Hawaii’s Legislature and Gov. Josh Green could have close to a half-billion dollars of additional state general fund revenue at their disposal over the next 18 months, according to a new projection that guides state spending.

The potential extra revenue available to spend on state needs is based on a Hawaii Council on Revenues updated forecast that was made Monday and projects state general fund revenue for the current fiscal year, which ends June 30, and the next fiscal year.

At the council’s previous forecast meeting in September, growth was projected to be 1.3% for the current fiscal year and 5.2% for the next fiscal year, which begins July 1.

Now the projection is 4% this fiscal year and 4.75% next fiscal year.

The difference equates to $248 million more this fiscal year and $218 million more next fiscal year, or a combined additional $466 million, compared with the projections made in September.

Total general fund revenue last fiscal year was about $9.2 billion, and is projected to grow to almost $9.6 billion this fiscal year and then to $10 billion next fiscal year.

The council’s projections are important because they guide state budget appropriations and spending.

Over the next few months, the Legislature will adjust a state budget for the next fiscal year that was approved in 2023. Green in December submitted his own proposed adjustments for this budget based on the prior council forecast. The updated revenue projection also could influence how the governor releases spending appropriations for the current fiscal year and the next one.

“These are the parameters that we will operate in,” Luis Salaveria, director of the state Department of Budget and Finance, said in an interview.

Carl Bonham, director of the University of Hawaii Economic Research Organization and one of the council’s seven members, said the council’s prior 1.3% growth forecast for the current fiscal year was largely based on expected heavy negative impacts from the Aug. 8 Maui wildfires and a higher possibility of a U.S. recession amid interest rates being raised to combat inflation.

Since then Maui’s economy has been more resilient than UHERO expected while no U.S. recession has emerged amid tamed inflation and expected interest rate reductions.

“We (UHERO) released a forecast report soon after the wildfires, and it turns out, thankfully, it was way too pessimistic,” Bonham said during Monday’s meeting.

Bonham said Maui unemployment claims have dropped by about half from a peak of around 8,800 in mid-September to around 4,000 at the end of 2023 partly due to a better-than- expected recovery in tourism on the Valley Isle, where the town of Lahaina was almost completely destroyed by a fire that killed at least 100 people.

“The bounce-back mostly in the labor market has been pretty astounding,” he said.

Total revenue flowing into the state’s general fund, which includes general excise, corporate, personal income and transient accommodation tax collections, is up 7.3% for the first six months of the current fiscal year through December compared with the same period in the prior fiscal year.

However, much of the full fiscal year revenue is received in April, when annual state income taxes are due, which makes it challenging to predict full fiscal year revenue at this point.

So the council settled on a 4% growth projection.

There was more debate over the forecast for the next fiscal year, which begins July 1.

Kurt Kawafuchi, a former state Tax Department director who is council chair, and council Vice Chair Kristi Maynard suggested that the panel’s expected rate of revenue growth for next fiscal year be dialed down to offset some of the compounding effects from raising the current fiscal-year growth rate.

“I think given that we raised this year’s forecast, perhaps it makes sense to lower (the fiscal year 2025 forecast) because we have a higher jumping-off point,” said Maynard, chief financial officer at Finance Factors Ltd.

Bonham and at least one other council member disagreed with that rationale and supported maintaining the council’s prior 5.2% growth forecast for next fiscal year.

“I can tell you that when we work on our (UHERO) forecasts, which we update every quarter, when we raise the forecast for 2024 because we thought we got it wrong so far, we don’t then lower the forecast for 2025,” Bonham said. “It doesn’t make any sense. … If the economy grows at 5%, it grows at 5%. The economy doesn’t care what last year’s base was.”

Maynard made a motion to lower next fiscal year’s revenue growth forecast to 4.5% from the 5.2% rate put forth in September.

“I would prefer a lower number,” she said. “It seems a little optimistic to me to be going up that high (5.2%).”

Maynard also said she suggested a lower figure because some of Maui’s economic recovery seems to have shifted forward to this fiscal year and thus would be less next fiscal year.

All seven council members agreed to compromise with a 4.75% increase projected for the next fiscal year.

The Legislature begins its 2024 session Wednesday and is tasked with passing an updated budget for the next fiscal year that was produced last year based on earlier council projections. Under the Hawaii Constitution, the Legislature must base appropriations of general fund revenue on the council’s projections.

General fund revenue is by far the biggest piece of state spending. Other pieces include debt financing and federal funding.

Higher general fund revenue will help lawmakers and the governor address needs to pay for extraordinary Maui wildfire recovery expenses, among other top priorities that include wildfire mitigation and increased affordable- housing production.

In late October, Green redirected $164 million of appropriated funding for various uses during the current fiscal year to instead pay for Maui wildfire recovery expenses.

The governor around the same time also imposed a 5% “hard” spending restriction for all state departments, along with a 5% cut on discretionary spending.

Salaveria said the updated general fund revenue projections will allow Green to possibly modify his proposed budget adjustments for next fiscal year. But Salaveria also noted that projections can change depending on future actual results or other impacts.

“Another event could happen that could completely derail what is expected,” he said. “These are projections. Something could happen.”

The next council meetings for further general fund revenue projection updates are expected in March and May.