Hawaii Council of Revenues Economic “Turn Around” Prediction May Be Premature

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By Sam Slom

The recent announcement by the Hawaii State Council on Revenues, adjusting their revenue projections upward for the current fiscal year, and a positive quarterly report from the State Department of Business, Economic Development & Tourism, was welcome news.


Or was it?

The Council indicated it was changing its previous FY 2010 revenue estimate of -2.5% to +0.5%. That’s quite a change.  The Council spokesman said the revised estimate was largely on the strength of improving visitor industry arrivals and expenditures.

The Governor reacted by allowing the release of previously held state tax return refunds-$21 million to 35,000 taxpayers- for those early filers in January and February of this year. Another 70,000 filers with $43 million are on deck. Others may still have to wait until the start of FY 2011, July 1.

Not to throw cold water on this enthusiasm but:

  • Previous Council revenue estimates have been all over the board and while admittedly a difficult process, not that precise;
  • The Council, which the Governor and Legislature must rely upon while completing their budgetary duties, has a history of being overly optimistic while missing some major deep downturns-such as the current recession;
  • If you read the Council report in detail and completely, they stress that a substantial economic turn around in Hawaii may not occur until 2013 or even 2014;
  • No question that visitor arrivals and expenditures are improving-especially when compared to last year’s dismal data-but there has been a lot of cost cutting in the industry and the question remains, how will tourism hold up with more cost increases and less competition on the horizon?
  • Retail sales have also increased and real estate advanced from a poor 2009, but the addition of “cash for clunkers,” an $8,000 first time home buyers subsidy and now a “cash for refrigerators”  are all driving forces, but temporary in nature;
  • The withholding of tax refund money-originally an Executive budget strategy decision-certainly plays a major part in total revenue assessment;

… tax increases from last year, kicking in this year, also adds to the revenue increase, and there are more taxes coming after the 2010 Legislature. Is there a tipping point for tax payment as seen in other states?

  • There is no turn around for the state’s hundreds of non-profits who struggle to survive with state budget cuts, while numbers of homeless and those seeking food increase dramatically
  • Talking with many small businesses in Hawaii-the real economic backbone of the state-you learn confidentially that most are worried and struggling week to week with existing high taxes, fees, employer mandates and new government regulations. There has not yet been a turn around for them. And more bad news is on the way

… there seems to be a lot of “hope” thrown into the euphoria and not so much meaningful change in Hawaii

I am optimistic too that besides tourism, selected retailing and certain other businesses (document shredding, EIS documentation, tax preparation, etc.) are propping up and slightly improving our economy now.  In the long run we could see a much better economic future if we listen more to those who risk their own capital and less to politicians who have short term expectations.

Real economic growth requires the infusion of new capital and investment, and the Legislature’s action in gutting Act 221 and ending the credits retroactively, and in adding new yaxes and limiting deductions, throws a pall onto this area. Hopefully, the Governor will veto these really bad bills and she will be sustained. But damage has already been done.

For sustainable and diversified economic growth, Hawaii needs more than “hope.’ Show me the money-and a helpful government rather than one hostile to our business climate- would be a good start.

Sam Slom is a professional consulting economist, president and executive director of Smart Business Hawaii’ (SBH), and owner of his own business, SMS Consultants. He is also a Republican State Senator (8th District Oahu), Hawaii Kai to Diamond Head. Reach him via email at mail to: SBH@lava.net