The Hawaii Council on Revenues held an an emergency meeting on Tuesday, March 29, to revise the state economic forecast estimates. Gov. Neil Abercrombie asked the council economists to meet after government and industry leaders were concerned about the impact of the recent Japan earthquake and tsunami on Hawaii’s tourism and the rise in oil prices on Hawaii’s economy. The forecast for Hawaii’s economic growth was ultimately revised downward by 1.6% from 0.5%, which leaves an estimated $1.3 billion shortfall for the next two fiscal years beginning in July 2011, and $200 million for this fiscal year ending in June.
Some of the reasons outlined for the forecast:
- January’s tax collections were at $392 million;
- February’s tax collections were extremely low at $315 million;
- March tax collection numbers weren’t entirely in yet, so the council estimated revenues would be between $350 million to $400 million. (Critics say the likelihood of Hawaii receiving more than $330 million in revenue based on February’s numbers is low. The graphs that the members showed included a tax cycle where tax collections were extremely high in some months as tax season grew closer and much lower in the months following the tax season.
- The short 3-slide presentation given by the state Budget & Finance department, offered the table below showing growth rate scenarios and the required monthly collections.
|Growth rate scenarios (%)||Required monthly collections ($)|
There was debate as to the actual number that the commission, which is charged with determining the state’s economic future for the purpose of the governor and legislature establishing a “balanced” budget, would produce for the public.
Some members wanted a negative -1.9% and others didn’t feel as strongly saying that -1.5% and -2% is about the same. They presented a range to go along with their final value of -1.6% which was a plus or minus 3% margin. The council had originally forecasted the General Fund tax revenue growth for Fiscal Year 2011 at 3.0% in December 2010, moving it down to 0.5% on March 10, and finally reducing it further Tuesday, March 29, to -1.6%.
Their estimates for Fiscal Year 2012 remained high with predictions at close to, if not slightly over, 10% growth. The council was extremely optimistic as to the bounce back of the economy.
However, the budget shows that Hawaii is losing a significant portion of federal stimulus funds – an estimated $300 million – in this upcoming fiscal year, and even with the stimulus funds in Hawaii’s economy today, revenues are down substantially.
Council economists, including Carl Bonham and Paul Brewbaker, presented their own statistical models to help assess the current situation and to predict the future revenue collections. Brewbaker’s predictions were more optimistic whereas Bonham’s estimates were around -4%. Bonham questioned the validity of Brewbaker’s economic model and the assumptions being used to distort the values in the model. They could not agree on the impact of the oil price increases, the effects of the war in the Middle East and North Africa, and the effects of the earthquake and tsunami in Japan, so they agreed to disagree. The council ultimately came to the conclusion that it’s too early to predict the effects of these worldly events, so a forecast on the optimistic side would probably be best.
Brewbaker also asked fellow members for evidence of the impact of the Japan earthquake and tsunami on Hawaii, but their report was based on media stories rather than data based on community surveys.
Some members thought large Japanese tourist groups that cancelled trips to Hawaii might reschedule, so the loss of revenue in the short term would be met with an unexpected increase a few months. Another member speculated that Hawaii may see an increase in population as Japanese-Americans return to Hawaii for a more permanent living, while the turmoil in Japan subsides. They also thought that Hawaii tourism many not be impacted significantly because Japanese that frequent the islands are typically from the north.
A representative from the state Department of Taxation was queried as to tax refund amounts. The department issued $70 million worth of refunds for the last refund period, she said, leaving the council to note that this is a record amount, more than any other previous year at this time of year, or previous single month in any given year. If the trend of returning money to the taxpayer continues, the state could be in more financial trouble. Not only is the state receiving less through tax collections, but the net amount is even less since money is being refunded.