Council On Revenues’ Projections

Larry Price
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Wednesday - June 10, 2009
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It’s a memorable time in Hawaii’s young political history. The governor’s show-stopping performance last week was easily one of the best-delivered messages since statehood. There have been many Hawaii governors who have had to face severe fiscal constraints. In the early 1970s, George Ariyoshi did, and as a result John Waihee had the luxury of distributing a large surplus. Then Ben Cayetano had to handle a large downturn that featured “early retirement buyouts.” That has to be one of the toughest acts a governor must perform.

Getting the message right is paramount.

The most sobering part of the Lingle presentation was her understated warning. She said in the last page of her presentation, “Faced with significant decreases in revenue projections and the possibility that revenues could decrease even more when the Council on Revenues meets in September, it would be irresponsible to not seek savings from the largest expense in our state’s operating budget - labor.”

Obviously closing a gap of $730 million over the next two years is going to cause a lot of pain.


 

When experts such as the Council on Revenues make predictions, everyone expects them to be correct - or at least be close to what eventually happens. In this recent case, the Council on Revenues wasn’t even close.

Question is, what happened? There are two considerations.

First, when people are determining how much to believe another person, they should ask: Is this person in a position to possess the information he or she claims to have? That is, is she or he competent and qualified? In this case, the responding answer is yes.

Second is trustworthiness: Is the person reporting accurately? Again the answer is yes. Third is self-presentation: Unfortunately, people appear more or less credible because of their presence - the way they present themselves to others. Again, our Council on Revenues demonstrates a very favorable presence: They are composed, sociable and extroverted. None of them seems hesitant, confused or uncertain when giving information to the public.

If they have all the tools to persuade, why were they so far off and why was their message so poorly received by members of the Legislature, union leaders and members of the media?

One factor to consider is the public is distracted by people who are trying to increase their own influence in the community at the expense of others. That makes the persuasion process much more complex. What happens in situations like this is the people with axes to grind start to defend themselves against being influenced as soon as they suspect that someone - anyone in power, especially - is trying to to persuade them. As they listen, part of their attention is dedicated to listening to the message, but a larger portion of their attention is trying to developing counterarguments.

Said another way, when receivers of information are distracted, they are less able to engage in issue-relevant thinking.

Last week there was an under-reported bill signing at the Big Square Building on South Beretania, when the governor signed two bills.

One, HB 1536, requests that state leaders lead by example during fiscally challenging times by reducing current salaries by 5 percent, by reducing current salaries for legislators, judges and senior officials of the Executive Branch for the period of July 1, 2009 through June 30, 2011.


The second bill is the classic example of what’s going on with the state’s revenue projections. It is HB 34 and provides for constitutionally mandated tax credit to Hawaii’s taxpayers of $1 for tax year 2009. It shows the velocity and unpredictable nature of our revenue flow. The state law says if the state collects more than 5 percent received over the general revenue for two consecutive years, there must be a refund. Our tax surplus for the last year was $330 million just 11 months ago. That simple fact should give critics of the Council on Revenues some pause, because our fiscal condition is probably moving too rapidly to predict accurately.

If the Council on Revenues is meeting in September to make another “guess-estimate” at what the state revenue projection is going to be, we can second guess them now and say it is not going to be encouraging.

So don’t be distracted unnecessarily. This is all temporary.

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