(Released on 6/7/09)
Well, the “other shoe” has dropped and now the state budget is more than $600 million out of whack as the Council on Revenues made its latest pronouncement.
Dropping their forecast for the current year from minus 5% to minus 9% means that the state will end the current fiscal year with another $185 million less in tax revenues. And as a result of the lower base, the Council’s figures that there will be no growth in revenues in the first year of the biennium and possibly a 5.6% growth rate in tax revenues in the second year of the biennium. While that latter estimate may provide some hope that Hawaii will come out of this slump, lawmakers and the administration must address another $400 million plus in revenue shortfall over the next two years.
Some lawmakers are questioning how good are these numbers as the Council keeps on lowering their estimate with each passing meeting, putting lawmakers and administration officials in a tough spot. Well, if it is any consolation, Hawaii’s big sister on the mainland, California, is no better off and as a result of the California economy, Hawaii may be headed for even more bleak times ahead. Since nearly 20% of Hawaii’s visitors have traditionally come from the West Coast and primarily from California, a continued sluggishness in that state’s economy will spill over to Hawaii.
In the past few weeks, California voters were asked to weigh in on how to solve California’s budget shortfall which has grown from $21.3 billion to more than $24.3 billion in just the last few weeks. Reacting to the budget fix enacted in early February that would have solved a nearly $42 billion deficit by the middle of next year through cuts, temporary tax increases and borrowing that requires voter approval, voters resoundingly rejected five out of the six budget proposals that were on the ballot. As the governor of California noted, the message voters sent to Sacramento was that they wanted to balance the budget through spending cuts rather than through borrowing, raising taxes or accounting gimmicks.
So what kind of cuts is California looking at and what implications do they have for Hawaii and the choices that may have to be made with respect to the state budget? High on California’s list is a reduction of another $750 million to the University of California and California State University systems bringing the total reduction in spending on higher education to nearly $2 billion over the two fiscal years of the biennium.
Lawmakers are even being asked to eliminate all state general fund financing of California’s Hastings School of Law. That would save about $10.3 million. Another $70 million would be saved if all general funding of California’s state parks was eliminated, closing nearly 80% of the state’s parks. Consideration is even being given to releasing nonviolent, non-serious, non-sex offenders one yearly early from prison and reducing the corrections department’s work rehabilitation and education programs. This would save California about $800 million. Another $250 million could be saved by eliminating the Healthy Families program that provides health care to nearly one million poor children in California. The down side of that decision would be that the state would lose $500 million in federal funding for that program. California would lose another $4 billion in federal matching grants if it eliminated $1.3 billion in funding for the Cal Works program which helps unemployed single mothers find jobs.
What California voters and taxpayers realize is that the state cannot spend its way out of this big black hole. Raising more taxes to cover the revenue shortfall will not solve the problems of the state and, in fact, may make California’s recovery even more arduous and difficult.
So if local lawmakers would take a cue from their California counterparts, they would recognize that spending reductions are the only alternative they have if they want to insure that Hawaii will be able to recover from this economic slump. Lawmakers must also get beyond their denial and realize that the slump could last longer than they first believed and, no, visitors do not have to come to Hawaii like they may have to go to New York, Washington, D.C. or Chicago. They must also recognize that the taxpayer’s pocketbook is not bottomless and at some point or another, increasing the tax burden will surely kill the goose that lays the golden egg.