As Big Island residents and businesses try to make sense of the economic news dominating the local, national and global media, it is critical to keep an objective perspective on what we need to do as a state to overcome current economic challenges.
Whether it’s the recent news from Wall Street or the volatile cost of oil worldwide, factors outside our islands, and not of our doing, are being felt in every community throughout our state.
As residents and businesses cut back on spending and fewer tourists visit our islands, state government feels the impact in the form of lower than projected tax revenues. If government spending continues unchanged, and lower revenue projections prove accurate, the state is facing a potential $903 million gap between revenue and expenditures over the next three years.
Fortunately, we have a strong economic foundation on which to build, owing in part to the fiscal responsibility my Administration has exercised over the past six years and which has allowed us to replace the $215 million deficit we inherited in December 2002 with record surpluses, including a $331.2 million surplus for FY08. Another factor that has contributed to the strength of our fiscal foundation is our state’s conservative budget structure mandated by law.
The Council on Revenues is an independent body of seven economists that was created by our state Constitution. Their job is to issue quarterly projections of anticipated tax revenues. In turn, the Legislature and the executive branch are required to use these projections in preparing the state budget. Once the budget is adopted, I, as Governor, can restrict previously approved spending so that the state does not overspend when revenues do not meet projected levels.
The importance of strong constitutional-based fiscal controls to my Administration has been recognized by national bond rating agencies such as Moody’s, Fitch and Standard and Poor’s, which last month retained our high bond ratings and projected a “stable” outlook for our economy.
As of this writing, I was scheduled to meet in New York with officials from Citigroup Inc., which underwrites our bonds. Earlier in September, I put a hold on our sale of more than $600 million in state bonds due to uncertainty in the financial markets. In order to time our bond sale correctly and keep interest rates as low as possible as we borrow funds for statewide capital improvement projects, we will be watching to see how the markets react as the federal government puts forward a plan to get financial markets back on track.
Having an economic roadmap is also critical at this time. Over the past several months, my Administration has been hard at work developing innovative ways to maintain public services without raising the cost of living or the cost of doing business.
Starting July 1, we implemented a 4 percent restriction on discretionary spending for all government departments. We are also taking steps to control spending for new programs, implementing a hiring freeze except for critical health and safety positions, restricting out-of-state travel, and curtailing the purchase of new equipment and vehicles. These and other measures are helping to narrow the revenue gap every day.
We are also moving forward with our five-point plan to stimulate the economy and encourage investment. In addition to public construction and repair projects, this includes continuing our focus on lowering business fees and not increase taxes; attracting more outside investment, especially in our renewable energy and high technology sectors; maximizing federal dollars and public-private partnerships; and increasing tourism promotion and marketing.
For more information on the proactive steps my Administration is taking to strengthen our economy, please visit www.hawaii.gov/gov/economy .