HONOLULU- The Council on Revenues revised its general fund forecast for the state to 11.5 percent on Thursday.
The new forecast means lawmakers can expect about $130 million less in tax collections during the current fiscal year, which ends June 30.
In its previous forecast issued in September the Council predicted 14.5 percent growth for fiscal year 2012. However changes in how quickly the Department of Taxation processes payments influenced the ‘base’ amount of collections from the previous fiscal year that the Council relies on to make its predictions.
“Most of what's going on in this tax forecast is really tax law changes and shifting revenues from one year to another and accelerating collections or de-accelerating collections,” said Carl Bonham, a COR member and University of Hawaii economist.
Still, two members of the seven member panel voted against the 11.5 percent recommendation. COR member Marilyn Niwao, a certified public accountant from Maui, felt the number was too optimistic.
“I think that businesses are still hurting in the economy,” said Niwao. “My worry is that you'll see a loss of revenues as people go out of business.”
LAWMAKERS RESPOND
During his supplemental budget presentation last month, Gov. Neil Abercrombie identified $86 million in savings, but also requested $120 million in new spending. With the new COR forecast in place, lawmakers are likely to put the governor’s spending request under intense scrutiny.
“It's a time that we have to go back in and look at it again and maybe reprioritize how we did last year,” said Rep. Marcus Oshiro, the democrat chair of the House Finance Committee.
In a written statement the governor said the COR forecast reflected his administration’s conservative approach to the supplemental budget.
“We will work with the Legislature as the supplemental budget session begins so that we continue to move forward on a positive track,” Abercrombie said. “We’ll await the next Council projection as the Legislative session proceeds.”
On Wednesday state Budget and Finance Director Kalbert Young told Khon2 the administration would consider taking back authority over the hiring of new positions if the COR forecast came in below 13 percent.
“If the Council goes down too far in their advisement, we may have to be a little bit more forceful in controlling the filling of those positions,” said Young. “Each department is evaluating whether or not they can fill positions and stay within their appropriated budgets.”
House Minority Leader Rep. Gene Ward said in a statement the COR forecast still provides ample opportunity to grow Hawaii’s economy and reduce the cost of living for residents.
“If the Legislature can reduce Abercrombie's spending without reducing his proposed cuts, we will have more room to breathe,” said Ward. “For example, we could find a way to pay for our road repairs without nearly doubling the amount of taxes and fees our residents pay to register their cars.”
NEW TAX LAW DOESN’T LIVE UP
Much of the debate among COR members about the new forecast involved changes to general excise tax exemptions approved by lawmakers during last year’s legislative session. Act 105 took away exemptions from a number of businesses for a full two fiscal years, especially those previously granted to subcontractors.
Niwao believes the amount of new monies generated by Act 105 fell far short of what lawmakers had been expecting.
“A lot of attorneys were busy drafting up contracts so that people could be exempt from that new law,” she said. “We're not sitting ducks; tax practitioners go and advise their clients on ways to reduce taxes.”
Lowell Kalapa, president of the Tax Foundation of Hawaii, said lower than expected revenues from Act 105 should be a wake-up call to state lawmakers.
“Lawmakers can't just make that assumption that if they change the law they're going to collect a whole bunch of money,” he said. “Taxpayers are taxpayers; they're going to look for ways to save on their taxes.”
Oshiro, the House Finance Committee chairman, said he would not finalize the state’s supplemental budget until the Council on Revenues issues its next general fund forecast on March 7.
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