The state will have more than $100 million less than expected to fund government programs and pay public workers over the next year, based on the Hawaii Council on Revenues’ latest forecast.

The seven members had projected 5.5 percent growth for fiscal 2015, which started July 1, but they downgraded their general fund revenue forecast to 3.5 percent after a lengthy discussion Thursday. The governor’s office and Legislature rely on the estimates to prepare the state’s overall $12 billion operating budget.

It was the fifth quarterly meeting in a row that the council has downgraded its revenue forecast. Some members suspect they will be downgrading it again at their next meeting in December.

Council Revenues Kawafuchi

Hawaii Council on Revenues Chair Kurt Kawafuchi, with pen at right, takes notes as his fellow council members listen during their meeting Thursday.

Nathan Eagle/Civil Beat

Council Vice Chair Marilyn Niwao voted in favor of the new forecast, but said earlier in the meeting that she sees revenue growth for 2015 coming in closer to 2 percent. Unlike other members, she anticipates a bigger effect on the local economy from geopolitical events, such as the ISIS actions and other terrorist turmoil in the Middle East.

Council member Carl Bonham doesn’t see world events having as much of an effect on Hawaii’s tax collections as Niwao does. 

He doesn’t see the economy growing “gangbusters,” but expects revenues to increase about 5 percent this year.

Council Chair Kurt Kawafuchi noted after the meeting that despite the decision to downgrade the forecast, the numbers still show the council is confident the economy will continue to grow.

The council — which includes university economics professors, tax experts and business people — smoothed its forecast for 2016 to 2021, agreeing to 5.5 percent growth for each of those years. The council’s June forecast for those years had ranged from 5 percent to 6.2 percent.

The state ended the 2014 fiscal year with a general fund balance of $664.8 million. In 2013, the state had an $844 million carryover.

Bonham said the inference from those figures should not be that the economy slowed, leading the state to collect less revenue than it did the previous year. He said it was more a product of one-time payments the state made. 

Council Revenues Carl Bonham

Hawaii Council on Revenues member Carl Bonham, right, addresses his colleagues.

Nathan Eagle/Civil Beat

In 2014, Hawaii replenished the hurricane relief fund with $55.5 million, paid down the state’s huge unfunded liability for retiree health care benefits with a $100 million infusion and eliminated certain general excise tax exemptions, which translated to $70 million less revenue.

Bonham noted that the average annual growth rate in Hawaii’s general fund from 1982 to 2007 was 1.5 percent.

Council member Chris Grandy gave more credence to the underlying economy though, viewing the one-time payments as something the state has a history of doing. He said he’s nervous about the construction industry and sees tourism growth as flat in the future.

Council member Kristi Maynard was concerned the council was again forecasting too high. She sees growth for 2015 coming in closer to 3 percent, particularly in light of the strengthening dollar and weakening yen.

The council’s trend of downgrading its forecast started a year ago. The council lowered its forecast in September 2013, then again at its meetings in January, March and May when the growth rate dipped below zero to negative 0.4 percent.

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