In the coming weeks Hawaii lawmakers will be wrestling with ways to cut roughly $250 million from the state’s overall budget for the next two years thanks to lower than expected general fund revenues.

The state Council on Revenues on Monday lowered its general fund growth forecast to just 2.5 percent (from 3 percent) for fiscal year 2017, which ends June 30, and adjusted it down to 4 percent (from 5 percent) for fiscal years 2018 and 2019. The council slightly increased the forecast to 4.5 percent (from 4.4 percent) for 2020 to 2023.

The panel of economists, accountants and others who meet quarterly to make their projections, which Gov. David Ige’s administration and the Legislature rely on to develop the state spending plan. General fund revenues for 2017 are now projected to come in at about $6 billion.

Council on Revenues Chair Kurt Kawafuchi discussion. 13 march2 2017
Council on Revenues Chair Kurt Kawafuchi leads the discussion Monday. Cory Lum/Civil Beat

In a rare move, two of the council’s seven members voted against the recommendation for 2017. Marilyn Niwao thought the 2.5 percent forecast was too high and Jack Suyderhoud thought it was too low.

“We’ve had a good run,” Council Chair Kurt Kawafuchi said about the economy in an interview after the nearly two-hour meeting in Honolulu. “But we’re expecting it to slow down.”

The House is expected to send its version of Ige’s proposed two-year budget to the Senate on Wednesday.

Rep. Sylvia Luke, who chairs the House Finance Committee, said she was anticipating a lowered budget forecast. Nathan Eagle/Civil Beat

The House draft, approved last week by the Finance Committee, chaired by Rep. Sylvia Luke, cut $500 million from the governor’s $28.6 billion spending proposal, nearly $15 billion of which is general funds.

“This is actually what we have expected,” Luke said in an interview at her office after the council meeting. She said her staff has been monitoring general excise tax collections over the past few months and has seen them remain flat, with overall state revenues propped up by income and hotel taxes.

But she said the “puzzling thing” is the overall strength of other economic indicators like property sales, construction permits, low unemployment levels and record tourism spending.

The council did not have answers for that, nor did Luke’s counterpart in the Senate, Jill Tokuda, who chairs the Ways and Means Committee.

“There’s a lot of head scratching going on,” Tokuda said.

Sen. Jill Tokuda, chair of the Ways and Means Committee, said lawmakers will be looking at “what’s nice to have” versus “what we need to have.” Nathan Eagle/Civil Beat

More details of the House version of the budget are expected to come out later this week when the full chamber votes on it, but Luke said the budget her committee passed trimmed $80 million by not paying down the state’s massive unfunded liability for future retirement benefits promised to public workers as fast as Ige had wanted.

She said other savings were made by nixing tens of millions of dollars that had been allocated for “innovation grants” to public schools and the Department of Business, Economic Development and Tourism.

Tokuda’s Ways and Means Committee will work on the Senate version of the bill, factoring in the council’s latest forecast, over the next few weeks. Differences between the House and Senate versions will then be hashed out by a joint conference committee later in April.

“It’s always very humbling when you find out that you have just over $250 million less to work with on your budget than you did the day before,” Tokuda said. “While I’m sure it could’ve been worse, it’s definitely going to make things a lot more challenging as we head into the preparation of the Senate version of the budget.”

Council on Revenues Chair Kurt Kawafuchi. 13 march 2017
The Council on Revenues lowered its quarterly forecast for state general fund growth Monday. Cory Lum/Civil Beat

Tokuda pointed at the looming “unknowns” that could further impact the budget over the next several weeks, particularly contracts for public worker unions that are now under negotiation.

“It is about what you can sustain going forward,” she said, explaining that lawmakers will be evaluating “what we need to have” versus “what’s nice to have.”

This was the council’s second consecutive quarterly where it downgraded its general fund growth forecast. In January, the council dropped its 5.5 percent expected growth rate for 2017 to 3 percent.

The council’s next meeting is in May, when it could adjust its forecast again.

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