of the Department of Budget and Finance, said the Legislature did pass an unbalanced budget, citing failure to include $45 million for Hawai'i Health Systems Corporation in its calculations.
On the issue of school spending, she said, "We asked every department, including UH and DOE, to exercise fiscal discipline in the first quarter. Every department was given the opportunity to express any concerns about this first quarter allotment. Especially in the area of education, we didn't want any of our actions to impact the opening of schools or the offering of classes at community colleges. The specific details of the spending were left to the discretion of the DOE and UH."
She also took the Legislature to task on the issue of school repair and maintenance. "If the Legislature is truly committed to strengthening our public schools, why did they cut funds for school maintenance?" Kawamura said. "The administration proposed repair and maintenance of over $120 million, but the Legislature only approved $35 million."
UH officials have said the $10 million in restrictions will hit community colleges especially hard, and could result in elimination of hundreds of classes, while the DOE has announced its 18.5 percent restriction on athletics has left $1.13 million for 44 public high schools in the first quarter. That would mean trimming sports programs at some schools and reducing the number of players who can travel interisland.
Senate President Robert Bunda, D-22nd (North Shore, Wahiawa) also urged the administration to ease up on restrictions.
"I think with this new number that we're dealing with, at least the revenues are holding," Bunda said. "Hopefully, other services along the way won't get cut."
Mike Sklarz, chairman of the Council on Revenues, said the consensus on the panel was that the construction industry is doing well and building permits are up 40 percent over a year ago. "That bodes very well, because construction is an important forecast," he said.
Additionally, Sklarz said, "total personal income has been strong, and likely will continue to be strong, and we're also expecting a moderate increase in inflation." That should improve revenues, he said, which are tied to rising prices.
"People are seeing a broadening of improvement in the economy in general," Sklarz said, "and in particular real estate and construction have been very strong."
After a talk by tax director Kurt Kawafuchi at yesterday's meeting, the council believes there will be no significant increase in tax credits taken to cut into the state's revenue base, Sklarz said.
The council's revenue projections have been watched closely by Lingle and legislators. In June, Lingle announced a 20 percent restriction on nonfixed costs for all state agencies during the first three months of the fiscal year. She cited a projected $152 million shortfall.
In response, Democratic lawmakers defended passage of their budget and accused Lingle of going overboard with restrictions, as well as of chopping $3.6 million in social services money from the so-called rainy day fund. A legislative override restored that money.
Actual tax figures show state revenues in fiscal 2003, which ended June 30, were up 4.3 percent over 2002, largely because of a prosperous June.
While Democrats said "I told you so," the governor's staff said it was too early to forecast for the coming year.
Preliminary figures for July tax revenues showed the 2004 fiscal year began with revenues down $59 million, about 21 percent. Kawafuchi again told the public not to be overly alarmed with monthly figures.
The council also projected yesterday that revenue growth in fiscal 2005, which begins July 1, 2004, will be 6.8 percent, down from May's 7.9 percent projection largely because of upward revision to the 2004 forecast, Sklarz said.
The council forecast 5.3 percent growth in 2006, 6.8 percent in 2007, 5.5 percent in 2008, 5.6 percent in 2009 and 5.4 percent in 2010.
The council will make a new series of projections when it next meets Nov. 3.
Reach Gordon Y.K. Pang at gpang@honoluluadvertiser.com or at 525-8070.
