The light at the end of the tunnel is still far, far away. That was the consensus Wednesday as the Honolulu City Council Budget Committee got an update on the state's economy from local experts.
"The Hawaii economy continues to contract,” said Dr. Byron Gangnes, an economist with the University of Hawaii Economic Research Organization. “We really don't see yet any clear evidence that our recession has ended.”
Although visitor arrivals increased 7.2 percent in September, Gangnes said Hawaii’s tourism industry will continue to struggle through 2010.
"Visitor spending which is really what matters at the end of the day for total economic activity and jobs and revenues is still down,” said the UHERO economist, adding that deep discounting continues to fuel the hotel industry.
Weak visitor spending coupled with flat growth in construction will likely result in high unemployment beyond 2010, especially on the neighbor islands where joblessness in September on average was 3.5 percent higher compared to Oahu’s rate of 6.3 percent.
“It's not clear that unemployment has peaked,” Gangnes told members of the Budget Committee. “It probably has not peaked and we'll probably see some additional increases in unemployment over the next year before we begin to see some improvement.”
Oahu’s housing market may be the one bright spot in the midst of Hawaii’s economic malaise.
Prudential Locations Training Director Carl Worthy presented numbers showing that inventory on Oahu is at a four year low as first time home buyers and low interest rates spark a possible return to a seller's market.
"If this keeps on as it has for this entire year,” said Worthy, “we will start seeing upward price pressure and we have started to see it already in a narrow band of properties.”
Still, the pace of any housing rebound will not be enough to offset an expected decline in property values. The city is forecasting an 8.2 percent drop in property tax assessments, resulting in $85 million less for city coffers.
“In the next several weeks we will know what the true number's going to be,” said Budget Committee Chair Nestor Garcia. “Eighty five million is the projection it could be much worst.”
The city faces an overall deficit next fiscal year of $140 million, with an increase in the fee to register motor vehicles the only revenue enhancer. The current fiscal year ends June 30.
With businesses expected to pay hundreds of dollars more in unemployment taxes in April when the state resets current rates, Council members will be forced to make a difficult choice as to how much of a property tax increase job providers must absorb.
"I don't know whether or not that's going to push people over the edge,” said Garcia. “We have to be careful how we set the rates for all classes (of property owners).”
Earlier this week Honolulu Mayor Mufi Hannemann signed a bill into law that creates a new homeowner occupant class for property tax assessments.
The mayor will put forth his budget proposal for fiscal year 2011 in late February or early March and is expected to make use of the new law.
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