A huge dose of federal funding from what will likely be quick passage of the American Rescue Plan Act will wipe out most of what was once a scary state budget shortfall, according to U.S. Sen. Brian Schatz.

Schatz also predicted the latest pandemic relief bill will help grow the state economy more rapidly, and should allow state government to emerge from the next two years “if not totally unscathed, then certainly in much better shape than we were all worried about.”

“There’s two ways to look at this federal spending. One is, it will prevent layoffs and furloughs and plug the budget hole, but it’s also in raw dollars enough money to make a macroeconomic difference,” Schatz said.

Senator Brian Schatz takes questions during his town hall meeting.
Sen. Brian Schatz at a town hall meeting in 2019. The new federal pandemic aid bill will pump at least $6.1 billion into the state economy, including $1.6 billion to shore up the state budget, he said. Cory Lum/Civil Beat

In another bit of good news, a state panel of experts predicted Monday the accelerating tourism recovery will help deliver hundreds of millions of dollars in extra tax collections to the state treasury in the years ahead.

Schatz calculates the new federal legislation will pump at least $6.1 billion into the state economy, including $1.6 billion that will be delivered directly to the state to help balance the state budget.

The U.S. House likely will vote on the American Rescue bill as soon as Wednesday, and President Joe Biden is expected to quickly sign the measure.

For Hawaii, which has been battered by the pandemic, the stakes are huge. Gov. David Ige said in December that the state faces a $1.4 billion budget shortfall for each of the next two years, although the situation has improved considerably since then.

A new federal aid bill signed into law in December by former President Trump helped to ease the state budget crisis somewhat, and updated state tax collection projections in January suggested the collapse in state tax collections would not be quite as bad as Ige had expected.

Schatz said in an interview Monday the new pandemic aid bill will have a profound impact on the state’s budget problems.

“This bill is designed to get us all the way through,” Schatz said. “We don’t anticipate passing another relief package because this is an enormous amount of direct aid to the people of Hawaii and the state of Hawaii.”

Among its many other features, the bill includes an estimated $1.7 billion in direct payments to Hawaii residents in the form of $1,400 cash payments per adult, and an additional $1,400 per dependent.

The American Rescue Plan Act will provide many millions of dollars more in loans and grants to small businesses and non-profit organizations under the Paycheck Protection Program, and also create a new program to provide grants to restaurants and bars to allow the businesses to recoup up to $10 million in losses from the pandemic.

The pandemic relief bill is crucial to lawmakers’ deliberations this year on the state budget, and House Finance Committee Chairwoman Sylvia Luke said in a written statement Monday that “the federal relief bill will provide the needed funds for critical services.”

In some other good news for the state budget, the state Council on Revenues on Monday predicted that the drop off in state tax collections this year will not be nearly as steep as it projected just two months ago.

The council is tasked with projecting state tax collections for the years ahead, and had predicted in January that tax collections for the year ending June 30 would drop by 6.5%. However, on Monday the council revised that estimate, predicting that tax collections would decline by just 2.5%.

Luke said that new projection means the state will collect about $250 million more in taxes than lawmakers had expected at the start of session.

The council also revised its projections for the two years beginning July 1, and Luke estimated those changes mean the state is on track to collect $450 million more during those years than lawmakers expected when the session began on Jan. 20.

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