The latest forecast by the Council on Revenues means the state is now facing a nearly $1 billion budget gap through the 2013 budget year.
The group of economists on Thursday lowered their annual tax revenue projections for the current fiscal year to 0.5 percent growth from the 3-percent growth it had estimated in December, citing slowed revenue growth since January. That would mean $4.38 billion in tax revenue for the state’s general fund in the year ending June 30, instead of the $4.49 billion previously projected — a $109 million difference.
At the same time, the council revised upward its projection for fiscal 2012 (which begins July 1) to 11 percent growth from 10 percent. It left its 2013 projection of 6 percent growth unchanged.
By state law, what the group estimates has to be considered by the governor and lawmakers in preparing the state’s budget, which must be balanced.
The effect of the revised forecast could mean the state’s deficit would swell to about $969 million for this year and 2012 and 2013.
The totals were estimated using Gov. Neil Abercrombie‘s prior shortfall estimate of $844 million through 2013. The governor has said he based that on the council’s September 2010 forecast of 2 percent growth because he said the 3 percent estimate from December was too optimistic. Applying the council’s changes — both the lowered 2011 and increased 2012 forecasts — to Abercrombie’s $844 million figure would mean an added $128 million shortfall, or $969 million. Especially challenging could be the increase of $66 million in the year ending June 30.
Abercrombie released a statement in response to the revised forecast.
“I have presented proposals to make structural financial changes to face the ongoing economic challenges. Today’s Council on Revenues confirms my Administration’s concern that we address our fiscal crisis in a comprehensive manner. Everyone must do their share.
“We have to come to grips with how we’re going to deal with this growing deficit. It will take all of us to share in the sacrifices and make the tough decisions to get Hawaii back on the right course.”
Slowed Revenue Growth
The council pointed to slowed revenue growth and a prolonged negative effect from former Gov. Linda Lingle’s decision to delay tax refunds.
To reach their previous 3 percent target, revenue collections would have had to average $440 million a month through June. Tax revenue has instead averaged $370 million a month since August 2010.
“It’s not because we blew it,” chairman Paul Brewbaker said regarding the lowered forecast adjustment for the current year. “It’s because of slower revenue growth since December … Three (percent) was too high.”
“The economy simply wasn’t as strong as what the data was telling us,” economist Carl Bonham added. “It’s still kind of puzzling … why aren’t the tax revenues reflecting what’s clearly a very strong tourism sector?”
The council continued to blame Lingle’s decision to delay tax refunds last year for complicating their forecasts. The move — which Brewbaker referred to as “the refund shenanigan” — basically shifted revenue growth into the 2010 fiscal year at the expense of the 2011 fiscal year by withholding payment of $275 million in anticipated refunds until July 1, 2010.
“We’re less confident … because of the uncertainty of the magnitude of the effects from the refund delay,” Brewbaker said. “It’s well outside the ‘noise’ we account for.”
Still, he said the council raised its forecast for 2012 because the “economy is gaining steam” with help from the improving tourism sector — “hotels were completely full in January and February” — increased consumer spending, and an anticipated recovery of the construction industry.
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