The Hawaii Council on Revenues left its quarterly fiscal forecast for the state general fund unchanged Tuesday, opting to not speculate on whether the Legislature will raise taxes to maintain funding for Honolulu’s over-budget rail project.

The panel of local economists, accountants and business leaders voted unanimously to keep the 2.5 percent growth rate projected for fiscal 2017, which ends June 30, as well as the 4 percent growth expected in 2018 and 2019, and the 4.5 percent growth for 2020 to 2023.

Council members think part of the reason for the lower growth rate this fiscal year is higher than expected revenues in the preceding five years, which inflated the base.

State Council on Revenues Chair Kurt Kawafuchi listens to the discussion about the general-fund revenue forecast, Tuesday. Nathan Eagle/Civil Beat

At its last quarterly meeting in March, the council lowered its growth rate projection for fiscal 2017 from 3 percent to 2.5 percent after the Tax Department reported general fund revenues in the first eight months of the year came in at 1.8 percent.

Also at its March meeting, the council dropped its forecast for 2018 and 2019, to 4 percent from 5 percent. That translated to roughly $250 million less revenue for the next two years.

Council members continue to believe that revenues will come in slightly higher over the next several years, pointing mostly at strong tourism numbers.

But they were less certain as to what effect, if any, there will be on revenues if state lawmakers increase the transient accommodations tax or let Honolulu maintain its 0.5 percent surcharge on the general excise tax.

Both options were left on the table earlier this month when House Finance Chair Sylvia Luke and then-Senate Ways and Means Chair Jill Tokuda reached an impasse. The Legislature adjourned May 4 but there are rumblings of a special session to try to reach a deal, although it would be new WAM Chair Donovan Dela Cruz negotiating with Luke instead.

Luke and Dela Cruz were not immediately available for comment Tuesday afternoon.

Hawaii Council on Revenues member Ed Case. 13 march 2017
Hawaii Council on Revenues member Ed Case worries a tax hike to fund rail would be a problem for small business. Cory Lum/Civil Beat

Council on Revenues member Ed Case, the former Democratic congressman who now works in the tourism industry for Outrigger, said he guarantees there will a tax increase to fund the rail project, and that it would be a drain on small businesses.

“I see this tax hike coming,” he said.

But council member Carl Bonham, who heads the University of Hawaii’s Economic Research Organization, does not anticipate either the continuation of the GET surcharge or upping the hotel tax by a few percent to have a significant effect on the state general fund revenues. He said seeing the 21-station, 20-mile project through could actually help bring in more money.

Not wanting to guess what the Legislature would ultimately decide to do — and other economic indicators remaining steady — the council members said they would keep their projections the same and revisit them in three months at their next meeting.

Case also noted that a downturn is expected in the construction industry. But council members said it’s hard to quantify the effect that will have on the overall general fund revenues in the outlying years.

“Forecasting construction is like forecasting the stock markets — it’s something you shouldn’t do,” Bonham said.

He said he is not convinced there will be significant new building on the neighbor islands to offset the expected slowdown in the high-rise construction on Oahu.

General fund tax revenues are forecast to come in at $6.3 billion in fiscal 2017 and $6.6 billion next fiscal year. The money funds state government services ranging from education and healthcare to highways and parks.

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