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A trio of top Hawaii economists presented a relatively rosy state financial forecast to the Legislature’s money committees Wednesday at the Capitol, but with caveats.

The state has a record $844 million surplus on its hands but the carryover balances are expected to be smaller over the next few years.

The economists said the construction industry is set to become the state’s largest driver of new economic growth in the coming year, but they added that it may not make up for shrinking growth in tourism.

The anticipated decline — or perhaps even the end of growth — in the state’s largest industry is due to several factors: most existing hotel rooms are already full, few new hotel rooms are slated to come online and rates are already so high that increasing them could drive visitors to find another destination, according to University of Hawaii economist Byron Gangnes.

“The question is how much more can we expect from tourism?” Gangnes said. “The answer is not much in the short and medium run.”

While Gangnes and state Economic Research Administrator Eugene Tian project that more people will visit the islands next year, Paul Brewbaker of TZ Economics sounded some pessimistic notes. He anticipates fewer visitor arrivals and tourists spending less money starting in 2014. “Their forecast is that this will magically go up in the next year,” Brewbaker said. “I don’t see how.”

All three economists expect construction to help fill the void. Tian predicts a record year for the industry in 2014.

A Season for Budget Disagreements

The Senate and House money committees will be the primary handlers of Gov. Neil Abercrombie’s proposed supplemental budget when the next legislative session starts Jan. 15.

House Finance Chair Sylvia Luke, Senate Ways and Means Chair David Ige and other lawmakers grilled Finance Director Kalbert Young at the briefing.

Luke hammered the administration for claiming it wants to do more than it is actually trying to do. The administration says it wants to build the state’s budget reserves up until they equal 10 percent of the general fund revenues, but the administration’s own six-year financial plan only aims to boost it up to 5 percent or less.

This led to the most intense of several sharp exchanges between lawmakers and Young during the hearing. Luke asked the state’s finance director about this discrepancy between the administration’s talk and its action.

“Why don’t you put your money where your mouth is?” she asked Young. “What are you afraid of? You’re the person in charge of the money; why don’t you advocate for that?”

While building up the reserves faster would satisfy his financial objectives, Young said, it would come at the cost of funding programs. He noted that he is privy to many requests from competing interests and believes the supplemental budget Abercrombie sent the Legislature on Monday is a more sustainable approach.

The state wants to use some of the record $844 million carryover balance from fiscal year 2013, which ended June 30, to expand preschool opportunities for 4-year-olds — something Ige said would be unlikely to happen during the next session — and address unfunded liabilities in public worker health and retirement benefits.

Under questioning from Ige, who is running against Abercrombie for governor in 2014, Young acknowledged that it was this surplus that allowed the administration to slate millions of dollars in funding for capital improvement projects at the University of Hawaii.

Ige called the university “‘horrendously irresponsible” for deferring routine repair and maintenance projects for years and underscored that the administration’s one-shot funding injection is not a long-term solution.

Senate President Donna Mercado Kim, who is running for Congress, told Young that she is tired of hearing the same old story about how projects like a $174 million construction addition at the University of Hawaii West Oahu campus and pay raises for state workers won’t cost taxpayers extra money.

“I don’t think the public should be duped into thinking it’s not going to cost them anything,” she said.

Young said the administration feels comfortable that the state can afford the UH West Oahu project over the next six years unless its size or scope changes. He added that he and the governor share her concerns over accountability.

Young cautioned that in these perceived times of “plenty,” there is “simply never enough money to go around.”

Lawmakers are expected to get a better idea of the financial outlook after the state updates its projections Jan. 7.

Ige said he is concerned the current revenue projections are overstated.

“If the revenue doesn’t meet projections, it really does exacerbate the budget issues,” he told Civil Beat after the briefing.

The council in September lowered its forecast for state general fund tax revenues in fiscal year 2014 from $5.74 billion to $5.69 billion. The council’s previous forecast in May did not take into account automatic transfers to replenish the Hawaii Hurricane Relief Fund this fiscal year or next.

The council’s chair, Kurt Kawafuchi, said the forecasts do not reflect a more pessimistic view of the economy on the part of the council.

Read the presentations from the economists here: