The state Council on Revenues yesterday lowered its revenue forecast for this fiscal year and lopped its growth estimate for next fiscal year by more than half, which could force Gov. Linda Lingle to place deeper restrictions on state spending.

The forecast for this fiscal year, which ends June 30, does not capture the full impact of the shutdown of Aloha Airlines and Molokai Ranch and other recent setbacks for the state's economy.

The council, in rare dissent, was split over whether the estimate should be lowered and voted 3-2 for a 3.3 percent growth projection, down from 3.9 percent in March. The lower forecast means about $27 million less in expected revenue for the state through June.

The council was unanimous in dropping the forecast for next fiscal year to 2.0 percent revenue growth, down from 4.1 percent in March. Combined with the lower base from the reduction for this fiscal year, the estimate removes an additional $128 million in state revenue.

Paul Brewbaker, chief economist at Bank of Hawaii and the council's chairman, said the impact from the recent job losses, declines in visitor arrivals, higher fuel costs and the subprime mortgage crisis will likely be reflected by the first part of the next fiscal year. He expects the revenue picture to get better during the second half of the fiscal year, but not enough to warrant a higher estimate.

"Mostly it's real adverse economic consequences of things that have just happened, but primarily the tourism," Brewbaker said of the significantly lower forecast.

Over the past year, the council's forecast model has projected state revenue growth higher than actual collections from the state Department of Taxation. Conversely, the model often projected lower growth when the economy was soaring. The gaps were not much of an issue when the state was enjoying solid growth, but as the economy has slowed, lawmakers have been second-guessing the council's estimates and adopted a state budget and financial plan last session that anticipated slower growth than the council predicted in March.

"The tough decisions just got tougher," said state Rep. Marcus Oshiro, D-39th (Wahiawa), chairman of the House Finance Committee.

BIGGER BUDGET

The $10.7 billion supplemental state budget for next fiscal year is higher than this year's budget but $44 million less than Lingle had requested. The House had wanted to make additional spending restrictions, citing the economy, but the Senate objected. The Senate, however, successfully fought for more spending in a $1.4 billion capital improvement project budget to help promote bond-financed construction that might help the economy.

Lingle has said that the state's modest revenue growth has put Hawai'i in a more fortunate position than many states on the Mainland. The Republican governor has been more optimistic about the economy than majority Democrats, although her administration has used the economic slowdown as justification for not releasing money approved by lawmakers for items such as public school repairs and grants-in-aid to nonprofit community groups.

"I'm hoping that the governor acknowledges the situation and works with us in what could be some tough times ahead," said state Sen. Rosalyn Baker, D-5th (W. Maui, S. Maui), chairwoman of the Senate Ways and Means Committee.

Lingle has the discretion whether to release money approved by lawmakers for state programs and will take the council's latest forecast into consideration.

"I think we have to be considering a lot of things, a hundred million dollars is not a small amount for a budget that they just passed and we're about to implement," said Georgina Kawamura, the state's budget director. "So, again, we have to just take a look at everything that's involved for next fiscal year."

State House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo Valley, Wilhelmina Rise), and state Senate President Colleen Hanabusa, D-21st (Nanakuli, Makaha), held a news conference at the state Capitol yesterday afternoon asking Lingle to release money for grants-in-aid that lawmakers had approved in the 2007 session. The money will lapse at the end of June if not released.

CASH CRUNCH

Through early May, the Lingle administration had released $2.6 million of the $10.1 million lawmakers had approved.

"This amount of money, when released, can give us a return in terms of serving the community," Hanabusa said. "We see no reason why the governor should not release these funds."

Say said community groups have been waiting almost a year and many will not get any money next fiscal year because of budget restrictions. "It is scary for the next year," he said.

Lawmakers declined to provide much new money for grants-in-aid last session because of the slowing economy and because Lingle had not released all of the money from the previous year. The Lingle administration has said the grant money would be released based on health, safety and other criteria, such as experience and results.

Kawamura said the council's latest forecast shows that the administration has to be careful about releasing money. "We have to be just very cautious, because we don't have the cash," she said.