The state expects to collect about $155 million less in tax revenues than a panel of economists, accountants and others had previously projected for fiscal year 2017, which ends June 30.
The Council on Revenues updated its general fund forecast at its quarterly meeting Wednesday after two hours of debate. The discussion ranged from concerns about the effects Donald Trump’s administration may have on Hawaii’s biggest economic driver — the tourism industry — to local economic indicators such as construction activity and efforts to modernize the state Department of Taxation.
The forecast comes as state lawmakers begin a series of informational briefings this month in which the House and Senate money committees will hear the budget requests and priorities of each state department and the counties for the coming legislative session, which opens Jan. 18.
“It’s always about balancing out all the wants and needs against what we have,” said Sen. Jill Tokuda, who chairs the Ways and Means Committee.
“I would hope that this latest Council on Revenues forecast would have the effect of tempering or managing some of the expectations that some of the people may have out there in terms of what may come out of the budget,” she said.
The council lowered its general fund growth forecast for fiscal year 2017 to 3 percent from 5.5 percent. It did not change its projections for the subsequent fiscal years, 5 percent for 2018 and 4.4 percent from 2019 to 2023.
The state hauled in $5.7 billion in general fund revenues in fiscal year 2015. That increased to $6.2 billion in fiscal year 2016. Fiscal year 2017 is projected at roughly $6.5 billion.
Gov. David Ige laid out his budget priorities last month, which include state investments to grow more local food, boost public education, address homelessness and diversify the economy.
His two-year spending plan calls for $7.4 billion in general funds for 2018 and $7.5 billion for 2019.
Not included in Ige’s budget is money for any pay raises for tens of thousands of public union workers whose contracts are up next year. Negotiations have begun with all 14 collective bargaining units. A 4 percent raise across the board would cost upwards of $250 million.
Tokuda said pay raises could have a “huge impact” on the overall budget.
Competing with requests from the administration are the varying priorities of the 76 members of the Legislature. Lawmakers generally approve the overall state budget in April, a couple weeks before the session ends in early May.
“Even though the growth rate has slowed down, it’s still growing,” Council Chair Kurt Kawafuchi said after the meeting.
He said the “hearty” discussion among the council members reflects the difficulty in predicting what the economy will do.
Some members, including Carl Bonham of the University of Hawaii’s Economic Research Organization and Jack Suyderhoud, UH professor of business economics, thought a 3 percent growth rate for 2017 was conservative.
But Vice Chair Marilyn Niwao said she thinks this fiscal year will end up with about 2 percent growth.
And former Democratic Congressman Ed Case, who has agreed to serve the remaining six months left on Elizabeth Cambra’s council term, felt 3 percent was about right.
Niwao asked Case, who served on the U.S. House Budget Committee before leaving politics to work for Outrigger Hotels and Resorts, to share any insights or thoughts he may have on what a Trump presidency and Republican Congress may mean in terms of federal spending in Hawaii.
The state is expected to receive nearly $3 billion in federal funds next fiscal year, which starts July 1, a slight increase from last year.
Case said he expects military spending and the tax structure to remain the same for at least the next couple years. His biggest concern is what a protectionist Trump administration would mean for Hawaii’s visitor industry.
Case said cutting off trade with certain countries or restricting travel by foreigners would have a negative impact on tourism.
“The question for discussion is just how fast,” he said.
Bonham, who’s worried about the next president’s effects on trade and currency, said the council can parse Trump’s tweets all it wants but his plans remain murky.
“The rule of the day is uncertainty,” he said.