Hawaii’s economy is slowing down after a couple of turbocharged years, and that’s going to affect how much the state government has to spend.
The state Council on Revenues, a panel of tax professionals, business leaders and economists that advises the state on budget-planning, said that while the economy is still growing, increases in tax revenue are likely to be lower and slower.
After deliberating Tuesday afternoon, the panel unanimously endorsed a projection of a 3 percent increase in the state’s general fund during the last four months of fiscal year 2019, which means that state legislators will have about $80 million less to spend for this fiscal year than they had hoped.
The amount in question — $80 million — is still a small portion of the state’s operating budget of roughly $7.2 billion for fiscal year 2019. But the council’s projections are also used in setting budgets for coming years because Hawaii operates on a six-year budgeting plan.
By Tuesday night, the chairs of the two legislative budget committees — the House Finance Committee and Senate Ways and Means Committee — had already worked the latest projection into their planning.
“It’s significant but not a serious concern,” said Rep. Sylvia Luke, chair of the Finance Committee. “It’s a concern but won’t change the priorities of the Legislature.”
She said that she did not expect that it would affect, for example, the approximately $60 million being set aside for disaster relief for the Big Island. But she did say it could affect money for the Hawaii Promise program, which would provide free in-state tuition at more state colleges. (Correction: An earlier version of the story incorrectly quoted Rep. Sylvia Luke saying she believed the decrease in anticipated revenues would not affect the Hawaii Promise program.)
On the other hand, she said, she could see it having an effect on the money available in coming years for housing and homeless programs and human services.
“We could have some adjustments depending on what the big priorities are,” she said.
Ways and Means Committee Chair Sen. Donovan Dela Cruz noted that there is no immediate impact because the governor has indicated the state has a $750 million budget carryover for this year, which gives the state a buffer.
Longer term, he said, finding new revenue streams, including imposing taxes on vacation rental properties, could help counteract decreased tax growth. He said that several pieces of legislation proposed this year would add more money to the state’s coffers.
Tuesday’s projection was notably less rosy than those of recent quarters.
“Our economic growth is tapering and revenue growth is tapering,” said council member Jack Suyderhoud, professor emeritus of business economics at the University of Hawaii.
The group reached consensus around the 3 percent figure after a lively and wide-ranging discussion that included review of tax revenue figures, general excise tax reports, developments in tourism and national and international financial and economic trends.
Although they saw some reason for optimism, including record tourism, the nation’s high gross domestic product and a still-robust performance by the stock market, they also pointed to a lower-than-expected job creation rate in Hawaii and a decline this year in estimated taxes by state residents. They repeatedly stressed that economic indicators were inconsistent, which made them on balance more pessimistic than optimistic.
“Everybody is being very cautious,” said Council on Revenues Chairman Kurt Kawafuchi, a tax attorney and former state tax director.
“We take it very seriously, trying to forecast,” Kawafuchi said. “We know what’s at stake — various programs, and affecting people’s lives.”
One particular unknown in the deliberations is what effect the arrival of Southwest Airlines will have on the islands. While it is going to bring more visitors, they may be more cost-conscious than those that arrive on higher-end carriers and may spend less money once they get here.
The numbers naturally have to decline after the previous period of record growth in the state, several council members said.
In fiscal year 2018, tax revenue in the state grew 7.6 percent, fueled by record tourism, a federal tax-law change that gave some taxpayers more money and booming levels of construction.
It’s not likely that will be duplicated, according to the panel.
“Last year was a sugar high,” said Carl Bonham, a professor of economics and executive director of the University of Hawaii’s Economic Research Organization, and a council member.
The two women on the council — Marilyn Niwao, a tax lawyer from Maui, and banking executive Kristi Maynard — were more bearish about the economy.
“I see restaurants going out of business, retail suffering because of the internet … I think we’re not going to find a pot of gold here,” Niwao said in initially urging that the forecast be set lower than 3 percent.
Her views were echoed by Maynard: “The more I think about it, the lower my number is going,” she said.
But Suyderhoud, Bonham and economic analyst Christopher Grandy viewed the state’s fiscal prospects more positively.
“I think there’s more underlying strength in the economy,” said Suyderhoud after the meeting.
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