State lawmakers could have about $450 million more to spend from the state budget for the final four months of this fiscal year, which ends June 30.
The extra money is based on projected state tax revenue growth rates set by the State Board of Revenue, a panel of five tax experts and public accountants. The legislature uses the council’s projections to draft the state budget.
Hawaii’s tax revenue could top $8.7 billion in the current fiscal year. Higher prices, higher incomes, inflation and an influx of tourists factored into the council’s decision to boost projected tax revenue for the year by $8.3 billion, a target set in January.
At its January meeting, the board set the state general fund growth rate at 15%. On Thursday, the board voted unanimously to increase that planned increase to 21%.
Although tax growth may be strong this year, uncertainty about the effect the war in Ukraine could have on the US economy has tempered expectations that government revenues will continue to rise. The board expects tax growth to slow in 2023 and level off in 2024.
New projections for the current fiscal year bring the state budget surplus to nearly $1.3 billion. Gov. David Ige has proposed putting much of it into the state’s rainy day fund.
House Finance Chair Sylvia Luke said additional funds should be reinvested in state programs, but warned that revenues often level off in the years following a large budget increase.
“We just have to make sure that we don’t have large, recurring expenses,” Luke said.
The state budget bill was approved by the finance committee on Thursday and then goes to a floor vote. After that, it will go to the Senate.
Senate Ways and Means Chairman Donovan Dela Cruz said the revenue increase won’t change the Senate’s budget priorities or how it approaches the next half of the session.
“Clearly we still need to save in the areas where we need to save,” Dela Cruz said.
Dela Cruz said some of the extra money could be put into the rainy day fund. But he said senators are still awaiting guidance from state budget officials on how the new funding allocations might affect funding for the University of Hawaii and the Department of Education.
Under rules approved by Congress under the coronavirus relief programs, Hawaii must continue to allocate a proportionate amount of money to DOE and UH. In other words, if a department gets more money, there’s a chance UH and DOE will get more money.
Dela Cruz was also concerned about the impact Russia’s invasion of Ukraine might have on the local economy and considered setting aside money to deal with these effects.
Council members were also concerned about the war, which is dragging into its third week. In particular, they feared that the sanctions imposed on Russia by the United States and its allies would translate into increased costs for residents, including in the form of higher gas and fuel prices.
“Whatever the penalties are will come back to American consumers, so they will feel the higher costs,” Maui accountant Marilyn Niwao said at the board meeting.
This might not have a major effect on the local economy and state budget in the short term.
The University of Hawaii’s Economic Research Organization estimates that Hawaii will welcome about 8.3 million tourists by the end of the current fiscal year. This would increase to over 9 million tourists in 2023.
But there are concerns about the impact higher prices could have on visitors’ trips to the islands in the years to come.
“It’s really about 2023, and how the higher prices factor into people’s budgets, and that plays into their decision whether or not to come to Hawaii,” said UHERO economist Carl Bonham. at Thursday’s board meeting.
The council’s next forecast is scheduled for the end of May.
Civil Beat reporter Kevin Dayton contributed to this story.