Hawaii’s drop in tax collections shows economic recovery not complete, Senate leader says

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HONOLULU - Photo courtesy of HTA
ECONOMIC WOES: Hawaii small businesses still struggling after recession as indicated by drop in general excise tax collections. – Photo courtesy of HTA

HONOLULU — Hawaii’s Senate minority leader is telling Gov. Neil Abercrombie to reduce spending.

Excise tax revenue in the first quarter of 2014 is down 4.6 percent over last year, and the drop is a clear sign Hawaii’s economy hasn’t turned a corner, Republican Sam Slom said.


“When you talk to small business owners in various industries across the state, it becomes apparent that many businesses have not yet recovered from the recession,” Slom said.

Abercrombie recently vetoed a portion of House Bill 1700, the state budget bill, cutting $14 million and fixing a $444 million inconsistency between the budget bill and the bond authorization bill. Both bills were prepared in part by his gubernatorial opponent, Senate Ways and Means Chair David Ige, D-Aiea.

While Slom is pleased Abercrombie curbed a portion of the government overspending by restricting 10 percent, or $14 million, of state discretionary spending, he urged the governor to make further cuts to avoid the current $450 million biannual budget deficit from growing.

The news is drastically different from just months ago. In January, just days before the 2014 legislative session began, the governor announced the state had $844 million in unbudgeted revenue and pronounced the economy strong and growing.

“While the Legislature entered this year’s legislative session with a governor boasting of a record high surplus of $844 million and a very optimistic outlook of the state’s economy while skirting the subject of our state’s unfunded liabilities of over $22 billion, it is becoming more and more apparent that the growth spurt in our economy was short-lived,” Slom said. “Based on the recently released tax collection report, it is even more important we tighten our belts and identify sensible cuts for the long-term to ride this slow recovery out,” Slom said.

The Council on Revenues, the organization that predicts the state’s economic growth, validated his assessment, Slom said.

The council, made up largely of economists, downgraded the state revenue growth projections from 4.1 percent at the beginning of the year to 3.3 percent shortly prior to the legislative session. The organization then downgraded the growth projection further to 0 percent on March 11, and May 29 to a minus 0.4 percent. The Legislature bases its budget on the council’s projections.

Slom maintains the recent negative 0.4 percent projection of state revenue “is still overly optimistic.”

The Federal Bureau of Economic Analysis’ downgrade from a minus 1 percent growth for real gross domestic product for the first quarter of 2014 to a minus 2.9 percent, which, by far, is the worst quarter since the recovery began in mid-2009, is also alarming, Slom said.

“If the general excise tax collections for the first quarter of 2014 as well as the recently released U.S. GDP statistics are taken into account, further downgrades of state revenues should be expected,” Slom said.

Reach Malia Zimmerman at Malia@hawaiireporter.com