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The Honolulu Advertiser
Posted on: Saturday, September 3, 2005

Revenues council projects 6% increase

By Tara Godvin
Associated Press

Lowell Kalapa

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LEARN MORE:

Council on Revenues: www.hawaii.gov /tax/a9_1cor.htm
State Department of Taxation: www.hawaii.gov/tax

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Hawai'i's soaring economy will remain strong but revenue growth will level out a bit before the end of the fiscal year in June 2006, according to the state Council on Revenues.

A slower visitor count and construction market will mean slower growth. But revenue still will gain about 6 percent, the council said yesterday in its first projection for the fiscal year.

The actual growth rate for fiscal 2005, which ended June 30, was an unusually high 16 percent, said Jack Suyderhoud, council vice-chairman, who called that "really not a sustainable rate of growth."

Meanwhile, 6 percent is still a respectable rate, council members said.

Had that figure been mentioned at a meeting five years ago, people would have been jumping up and down, Suyderhoud said.

With economic expansion dating back to the late 1990s, the state needs to face the prospect of reaching an economic peak, said Paul Brewbaker, chairman of the council.

Slower visitor numbers are the logical consequence of Hawai'i's hotel rooms already closing in on capacity. And housing values will at some point reach a ceiling, after which construction will begin to slacken, Brewbaker predicted.

Part of last year's huge growth rate can be attributed to a handful of unforeseen factors, he said:

  • An extra $40 million dollars showed up in the state's coffers in fiscal 2005 instead of 2006 because of a new law that changed the schedule for some businesses to pay withholding taxes on wages.

  • In fiscal 2005 the state launched a campaign to more vigorously pursue delinquent taxpayers, which brought in even more cash.

  • Last year's high growth — and the council's failure to predict it — have also caused some members to question the accuracy of the model they use to calculate growth.

    In its initial forecast for the year, the council had predicted a growth rate of 8.8 percent for fiscal 2005. That was later raised to more than 14 percent and ended up at 16 percent.

    There are "maybe as many as four percentage points that reflect the fact that there's a possibility that our modeling can't quite keep up with the actual revenue growth," Brewbaker said, noting that members plan to meet to look over the council's models.

    Some council members voiced concerns that the present forecast of 6 percent may be again too low.

    But the council could not find a valid enough reason to boost its number, particularly given the risks that the economy faces, he said

    The high prices of gas and oil could leave people with less money for nonenergy needs, increase airline fares and affect the economy long after prices go down — if they do.

    Hurricane Katrina, however, is a much smaller threat to Hawai'i's economy — and may even redirect a few tourists to the Islands, he said.

    Lowell Kalapa, president of the nonprofit Tax Foundation of Hawai'i, said he felt the council was undervaluing the effect of both oil prices and the hurricane on Hawai'i.

    High oil prices could have the power to drive up the cost of goods — as well as the price of a trip to Hawai'i, he said.

    "I'm not quite encouraged," he said.

    State Budget Director Georgina Kawamura said she also feared that the forecast might be high, given escalating oil prices and the still unknown effects of the hurricane on Hawai'i and the nation.

    "I'm just a conservative person I guess," she said.

    Senate Ways and Means Chairman Brian Taniguchi, D-10th (Manoa, McCully), called the council's forecast good news, but continued a call for caution in state spending.

    "My druthers would be to take care of basic needs," he said, including education and agriculture at the top of his list.

    Tax breaks, however, will likely be a little further down the line, he said.