Tax revenue coming into Hawaii state coffers is now expected to be $48 million to $80 million less than previous estimates for the rest of 2020 due to the impact of the coronavirus.
That assessment came from state Chief Economist Eugene Tian, who presented his latest forecast at a Wednesday meeting of the Hawaii Council on Revenues, the body that generates estimates on state tax revenue.
The drop will be primarily driven by declines in visitors coming to Hawaii and their spending. The latest data indicate that international arrivals are already down by more than 30% compared to the same period last year.
The more important domestic tourism market is not yet seeing a major impact from the coronavirus outbreak, with a decline of less than 1% when compared to March 2019.
Tian predicted that the outbreak, now officially classified as a pandemic by the World Health Organization, would produce a reduction in visitor spending ranging from 2% to 4%.
According to the Department of Business, Economic Development, and Tourism, a 1% drop in visitor spending produces a $21 million decline in tax revenue collected by the state. That would mean a loss of potential revenue ranging from $48 million to $80 million.
But uncertainty over how long the outbreak will last leaves a wide range of possible outcomes.
Carl Bonham, director of the University of Hawaii Economic Research Organization (UHERO) and a member of the Council on Revenues, repeatedly cautioned that there are still too many unknowns about the duration of the pandemic to make a definitive prediction on its economic impact.
“The bottom line is no one knows,” Bonham said to fellow council members.
He added UHERO is projecting a more substantial drop in revenue than DBEDT, but that most of the impact would be concentrated in fiscal year 2021, which for the state begins July 1, 2020.
According to Bonham, UHERO’s baseline estimate assumes there will be a 10% drop in domestic visitor arrivals for April and May of this year, with a recovery beginning in June. Most of the estimated decline in tax revenue would come in the second-half of 2020, which falls in Fiscal Year 2021.
Under that projection, Hawaii would experience an economic hit roughly two-thirds the severity of the post-9/11 recession, but visitor arrivals would fully recover by summer 2021. Annual visitor spending dropped by 13% following 9/11 according to Bonham.
“We are not talking about the complete destruction of our visitor industry,” Bonham emphasized. He added that rock-bottom interest rates and the low cost of borrowing for governments would provide additional stimulus to the economy.
Data from Chief Economist Tian backed that up. He told members of the Council on Revenues that while tepid economic growth of 0.5% for Hawaii and 1.7% for the broader U.S. is now predicted for 2020, growth is expected to rebound across the globe in 2021.
The seven-member Council on Revenues unanimously approved a downward revision of tax revenue growth for the remaining four months of FY2020 from 4.1% to 3.8%.
In a second unanimous vote, they agreed on 0% for growth for FY 2021, but there appeared to be a majority consensus that projection would be changed, perhaps significantly, at the council’s meeting in May.
0% growth for FY2021 would represent a $297 million drop from the council's previous estimate.