State Tax Revenue Projected To Drop By Over $2 Billion As A Result of Pandemic
The group that projects state tax revenue is predicting sharp declines for the rest of this year and the following, on the back of massive declines in visitor arrivals and local consumer spending due to COVID-19.
The state Council on Revenues, the seven-member body responsible for estimating future tax receipts, said on Thursday that collections for the 2020 and 2021 fiscal years will drop by a combined $2.3 billion.
That works out to around 7 percent of planned government spending for that period. The state government’s fiscal year runs from July 1st to June 30th.
Under the Hawaii State Constitution the Legislature is required to pass a balanced budget, meaning lawmakers will have to find a way to make up the lost revenue or cut spending. That has raised fears of furloughs and pay cuts to the state work force, which includes 11,000 teachers. But there is some good news.
Through spending cuts and reallocation of existing funds, lawmakers recently were able sock away more than $1 billion in the state’s rainy day fund.
State Rep. Sylvia Luke, chair of the House Finance Committee, which oversees budgeting, say her goal is to avoid furloughs and make up the deficit through borrowing and some additional belt tightening.
“The prudent thing to do is not interrupt services and programs, at least in the short term,” Luke said following the Council on Revenues’ announcement. “The last thing we want is what happened in 2009 [when] the administration closed down schools and instituted furlough Friday, which resulted in devastation through the school. Those are the things we want to avoid,” she added.
There are several borrowing options for states and municipalities experiencing cash flow problems, including issuing bonds to cover annual pension obligations or making use of the Federal Reserve’s Municipal Liquidity Facility. State leaders, including Speaker of the House Scott Saiki, have previously expressed their preference for borrowing over spending cuts.
However, Luke also noted that the state should borrow only what funds are needed to cover the existing gap. State Sen. Donovan Dela Cruz, Luke’s counterpart on the Senate Ways and Means Committee, drove home the danger of being overly reliant on the Fed’s lending facility.
“The one caveat to borrowing the $2 billion is that the payback period is three years. So we have to borrow only what we can pay back in three years. If we don’t have a payback plan within three years, that doesn’t really help,” Dela Cruz warned.
Dela Cruz said that with the funds recently redirected to the rainy day fund, the remaining gulf between budgeted spending and the latest Council on Revenues forecast is $413 million.
Both lawmakers said they believe the state had adequate tools available to navigate the crisis.
The Legislature is now in recess but will return to the Capitol in June.