Casting another layer of gloom over the state budget, the state Council on Revenues yesterday significantly lowered its growth forecast for the fiscal year, forcing the Lingle administration to slice an additional $125 million in government spending.

The council projected a 3 percent decline in state revenues for the fiscal year that ends in June, down from a 0.5 percent decline estimated last October. The lower forecast, which was due to the fallout from the nation's economic recession, leaves the state with about $125 million less than anticipated.

The council also lowered its forecast for fiscal year 2010 — to 1 percent growth, down from 3.5 percent growth — which would shear off another $125 million in revenue.

Gov. Linda Lingle's budget advisers will evaluate the new forecast and present the state Legislature with a revised plan for this fiscal year and also for the two-year budget cycle.

The governor has already made $221 million in spending cuts this fiscal year and has asked lawmakers to transfer $40 million from the state's rainy day fund to plug the deficit.

Lingle's advisers have told lawmakers they had a contingency plan in the event the forecast was lowered but they have not revealed the details publicly. The governor told KITV on Thursday that furloughs for state workers are an option, while others have speculated that she might have to go into the state's hurricane relief fund.

Paul Brewbaker, the council's chairman and an economist for Bank of Hawaii, cautioned Lingle and lawmakers to err on the down side of the forecast.

"We have been chasing it down because the economy has been unraveling a lot faster than anybody thought about six months ago," he said.

Lower airline fares, a decline in fuel prices, and discounts on hotels may help improve the state's sagging tourism figures and boost state revenue. But, as University of Hawai'i-Manoa economist Carl Bonham warned, consumers worried about their jobs and their home mortgages may be reluctant to travel or plan vacations for the spring and summer. A slowdown in commercial construction because of the financial problems in the credit market may also slow the recovery.

Economists on the council also predicted that President-elect Barack Obama's economic stimulus package, or an increase in government public-works projects, would probably not make a difference in the state's economy until several months or perhaps years.

FORECAST A GUIDE

The council's projections, by law, are used by the governor and lawmakers as a guide when drafting the state budget. The council's next forecast is scheduled for March, during the heart of the legislative session, and will likely influence final spending for this fiscal year and for the fiscal year 2010-11 budget cycle.

"Facing the realities of significantly reduced revenues, we will be looking at all options with the understanding that everything is on the table for review," Lingle said in a statement yesterday.

Several lawmakers and legislative aides, speaking privately, said it appears the Republican governor is reaching out to House and Senate Democrats on the budget in a way she has not in previous years. The severity of the state's economic downturn, which many believe the governor was slow to acknowledge last year, is now undeniable and demands more collaboration.

Lingle, in her statement, specifically mentioned that state Rep. Marcus Oshiro, D-39th (Wahiawa), who has been one of her toughest critics, has said, "We are all in this together."

Oshiro, the chairman of the House Finance Committee, said yesterday that the state's leaders need to put aside politics and pull together.

"We shouldn't forget that this, too, shall pass," he said. "We'll get out of this, so let's not wallow in fear but use this as an opportunity to look at government services."

Over the past few days, in informational briefings on the budget, lawmakers received a peek at what is likely to come throughout the session. Administrators from state agencies and departments, including the Judiciary, the state Office of Hawaiian Affairs, and the Hawai'i Health Systems Corp., described how the services they provide are essential to the public and should be protected from deep spending cuts.

SOCIAL SERVICES APPEAL

Advocates for children, the elderly, and the disabled are appealing to lawmakers to shield social-service programs from the worst cuts, including Healthy Start, a child-abuse prevention program and one of just two Lingle has proposed eliminating entirely in her budget.

State Sen. Donna Mercado Kim, D-14th (Halawa, Moanalua, Kamehameha Heights), the chairwoman of the Senate Ways and Means Committee, said it should not be left to lawmakers to explain to state agencies and departments that larger cuts must be considered.

"When you look at these facts," Kim said of the revenue shortfall, "they should come to terms with it."

The budget will likely prompt debates among majority Democrats over whether state spending should be cut broadly across departments or whether the state should prioritize and spare certain areas, such as healthcare and education.

State Sen. David Ige, D-16th (Pearl City, 'Aiea), the chairman of the Senate Health Committee, said eliminating social-service programs such as Healthy Start may save money in the short-term but cost the state more in the future.

"It's clear that you either pay now or you pay later," Ige said.

State Rep. Karl Rhoads, D-28th (Kaka'ako, Iwilei), said the state should place more revenue into the rainy day fund during times of economic prosperity so there would be a deeper pool of money available when the economic cycle inevitably moves from boom to bust.

"I'm trying to get rid of the peaks and valleys," he said.

Rhoads, in an idea being considered by House leaders, suggests a constitutional amendment that would require the state to move money into the rainy day fund when revenue projections increase by more than 7 percent over the previous fiscal year. Lawmakers have the authority now to move money into the rainy day fund but have not chosen the option. The money in the fund today — about $74 million — comes from the state's share of a settlement with the tobacco industry over the health-related costs of smoking.

Lingle has asked to take $40 million from the rainy day fund this fiscal year and $35 million next fiscal year. While more money will come into the fund from the settlement, Lingle put the balance at $15.7 million at the close of fiscal year 2011.