HONOLULU — The Council on Revenues on Tuesday sharply increased its tax revenue forecast for the state to reflect rebounding spending by residents and a growing number of tourists visiting the islands more than a year after the coronavirus pandemic began.
General fund tax revenue for the fiscal year ending June 30 should rise 5% compared to the previous 12 months, up from a 2.5% decline the council estimated at its last meeting in March.
But revenue is still expected to come in below pre-pandemic levels.
Hawaii law requires lawmakers and the governor to base their budgets on the council’s predictions.
Carl Bonham, a University of Hawaii economist on the panel, said May is going to be a good month for revenue, as will June.
He pointed out general excise tax revenues were relatively strong so far this month compared to pre-pandemic May 2019 figures, even though hotel tax revenues remain much lower because fewer tourists are in the state.
“That tells you that local residents are out spending like mad,” Bonham said said during the council’s regular quarterly meeting, which was streamed on Zoom.
It has been a volatile year for Hawaii tax revenue since a quarantine imposed on travelers prompted a near-complete shutdown of the tourism industry and tight operating restrictions crippled restaurants and retailers.
First, general fund revenue dropped 6.3% in the fiscal year ended June 2020. Early on in the pandemic, the council forecast revenue would sink another 12% in the fiscal year ending next month.
But by two months ago, the council’s outlook improved to just a 2.5% drop thanks to several rounds of federal relief spending, supplemental unemployment benefits and a modest revival of tourism after the state began allowing travelers to bypass quarantine if they tested negative for COVID-19.
Federal spending helped plug the hole left by the depleted tax revenue, allowing lawmakers to pass a balanced budget last month without having to drastically cut spending on social programs, furlough teachers or raise taxes.
For the next fiscal year ending in June 2022, the council estimated general fund tax revenues will increase 3% though they acknowledged uncertainty over whether the economic recovery would gain enough steam for the economy to grow while federal relief spending tapers off.