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U.S. News

Sagging tourism forces "fiscal crisis" for Hawaii

SAN FRANCISCO (Reuters) - Hawaii’s meticulous tourism records are thick with minus symbols, the basis for a projected state budget gap of $1.23 billion that Governor Linda Lingle says is a “fiscal crisis” that cannot be closed with spending cuts alone.

Tourist line up along the beach in Waikiki Beach to watch the sun set behind the western skyline, July 23, 2004. REUTERS/Lucy Pemoni

While strains of “Mele Kalikimaka” greet tourists, Lingle’s proposal this week to balance Hawaii’s budget over its two-year cycle ending in June 2011 lacked similar Christmas season cheer because visitor numbers and spending are weak, Georgina Kawamura, Lingle’s director of budget and finance, told Reuters in a telephone interview on Wednesday.

“I can only remain hopeful that we are now at the bottom and will start to pick up,” Kawamura said.

For the current fiscal year, Hawaii’s budget is seen suffering a $721 million gap, followed by a projected $509.5 million deficit in the coming fiscal year.

“The stark reality of continuing declining general fund revenues means the state does not have sufficient resources to cover all expenditures,” Lingle said on Monday in a bluntly worded budget message to lawmakers.

She said it is possible Hawaii’s revenues may not recover to pre-recession levels until 2014.

Declining revenues are rooted in hesitant consumers. Fewer visitors are traveling to Hawaii and those that do are staying fewer days and spending less -- all pointing to fewer dollars flowing into the state’s coffers.

Tourism is Hawaii’s primary economic engine and touched 74 percent of jobs in the state directly or indirectly in 2007, according to a report released in April by First Hawaiian Bank.

Lingle aims to cut the current-year budget by 9.8 percent, which she said will require measures beyond the spending cuts, debt restructuring and furloughs and layoffs of state employees already in effect.

BONDS PART OF BUDGET PLAN

The Republican governor wants to transfer money from special funds into the state’s general fund, delay income tax refunds and apply for more federal funds for schools, housing, transportation infrastructure and other programs.

Lingle also aims to restructure Hawaii’s general obligation debt to save $18 million in the current fiscal year and $75.2 million in the next fiscal year.

“Our preliminary schedule is to do this restructuring in February,” Kawamura said. “In that restructuring we hope to save for both years.”

Another bond plan of Lingle’s calls for backing from lawmakers for $46.3 million in new general obligation debt to bolster $211.2 million for capital improvements to stimulate the state economy and create jobs.

Hawaii’s jobless rate stood at 7.0 percent in November, compared with 4.9 percent a year earlier. The rate had been as low as 2.2 percent in November and December 2006.

A more controversial part of Lingle’s plan calls for the state to grab $99.4 million in hotel taxes from local governments, which have financial woes of their own.

“We didn’t think they would be happy, but then again the state is having a challenge,” Kawamura said.

Lingle has other tools at her disposal as well, said Paul Dyson, an analyst at Standard & Poor’s Ratings Services, which rates the state’s general-obligation debt AA.

If needed, Lingle could tap reserves, including a $184 hurricane relief fund, Dyson said.

“We believe that Hawaii’s proactive budget management techniques will result in manageable out-year gaps that state officials will successfully resolve without a significant impact to reserve designations,” Dyson said in a recent report. “Moreover, in our opinion, the state’s level of reserves provides us with credit comfort at the current rating level.”

Kawamura said reserves would be left untouched.

Editing by Leslie Adler

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