The Council On Revenues Hammer

Larry Price
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Wednesday - August 20, 2008
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The economic numbers coming out of the state Council on Revenues are not good. In fact, they are downright discouraging. Its projections, beginning in May 2007 through July 31, 2008, show a downward progression in state revenue.

If you watch the financial news during an election year, it’s usually filled with promises of increased spending. It’s important, because during an election year the message that is best received is the one that says the government is loaded with money and is ready to spend it on selected communities, islands and programs.

Simply put, the Council on Revenues is projecting $2.7 billion in revenue over the six-year financial plan horizon. By law, the governor must submit to the Legislature a six-year financial plan that has a positive balance in each of the six years. That is a tall order, and no matter how it’s colored, it’s going to create a lot of harsh feelings because it means some drastic budget adjustments.

The Council on Revenues is scheduled to meet again Sept. 3. At that time, it may decide to leave its projections alone, but it looks like our dependency on oil, falling tourism numbers and drop off in construction may cause it to further reduce projections.The Sept. 3 projection will be based on the final biennium budget the governor submits to the Legislature at the end of the year. That will be the floor plan they must consider in next year’s session for fiscal years 2010 and 2011, which happens to be a very important gubernatorial election year.


The last time a bleak financial picture like this showed its ugly face was in 1974. It was a time of drastic budget cuts across the board. When the bad budget news came out, political forces rallied to produce reasons why their budgets and programs shouldn’t be cut.

I was at the University of Hawaii at the time, and I will never forget the way the campus reacted to the governor’s message. It began with a freeze on all out-of-state travel and no new hires. That was just for starters. Just about every program was mandated to implement across-the-board cuts. It was put in “exercise” form and conducted like a negative brain-storming session that went on for months. It was, in a word, depressing.

The big question is, are the taxpayers of Hawaii, public unions and business leaders prepared to handle the grief and emotion that will inevitably occur when the message is announced? The possibility of a $2.7 billion loss of revenue will probably be a staggering amount of bad news for the public to swallow. I personally hope it doesn’t happen, because I have already seen how many businesses will react. They lay off employees to cut costs, and as we have mentioned before, terminating employees is a dangerous business. The potential for negative effect is real and far reaching.


Why mention it now? There is a hope that the projected revenue loss can be handled correctly, which would demonstrate that our political leaders were not surprised by the Council on Revenue’s projection, and consequently handled the situation with well-thought-out messages. Saying the right thing at the right time can lessen potential long-term liability.

Not many taxpayers have ever heard of the group of economists called the Council on Revenues. However, if you’ve lived in Hawaii for a while and listened to their projections, you’d have to admit they have been remarkably accurate over the years.

But the news also may create an opportunity to get some stalled energy-saving legislation into law, which can help ease any future downturns in our fragile economy, and that would be a good thing.

Additionally, the governor will not be seeking re-election, so she can dedicate her last two years in office to using her optimistic and positive attitude to calm our economic troubled waters.

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