The state general treasury collected a startling $7.2 billion in taxes in the year ending June 30, which represents a striking rebound in government finances that defied the expectations of the governor, lawmakers and the economic experts.
To give an idea of how rapidly tax collections bounced back in the last six months, Gov. David Ige had predicted in his submittal to the Legislature just last December that collections would plummet to about $5.96 billion in the year ending June 30. He wasn’t even close.
Ige also projected annual state general fund tax collections would remain stuck below $7 billion for the next two years. In fact, they had already topped that mark by the end of last month.
The unexpected bump in tax collections last year means the Ige administration is suddenly holding about $740 million in un-budgeted cash, and lawmakers said Monday they will be watching closely to see what the administration has in mind for that money.
The tax collection data released Monday covers the fiscal year from July 1, 2020 to June 30, 2021, and shows the transient accommodations tax or hotel room tax declined by nearly 63% that year. The general excise tax on goods and services declined by nearly 11% during the same period.
But those losses were offset in large part by a 42% increase in income tax collections, with state personal income tax revenue increasing by nearly $1 billion last year over the previous year.
Jack Suyderhoud, who is a member of the state Council on Revenues and professor emeritus of business economics at the University of Hawaii at Manoa’s Shidler College of Business, said a significant chunk of that income tax increase was because Ige moved the tax filing deadline for 2019.
Ige shifted the state tax filing deadline from April to July of 2020 as part of the administration’s response to the pandemic, which shifted about $308 million from fiscal year 2020 to fiscal year 2021. That was a significant boost to the overall tax collections for the fiscal year that just ended.
If not for that technical adjustment by the administration, total state tax collections for the year ending June 30 would have been down slightly from the year before, according to the state Tax Department.
Still, Ige said in an interview Monday that “we’ve come a long ways” since last winter when he submitted his gloomy proposed budget to the Legislature.
“That’s great news, but we still — as you know — cut the budget significantly. There’s still significant budget cuts at the university and elsewhere, so it’s about trying to prioritize how we would restore funding to some of these programs,” he said.
When asked how the extra cash might be used, Ige said he is interested in applying more money to pay down future obligations for employee and retiree health care, and also wants to provide more money to cover the cost of unemployment benefits for Hawaii workers.
The state borrowed more than $700 million from the federal government to cover the cost of jobless benefits for unemployed workers during the pandemic, and technically that debt is the responsibility of Hawaii’s employers.
Ige now says he expects the state will need to borrow still more money from the federal government to pay future unemployment insurance costs, and “clearly, trying to make sure that businesses aren’t burdened by that borrowing is something that we would definitely put as a high priority.”
House Finance Chairwoman Sylvia Luke said it is possible Ige’s plans for the hundreds of millions of dollars in extra state tax revenue will become an issue in an upcoming special session of the Legislature.
Luke said she expects the state will soon see another surge in federal funding when Congress approves a new infrastructure spending package, and said she wants to see what plans the Ige administration has for that money. She plans to hold an informational briefing on the subject after the federal legislation is passed.
If the administration does not have clear plans for using the anticipated federal funding, that might trigger a special session to give lawmakers an opportunity to guide the administration’s use of the federal infrastructure funds, Luke said.
Lawmakers might also consider how best to use the hundreds of millions of dollars in extra state tax revenue at such a special session, if it actually happens, she said.
Senate Ways and Means Chairman Donovan Dela Cruz agreed with Ige that more money needs to be put toward the unemployment insurance debt, and also to pay for future health benefits for public employees.
Dela Cruz said he also wants to commit more money to replenish the state “rainy day” budget reserve fund, which the state mostly drained in the early stages of the pandemic.
He also said he is open to a special session to prod the administration to develop a clear plan for spending both the anticipated federal infrastructure funding and the extra state tax collections. He said Ige often fails to provide a plan of action until the Legislature proposes one, and then Ige reacts.
“They’re not normally proactive,” he said.
Beth Giesting, director of the Hawaii Budget & Policy Center, said she is pleased the state is no longer talking about layoffs, furloughs and other cutbacks, and hopes state policy makers will think hard about the best uses for the extra revenue.
Top-of-list for the Budget & Policy Center is providing money for affordable housing for working people as well as much more in subsidies for preschool to ease that burden on low- and moderate-income families.
Increasing funding for UH and other post-high school training and education is also important, she said.
“We have a lot of big investments that need to be made for the long run, and I would hope that the Legislature can take the long view and figure out ways that we can invest in things that will make life better for everybody in Hawaii,” Giesting said.
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