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Lower oil prices, a strong construction market and a thriving tourism industry prompted the Hawaii Council on Revenues to slightly upgrade its fiscal forecast for the state Thursday.
The seven-member group of businessmen, accountants and economists voted to increase its forecast for the current fiscal year by 1 percent, which translates to roughly $55.7 million in additional general fund revenue.
“The council is, overall, optimistic,” Chair Kurt Kawafuchi said after the meeting.
The forecast was increased from 4.5 percent to 5.5 percent for 2015. The council kept its previous quarterly forecast of 5.5 percent for the next three years but dropped its projections a half percent for the three years thereafter.
Hawaii lawmakers rely on the multi-year forecast in shaping the state budget for the coming biennium.
The House Finance Committee, chaired by Rep. Sylvia Luke, passed its version of the overall state budget Wednesday, trimming $226.6 million off Gov. David Ige’s proposed spending plan for the next two years. And the administration’s budget request was $300 million less than what departments sought.
The House draft proposes spending $6.5 billion in general funds, $12.7 billion in all means of financing for fiscal 2016, which starts July 1. For 2017, the House draft calls for $6.8 billion in general funds, $13.1 billion through all means of financing.
The budget bill is expected to go to the full House for its approval on Wednesday before crossing over to the Senate for its consideration. Final details will be hashed out in conference committee, most likely in late April.
Luke said she wants to keep a “fiscally prudent” budget and avoid the temptation to use the extra revenue to fund new programs or other government services, especially since the state is continuing to spend more money than it takes in.
Until that pattern is reversed — something not expected until 2018, according to the administration’s financial plan — Luke said the responsible thing for lawmakers to do is use the additional money from the rosier economic outlook to narrow the gap between revenues and expenditures.
“As long as we’re overspending what we’re taking in, it’s problematic,” she said. “We’re cutting into our savings account.”
The state has depended on its $844 million carryover balance from 2013 to balance the current biennium budget and intends to dig into it even more over the next two years.
The bulk of the expenses come from contract agreements with public-worker unions and debt service. Combined, those costs for the coming biennium are estimated to total $905 million.
Sen. Sam Slom, the Senate’s lone Republican, cautioned against increased state spending in light of the optimistic forecast, which translates to $191.4 million in anticipated revenues to the general fund for the next two years.
“The question that needs to be asked is, ‘Where are we in the business cycle?’ If we are closing in on an economic downturn, it is problematic,” he said in a statement Thursday evening. “A low cash balance can also negatively affect our state bond rating.”
Senate Minority budget director Paul Harleman said the Government Financial Officers Association recommends that states maintain at least 15 percent of general fund revenues in cash reserves, which includes any surplus, the Emergency Budget and Reserve Fund and the Hurricane Relief Fund. Currently, he said, Hawaii has about 10 percent in cash reserves.
One of the ways the state is looking to bring in additional revenue is modernizing the tax collection system, which Ige has said could result in “hundreds of millions of dollars” coming in.
Part of the effort to improve tax collections is clamping down on fraud.
Ed Beal, a returns classifying officer in the Department of Taxation, told the Council on Revenues that as of the end of February the state is about $89 million behind this year compared to last.
As a result, the department is delaying refunds to more carefully scrutinize the returns. It’s resulted in refunds going out about a month slower than last year, he said.
“The magnitude of the fraud is much larger than it was in previous years,” Beal said, noting most of the fraud is identity theft.
Fraudulent returns are doubling each year, he said after the meeting. But in the grand scheme of things, it only amounts to a “rounding error” worth of impact to the overall state budget.