Gov. David Ige and state lawmakers received some welcome news Thursday as a panel of experts that projects state tax collections revised one of its most gloomy predictions.

The state Council on Revenues now believes the state general treasury will receive about $300 million more in the next six months than the council had projected last year. That will help with the state budget crunch caused by the COVID-19 recession.

Looking further ahead, the council’s latest projections mean the state will collect about $650 million more in taxes in the two years that begin July 1, according to House Finance Committee Chairwoman Sylvia Luke.

2131 Kalakaua Avenue closed retail space due to COVID-19 pandemic.
The state Council on Revenues says Hawaii will collect $300 million more in taxes this year than previously projected. But some warn that the state economy will not suddenly snap back. Cory Lum/Civil Beat/2020

But lawmakers and the administration still have some major problems. Ige has been planning furloughs and layoffs of state workers as well as sizable cuts in other state spending for those two years, and the administration has disclosed it is considering possible tax increases.

“This does not provide enough relief, and we will still need to proceed with significant  program cuts,” Luke said in a written statement.

Senate Ways and Means Chairman Donovan Dela Cruz said that “overall it sounds like we’re in a better position than we were yesterday, but not by much.”

The Council on Revenues’ projections of tax collections form the foundation of the state budget, and are watched closely by lawmakers and the administration.

It predicted last September that general treasury tax collections would drop 11%, from $6.69 billion last fiscal year to about $5.95 billion this fiscal year. In the meeting on Thursday, council members decided they had been too pessimistic, and instead concluded collections will decline by just 6.5% this year.

More Money To Spend

That adjustment means the state will have about $300 million more to spend this year, but the council also projected a more gradual increase in tax collections in the years ahead as the state economy recovers from the recession triggered by the shutdown of Hawaii’s tourism industry.

Last year, the council projected that tax collections would increase by 8.5% in the fiscal year that begins July 1, and by 6% the following fiscal year.

But on Thursday the council tweaked that prediction, concluding that general treasury collections will increase by just 6% in the next fiscal year. The panel’s prediction for the following year was left unchanged.

Council members were concerned about conflicting trends in a recession that has had an uneven impact on businesses and people at different income levels.

Carl Bonham, a council member and executive director of the University of Hawaii Economic Research Organization, pointed out that many people have built up savings because they are dining out less, traveling less and generally spending less.

Once there are more widespread vaccinations — possibly in the second half of next year — people may be no longer afraid of going out, he said. “You’ve got all this pent up demand and accumulated savings,” he said.

Some experts also are predicting a boom next year in the economy of California, a leading domestic source of visitor traffic to Hawaii.

But Marilyn Niwao, vice chairwoman of the council, warned that the state economy will not suddenly snap back to its former glory.

“If you expect that just because tourism comes back that we’re going to bounce back to where we were before, I can tell you, a lot of restaurants, a lot of retail stores and a lot of businesses have shut down for good,” she said. “We’re not going to quite have that bounce back to the level that was there because these businesses are not around.”

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