UHERO forecasts dire scenarios for local government budgets

from UH News, June 19, 2020

A grim financial outlook is on the horizon for the state of Hawaiʻi due to the impact of COVID-19, however, there are possible solutions to achieve fiscal balance, according to a new University of Hawaiʻi Economic Research Organization (UHERO) analysis brief.

Experts created two scenarios combining estimated general fund tax and non-tax revenues and subtracting the estimated general fund total expenditures, based on a State Council on Revenues forecast for fiscal years (FY) 2020–26.

The first scenario holds annual general fund expenditures constant at the FY 2019 level of $7.9 billion. The general fund deficit is expected to reach $582 million in FY 2020, and it will not be until FY 2026 when revenues exceed expenditures.

The second scenario assumes spending on existing services to rise at the expected annual rate of inflation. The FY 2020 deficit is projected to be $677 million and will remain at $450 million at the end of FY 2026.

According to the report, both of these estimated deficits are far greater than anything Hawaiʻi has experienced in the last 20 years, including the Great Recession.

Possible solutions

UHERO experts offer several options to address the budget gap. They include Congress providing more federal aid for state and local governments, responsibly reopening businesses including tourism, reducing the cost of government and shifting money from special and revolving funds to the general fund.

Researchers also suggest raising more revenue from government services, and broadening the tax base or raising the rate of a specific tax, such as the general excise tax.

UHERO is housed in the UH Mānoa College of Social Sciences.

Read the full brief on UHERO’s website.