I wouldn’t say I’m a total pessimist, but I’ll admit I was quick to dismiss the rosy economic forecast put out Wednesday by the Council on Revenues.
The advisory group is forecasting Hawaii state revenues will see 10 percent growth next fiscal year, which starts July 2011, followed by five years of annual 6 percent growth. (That growth refers to money in the state’s general fund, which the public fills when it pays a dozen different taxes such as the general excise tax and personal income tax.)
To put that in context, 1 percentage point translates into $46 million. So if the council’s forecast for fiscal 2012 holds true, tax revenue would grow by an additional $460 million.
Don’t get me wrong, I want to see the economy improve as quickly as anyone else. And I have nothing against the group of economists and bankers who gather quarterly to put these reports together for the state. In fact, I admire the fact that they produce these detailed forecasts while holding down full-time jobs.
My skepticism comes from a bleak report put out the same day from the Federal Reserve as well as reporting I did for a Civil Beat story in August that took a close look at the council’s forecasts over the last five years and the instantaneous impacts those projections had as the state weathered the recession.
A review by Civil Beat found that the council’s predictions are rarely on target. In three of the last five years, the council made initial forecasts that overestimated how much the state’s tax revenues would grow by nearly double.
One example: In fiscal 2009, tax revenue tumbled 9.5 percent, but the council predicted 2 percent growth over the previous year. That year, the council’s forecast for the year overestimated tax revenue by as much as $630 million.
At its Wednesday meeting, the council revised its forecast for the current fiscal year that began July 1.
The group previously had projected 6.2 percent growth for the year, but revised it downward to 2 percent growth.
Two months into the fiscal year, general fund revenue is down 22 percent compared to the same period last year. The council pegged that on the state’s decision to delay payment of $275 million in anticipated tax refunds earlier this year.
The council’s recent forecast came on the same day the Fed released the September edition of the Fed Beige Book, which painted a very different picture of the U.S. economy.
Unlike Hawaii’s Council on Revenues, the Fed said it’s seeing “widespread signs of deceleration” and used words like “sluggish,” “modest,” “weak,” “depressed” and “losing steam” in describing current economic conditions.
The nation’s gross domestic product — the broadest measure of economic activity — was revised “sharply lower” to an annual growth rate of 1.6 percent in the three months ending in June from an initial forecast of 2.4 percent growth.
The Fed warned of the possibility of a double-dip recession, citing stubbornly high unemployment, a drop in consumer spending, slowed manufacturing activity, and weak home sales among other factors.
That contrasts with the report from the Council on Revenues, which used words like “surplus,” “growth,” “increase” and “steadily improving.”
What’s with the discord? We are, after all, a part of the United States.
To be sure, the council shared numbers showing the state’s largest economic driver, the tourism industry, is posting promising tax revenue growth.
Hotel tax revenues from the transient accommodations tax, which is charged to visitors for each day they stay in hotel rooms and vacation rentals, is up 24.6 percent so far this fiscal year (the state collected $211 million in TAT revenue last year). But that could also be due in part to the 1-percentage-point increase in the tax to 9.25 percent, which took effect July 1.
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