State Panel Projects No Revenue Growth for Hawaii in 2014
Hawaii will have almost a billion dollars less than expected to fund state government programs and pay public workers over the next two years, according to a new economic forecast.
The state Council on Revenues in January had projected 3.3 percent growth in general fund revenues for fiscal 2014, which ends June 30. The council voted Tuesday to change its forecast to no growth, although the reasons varied wildly among the seven appointed members who blamed everything from Russia and rain to shark attacks and traffic.
鈥淚t鈥檚 going to have a tremendous impact,鈥 Council Chair Kurt Kawafuchi said after the two-hour meeting.
The downgraded forecast translates to $180.4 million less revenue this year, which the state can weather with relative ease thanks to a record $844 million carryover balance.
But the council also lowered its forecasts for 2015 and 2016, which leaves lawmakers with a lot less money to work with than expected as they hammer out the supplemental state biennium budget over the next several weeks.
The council now expects the general fund to grow 5.5 percent next year instead of 7.4 percent, and only 5 percent the following year instead of 7.7 percent. In dollars, this means the state is forecast to take in $297.6 million less than expected in 2015 and $476.3 million less in 2016.
House Finance Chair Sylvia Luke said Tuesday that the forecast came in lower than she thought it would. She was planning on 1 percent or 2 percent for 2014, but not zero.
Still, she expects the state to end with a $589 million carryover this fiscal year and a $68.3 million balance in 2015, plus a budget reserve of roughly 5 percent of expenditures. The 2014 operating budget is $5.98 billion.
The House is set to send its state budget plan for 2015 over to the Senate after a procedural vote Wednesday. Reps trimmed $53 million off the administration鈥檚 proposal when the bill went through the Finance Committee last week.
Luke and her counterpart in the Senate, Ways and Means Chair David Ige, were criticized for taking a conservative approach to the budget last legislative session. They said the council鈥檚 forecast justifies their strategy.
The Legislature funded many programs as pilots last year, for instance, instead of appropriating enough money to launch them statewide, including some of the governor鈥檚 initiatives like early childhood education.
鈥淚f we had funded those programs, we would probably have to look at stopping them this year,鈥 Ige said.
Solid and Sound?
Gov. Neil Abercrombie, who is seeking another four-year term this November, has been touting the state鈥檚 鈥渉istoric鈥 $1.1 billion fiscal turnaround that has happened since he took office in 2010.
The state鈥檚 financial health was the top issue the governor underscored in his State of the State address in January.
And he and his budget chief, Kalbert Young, highlighted the fiscal turnaround at a Hawaii Chamber of Commerce function in December.
鈥淭he administration鈥檚 budget and six-year financial plan were developed anticipating the likelihood of revenue fluctuations,鈥 Abercrombie said in a statement Tuesday. 鈥淭he result is both the budget and the six-year plan are solid and sound.鈥
Ige, who is running against Abercrombie to be the Democratic nominee, paints a different picture.
The council鈥檚 latest projections take $500 million out of the current biennium, Ige said, which was even more than he anticipated. The result is Abercrombie won鈥檛 get everything he wanted.
Sen. David Ige talks about the revenue forecast at his office, March 11, 2014.
鈥淚t鈥檚 like starting from scratch,鈥 Ige said. 鈥淎 lot of (the governor鈥檚) requests will not be funded in order to balance the budget.鈥
When Civil Beat first reported the $844 million surplus in November, Ige cautioned that the state was planning to spend $145 million more than it expected to bring in next year and $341 million more than it would likely take in the following year.
With the revenue forecast downgraded, Ige said, 鈥渢he surplus has evaporated.鈥 He said the governor鈥檚 proposed budget would be in the red by 2015.
Looking more big picture, Young seemed confident the state was still in fine fiscal shape.
鈥淭he Council on Revenues adjusted forecast is signaling that revenue growth for the state may have peaked, at least for the short term,鈥 he said in a statement.
鈥淢y approach as finance director is to manage the budget and financial condition across multiple fiscal years. As a result, near-term revenue revisions are evaluated and accommodated on a multi-year basis. As in the past, the state鈥檚 financial management team is prepared to exert measured controls of the state鈥檚 budget to ensure that programs are sustainable through any economic cycle.鈥
The council鈥檚 downgraded forecast was cushioned by the administration reporting Monday that a 4 percent growth in statewide employment is expected from the first quarter of 2013 to the first quarter of 2015.
The report is normally done using the third quarter as the basis, but the Department of Labor and Industrial Relations said future forecasts will use the first quarter. The U.S. Bureau of Labor Statistics dictates the timing, according to DLIR.
Wildcards
Even with the downgrade in the financial forecast, Ige and Abercrombie both believe the state won鈥檛 have to dig into the emergency reserves that it has just now started to replenish.
The governor signed bills in July to put $100 million into the rainy day funds that the state used to help weather the recession.
Putting $55 million into the hurricane reserve fund is money out of the general fund, Kawafuchi said. It鈥檚 factors like that, he said, that are keeping the growth rate flat.
鈥淲e鈥檙e not saying the economy is declining; it鈥檚 actually a little bit up,鈥 he said.
General fund collections were down 1.1 percent last February compared to a year ago. For the state to hit its zero growth rate for 2014, it has to grow at 2 percent for the next four months.
Kawafuchi said the council is taking a more cautious approach in part because of wildcards.
鈥淲e see some strong construction but there鈥檚 a lot of dynamics going on in the world like Russia, the potential instability there,鈥 he said, referring to .
House Finance Chair Sylvia Luke talks about the revenue forecast at her office, March 11, 2014.
Vice Chair Marilyn Niwao said during the meeting that nationwide publication of shark attacks hurt economic activity, especially on neighbor islands. She added that the rainy weather hasn鈥檛 helped either.
The effects of legislation, both prior and pending, hit the state鈥檚 bottom line.
Niwao told lawmakers last month that errors in forecasting growth rates can come from delays in the collection of taxes or payment of refunds and errors in estimating the effect of new tax laws and tax credits.
The council currently has to determine the effect of tax credits with data that is several years old.
In 2013, the state passed a law to give the film industry a bigger tax break, raising the cost of the credit by an estimated $21 million over the level in fiscal 2013, according to a Council on Revenues .
The state added $6 million annually to its coffers though by eliminating the general excise tax exemption for liquor, tobacco and food sold to common carriers.
After making permanent the transient accommodations tax rate of 9.25 percent and capping the allocations to special funds last year, the state is expected to lose about $11 million in 2014 and 2015. But the state stands to gain an extra $177 million in 2016 to $246 million in 2020.
The Legislature is considering this session. cleared the House last month with support from the counties and is awaiting committee hearings in the Senate.
It鈥檚 one of many fiscal bills, including tax credits to help the poor, that the new forecast could put a damper on. Ige and Luke didn鈥檛 rule anything out, but said the forecast definitely makes it harder to consider certain proposals.
The council forecasts general fund tax revenues on a quarterly basis. The next is due June 1.
- Contact Nathan Eagle via email at neagle@civilbeat.com or Twitter at .
