A state panel has mildly downgraded its forecast for Hawaii general fund revenue growth next fiscal year, but also improved its outlook for the current fiscal year that results in an overall net benefit.

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The changes were made Thursday by the Council on Revenues just as Gov. Josh Green announced he had signed a bill to mostly maintain state income tax cuts over the next five years.

Those income tax cuts were largely baked into the council’s prior forecasts, and the legislation that Green signed, Senate Bill 3125, will reduce taxes a bit more for lower-income households while increasing taxes for a new top tax bracket. Overall, the changes under the bill aren’t expected to have a big impact on general fund revenue.

The new forecast by the council is expected to influence how the governor treats the state budget bill, over which he has the ability to strike individual appropriations with his line-item veto power.

Last year, Green trimmed $110 million from the state budget bill in July due to a lower projection from the council in May after the Legislature adjourned.

The council’s latest forecast means Green can anticipate having more money in the general fund compared with the projection that lawmakers had to work with when they passed the budget bill and sent it to the governor on May 6.

For the current fiscal year, which ends June 30, the council forecasts a 2.5% decrease in general fund revenue, which represents an improvement from a 4.5% decrease it forecast in March.

For next fiscal year, beginning July 1, the council forecasts 1% growth. That represents a downgrade from 2% growth the panel forecast in March, but effectively the amount of revenue flowing into the state’s general fund next fiscal year should be 3% higher than previously forecast because of the smaller decrease for the current fiscal year.

“The base period went up 2% for the current year, so the effective increase is 3%,” Kurt Kawafuchi, chair of the seven-member panel, said during the meeting.

While the swing totals 3%, the general fund is now forecast to receive a little over $100 million more compared with the council’s previous forecast made in March, or $9.8 billion compared with $9.7 billion.

Part of the reason the council improved its forecast for the current fiscal year was dramatically higher prices for gas and electricity due to the war in Iran started by the United States and Israel on Feb. 28.

“Basically higher prices that everybody is paying is resulting in more tax revenue in the very short run before you start seeing demand destruction,” said council member Carl Bonham, who heads the University of Hawaii Economic Research Organization.

Bonham also said visitor spending has been higher in large part due to wealthier travelers continuing to go on Hawaii vacations.

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Hawaii’s general fund is mostly fed by the state’s general excise tax, representing about 40% of contributions. Individual income taxes represent about 30%, and the state Transient Accommodations Tax is the third-­biggest contributor at about 7%.

Council members expressed concerns and uncertainty about Hawaii’s economy next fiscal year, but they expect 1% growth in general fund revenue.

By comparison, a UHERO forecast published last week predicts that the state economy will grow by 1.3% in the 2027 calendar year after 1% this year that followed 3.3% growth in 2025. Those figures are for the value of all goods and services produced in Hawaii after accounting for inflation, a measure known as real gross domestic product.

Baybars Karacaovali, tax research and planning officer at the state Department of Taxation, told the council that the tax relief adjustment bill signed by Green is expected to cut into income tax revenue collections by about $100 million in 2027.

“The impact is not something earth shattering,” he said.

Green in January sought legislation to repeal tax cuts from 2027 to 2031 as a way to preserve $1.8 billion in state revenue over several years and partly offset nearly $3 billion in anticipated state revenue losses due to recent federal government actions. But lawmakers turned to other savings that included capturing money in special funds and from long-vacant state job positions, and by eliminating several industry tax credit programs.

On Thursday, Green described SB 3125 — now Act 24 — as a measured approach that he could support.

“This law reflects a balanced and responsible approach to safeguarding Hawaii’s financial future,” the governor said in a statement. “It preserves meaningful tax relief for working families while ensuring we have the resources to protect essential services that our residents depend on every day. I’m grateful to the Legislature for taking this measured approach to strengthen our fiscal foundation, while continuing to support local families during a time of economic uncertainty.”

Part of the new law reduces tax credits for renewable energy by implementing a $40 million annual cap from 2027 through 2030 before a complete termination in 2031. Also, taxpayers with adjusted gross incomes over $175,000 for individual filers or $350,000 if filing jointly are no longer eligible for the tax credits, retroactive to the beginning of this year.

Local rooftop solar industry representatives urged Green to veto SB 3125 because of an expected decline in business due to income restrictions and uncertainty by customers as to whether they will be able to claim the maximum credit, which is $5,000 per residential rooftop system.

Green said on Thursday that he is working with lawmakers to sustain larger-scale renewable energy tax credits for 2026 possibly through expedited legislation in 2027.

Another bill Green signed Thursday makes about $31 million in emergency appropriations to the state Department of Human Services to pay for emergency food assistance and healthcare services for Hawaii residents in place of federal funding breaks.

Under House Bill 2310, now Act 21, $14.2 million is appropriated to cover DHS costs for providing food assistance in the current fiscal year during a federal government shutdown that cut off Supplemental Nutrition Assistance Program, or SNAP, benefits. And $16.5 million is appropriated next fiscal year to pay for health insurance coverage lost by Hawaii residents due to federal policy changes.

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