Big dreams for spending tax surplus get dose of reality as economic forecast weakens

HONOLULU (HawaiiNewsNow) - Bad news for those hoping the state surplus will translate into big tax breaks or new investment in the state’s problems.

A panel of experts has reduced that surplus by hundreds of millions of dollars.

The State Revenue Council based its decision Tuesday on the state of the economy.

The Council on Revenues economists said big infrastructure projects like the rail and wastewater upgrades are generating jobs and putting money into the economy.

But other aspects of the economy aren’t doing as well.

They said the state received a big bump in revenue from federal spending during the pandemic and a snapback in economic activity as COVID restrictions were lifted.

But council member Carl Bonham, from the University of Hawaii Economic Research Organization, said the 2024 fiscal year will show flattening growth.

“We don’t have any job growth in our forecast for next year or we have very limited job growth,” Bonham said.

The panel also cited other factors in projecting a slower economy and tax collections, including delays in the rebound of Asian tourism, backlogged building permits for private construction, and inflation and high interest rates impacting consumers, according to council member Marilyn Niwao, from Maui.

“I think that will restrict purchase of people buying cars people fixing up homes and whatever,” Niwao said.

The council reduced growth rates tax collections from 5.5% to 2% for the fiscal year that ends in January and from 5% to 4% next year, which means a $1.2 billion drop in collections over three years.

Over seven years, the drop means $2.8 billion less than expected in state coffers.

Legislative leaders have been waiting for these projections and didn’t appear surprised.

“We always anticipate that at some point tax revenue ay decrease to we need to be prepared for that,” House Speaker Scott Saiki said.

By law, the council projections must be used to determine the state budget and decide whether tax relief proposals like Gov. Josh Green’s affordability plan are affordable.

State Senate President Ron Kouchi said the governor likely needs to reduce expectations for lower taxes.

“I think the report simply shows that it won’t be sustainable going forward and there has to be some difficult cuts or decision made in future projects,” Kouchi said.

Saiki added that relief will likely be temporary.

“We’ll probably see if we can put sunset dates on them so that they will be short term only,” Saiki said.

Kouchi said tax relief that survives will likely be focused on lower income workers, and that lawmakers are also hoping to reduce the cost of living and improve the economic outlook by providing free pre-K and more affordable housing.

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