The state Council on Revenues yesterday slightly scaled back its tax revenue collection forecast for the next two fiscal years, leading some state lawmakers to warn of potential budget cuts next session.

The forecast was downgraded from 6 percent to 5.7 percent this fiscal year, or about a $12 million decline in revenue. The decline is compounded by the fact that the state began the fiscal year in July with a lower base because final revenues for last fiscal year came in below projections. The council lowered its forecast for the 2009 fiscal year from 4.1 percent down to 3.8 percent.

Paul Brewbaker, chief economist at Bank of Hawaii and chairman of the council, said the lower forecast was influenced in part by the income-tax and low-income tax credits approved by the state Legislature, along with a broader economic slowdown.

Kurt Kawafuchi, the state's tax director, said the state's economy remains healthy but that the council was right to be cautious. Kawafuchi said state tax revenue collections for July, the first month of the fiscal year, were up 25.7 percent from the previous year, which was promising.

"I don't think people need to be alarmed at this point but we need to be cautious," Kawafuchi said.

Gov. Linda Lingle, who also has stressed the overall health of the economy, has warned state departments that her administration would be tighter about releasing money this year because of the expected economic slowdown.

Some economists, and a few state lawmakers, have questioned whether the Lingle administration has downplayed the economic slowdown.

State lawmakers had been concerned near the end of last session about the impact of a slowdown on state spending, which was confirmed when the council in May lowered its forecast for the last fiscal year. When the books closed, even that number came up short.

State Sen. Shan Tsutsui, D-4th (Kahului), vice chairman of the Senate Ways and Means Committee, said the administration and the Legislature should be forthright about telling people that state money already approved by the Legislature may not be released or that spending may be cut next session.

Reach Derrick DePledge at ddepledge@honoluluadvertiser.com.