A weakening economy and economic uncertainty could mean the state sees slower tax revenue growth in the coming years.

The Council on Revenues, a group of tax professionals, business leaders and economists, lowered expected tax revenue growth for the state in 2021 and 2022 to 3%, according to council members. While the projection is just one percentage point down from previous projections  and would still generate more than $7 billion a year, it could make a difference for state lawmakers who write the budget.

Those numbers are just forecasts and could change, said University of Hawaii economics professor and council member Carl Bonham.

Council on Revenues Member Carl Bonham.
Council on Revenues member Carl Bonham, at right in a March meeting, anticipates Hawaii’s slowing economy will impact state tax revenues. Cory Lum/Civil Beat

The fiscal news was rosier for the immediate future, with the council adjusting projected tax revenues upward each quarter. The latest bump was fueled by an unexpected increase in income tax revenue from some of Hawaii’s highest earners.

The council projects modest growth of 4.1% over the next fiscal year, a figure that lawmakers and state departments will use in their preliminary budget planning.

Growth is expected to slow over the next year and dip in 2021 and 2022.

“There’s a lot of uncertainty,” Marilyn Niwao, council member and Maui accountant, said. “Future storm clouds and uncertainty remain on the horizon.”

That includes an overdue recession, which the council thinks might happen in that two-year time period, slowing state revenue, according to Niwao. The council also worries about drops in tourism spending from a recession as well as possible impacts from the U.S.-China trade war.

And while the Legislature passed a number of tax increases in its most recent session, they didn’t have a significant impact on revenue projections, Bonham said.

Those bills included a tax on hotel resort fees, expected to bring in $10 million annually, as well as taxes on products bought over the internet and on real estate valued at more than $10 million.

Much of the tax legislation that generated revenue for big ticket items like elder care programs, Big Island disaster relief and infrastructure were offset by tax credits also passed last session, Bonham said.

One of those bills, which Gov. David Ige allowed to become law without his signature, increases the annual tax credit cap for the film industry from $35 million a year to $50 million a year.

“Bottom line was, really, when you aggregate up the impacts across the various bills, they come out to a very small number,” Bonham said.

The council is expected to meet in January to adjust its forecasts for 2020 and the years after. Niwao says she hopes the state continues to shore up tax compliance and makes sure revenues are being collected to help ease the slowdown.

“It’s about making sure everyone pays their fair share,” she said. “To the extent compliance measures are being made, we can mitigate the downturn in the economy, I’m hoping.”

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