Recession fears could dent state budget

HONOLULU (HawaiiNewsNow) - The stock market’s Dow Jones Industrial Average fell nearly 900 points Monday after President Trump refused to rule out the potential recession due to his policies.

Here at home, Hawaii lawmakers were predicting a substantial dent in the state budget.

Lawmakers said a recession could mean less money in the treasury during these uncertain times when federal programs are in jeopardy.

Hawaii’s state budget is vulnerable to economic shocks like recessions, because the excise tax is its primary source of money, and very much tied to the strength of the economy.

The estimate of how much tax revenues will come is made every few months by the Council on Revenues, which meets Wednesday.

House Finance chair Kyle Yamashita said he will be watching that prediction closely.

“What we can see, the number is probably going to go down,” Yamashita said. “And then we have to wait for Congress to act on their continuing resolution, then we’ll have more certainty or a better idea as far as how we’re going to be moving forward.”

If the council of expert economists alters its growth prediction by even just one or two percent, it means hundreds of millions need to be trimmed from the budget for state programs, according to Senate Ways and Means chair Donovan Dela Cruz.

“We could see somewhere in the ballpark of $450-500 million less in our state budget because of council revenues and the reduction of federal funds,” he said.

Hawaii’s tax collections are heavily dependent on tourism. Tourists pay the 4.5% excise tax.

However, University of Hawaii economics professor Carl Bonham said a short recession is not a crisis.

“Historically, it takes a pretty good downturn in the U.S. economy to generate big losses in tourism,” Bonham said.

Bonham is on the revenue council. He said it’s hard for even experts to predict the economy with the president changing the rules, like tariffs, almost daily.

“You don’t know what it’s going to be in one month or three months or six months,” Bonham said. “Then you don’t invest and you don’t hire.”

Hawaii does have hefty savings in the treasury, which can buffer a short drop in tax collections and buy a little time to make investments that kickstart local jobs, Dela Cruz said.

“The other thing we have to do is invest in construction, because construction can supplant some of what tourism is,” he said.

Bonham said everything depends on deep and how long a potential recession lasts.

Republicans, including state Rep. Diamond Garcia, say the president will bring prosperity.

“There’s going to be shifts when you change policy, things change,” Garcia said. “Things happen. There will be ups and downs, but I do anticipate after these changes are made and they go into effect, there’ll be major gains in our economy.”