State facing budget crunch

LIHUE — State legislators will have to work with a smaller budget than had been anticipated just two days ago.

The Council on Revenues lowered its state general fund forecast by .8 percent Wednesday, retreating from a 5 percent growth projection in September to 4.2 percent. The nearly 1 percent decrease corresponds to $54 million in government funding, a figure that represents a significant portion of the state’s discretionary budget.

The revenue council makes quarterly projections for the general fund that are used by government officials when they put together the state’s annual budget. Gov. David Ige based his executive budget in part on the previous quarter’s forecast, and this most recent forecast will be used by the Legislature in planning for appropriations during the upcoming legislative session, which begins next week.

Senate President Ron Kouchi said Thursday legislators will be faced with some difficult decisions when deciding where to make cuts. Some education and homeless aid programs are likely to see reduced funding next year, Kouchi said. He mentioned specifically the Hawaii Promise Program, which provides financial aids to economically disadvantaged college students.

Council on Revenues Chair Kurt Kawafuchi said Thursday the decision to reduce the growth forecast was not a unanimous one. According to Kawafuchi, the vote was 4-1, with council member Christopher Grandy voting against and making an argument for a growth increase of nearly 2 percent.

Kawafuchi explained the basis for the council’s reasoning during an interview that took place while he prepared a report of the forecast for Ige.

“There’s a lot of uncertainty right now,” Kawafuchi said, pointing to global forces that could contribute to a slowing economy — stock market volatility, a trade dispute between the U.S. and China, and ongoing geopolitical upheaval. Although the revenue council is proceeding cautiously, the news is not all bad.

“We think the economy is still growing,” Kawafuchi said. “But that growth is slowing.”

The revenue council’s growth forecast is based on a number of factors related to the economy as a whole. Here’s how it works in relatively simple terms.

The vast majority of government revenue comes from general excise and non-corporate income taxes, both of which fluctuate depending on economic conditions.

For instance, when unemployment rates are low — as is the case currently in Hawaii — a greater percentage of people income taxes, and analysts can reasonably assume the state’s general fund, will grow. Or if the economy is good, consumers spend more, driving up GET revenue.

But those examples are only two among many that can potentially influence revenue growth. Attempting to predict the future of the general excise tax — the single largest revenue stream for the government — can be a very complicated proposition. Because the GET applies to virtually all commercial transactions, it can be affected by a wide range of forces within the economic environment.

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Caleb Loehrer, staff writer, can be reached at 245-0441 or cloehrer@thegardenisland.com.