A panel that forecasts state tax revenue that funds Hawaii government operations on Wednesday downgraded projections for the next three fiscal years amid swirling uncertainties over federal policy upheaval.
The move by the state Council on Revenues will influence spending approved in the state budget passed earlier this month by the Legislature and awaiting action by Gov. Josh Green, and also could influence potential changes to the budget during an anticipated special legislative session later this year.
Wednesday’s downgrades also included a cut to tax collections for the current fiscal year that ends June 30, and were more sweeping than reductions the council made in March that were limited to the current fiscal year and next fiscal year.
The extra new pessimism was rooted in expected fallout from Trump administration actions to slash the federal workforce, reduce federal spending and tax global imports with high tariffs.
Those things stand to hurt employment, tourism and consumer spending, thus reducing state revenue from personal income taxes, transient accommodation taxes and general excise taxes.
“It feels hard to come up with a very optimistic scenario that’s not just kind of wild,” Carl Bonham, a member of the council who also heads the University of Hawaii Economic Research Organization, said during the meeting before all six members in attendance unanimously voted on a consensus forecast.
For the current fiscal year, the council weakened its general fund tax revenue growth forecast for the current fiscal year to 4.4% after agreeing on 5% during its March meeting.
Next fiscal year, which begins July 1, state general fund tax revenue is projected to shrink 3.5%. Previously, the council expected a 2.3% decline.
And for the following two fiscal years, state tax collections are expected to rebound less — 1% and 1.5%, respectively, instead of 2.9% and 2.5% that the council previously expected.
In dollars, the changes equate to a $57 million reduction for the current fiscal year, followed by a $350 million drop next fiscal year compared with what was previously forecast. Total tax revenue for the general fund this fiscal year is expected to be about $10 billion.
The cumulative effect of the council’s latest projections equate to total state general fund tax revenue being about $100 million lower for the 2028 fiscal year than the 2025 fiscal year ending June 30.
All current and prior recent forecasts by the council already factored in revenue decreases from historic state tax cuts that the Legislature approved last year and are taking effect in steps from 2024 through 2031.
The council’s March forecast was made before President Donald Trump announced global tariff plans that have shifted since then and are still relatively high. Many expected impacts from tariffs and federal job and spending cuts have yet to show up in U.S. economic data, but Bonham said they likely will.
“Right now, it’s all soft data,” he said, referring to things that include gauges of consumer sentiment and business spending. “There’s very little hard data that says the economy is weakening significantly. But unfortunately there’s actually a pretty strong correlation between the soft data and the hard data, and that suggests that in coming months we will see that weakness show up in the U.S. labor market, in consumer spending. … My forecast for next fiscal year is not very pretty for (state) tax collections.”
UHERO on May 9 published a report that forecasts a mild state recession will occur before the end of 2025 and stretch into 2026.
Paul Brewbaker, a local economist who is a former council member, said uncertainty from consumers and business operators affects spending and can have negative impacts on the economy that are bigger than anything that actually stems from more certain and lasting federal policy decisions.
“The uncertainty is the killer part of this now,” he said.
The Legislature, which concluded this year’s session May 2, anticipates holding a special session later this year to address federal funding cuts to programs administered by the state and other fiscal impacts stemming from federal policy changes. But state lawmakers also left themselves with a financial cushion.
The state budget bill, which was finalized using the council’s March forecast, was projected to leave the state general fund with a $756 million balance at the end of the next fiscal year, including $200 million set aside for contingency spending.
During Wednesday’s council meeting, Bonham also noted that the state has about $1.5 billion in its Emergency and Budget Reserve Fund. He also referenced a $700 million legal settlement the state is due to receive from the makers of the drug Plavix by June 9, minus a cut previously expected to be 20% going to private attorneys that helped with the litigation.
“There’s a lot of money there to help us weather the storm,” Bonham said.
The council is expected to meet again in September to further update its forecast.
By the numbers
State general fund tax revenue by fiscal year
— 2024: $9.57B
— 2025 $9.99B (4.4% increase)
— 2026: $9.65B (3.5% decrease)
— 2027: $9.75B (1% increase)
— 2028: $9.89B (1.5% increase)
Note: Fiscal years end on June 30 of each year Source: State Council on Revenues
