With state revenues projected to hold steady for the immediate future, lawmakers should have new confidence as they approach tax relief and spending decisions over the next several weeks.

The state Council on Revenues voted yesterday to stick with a December forecast that calls for 6 percent tax revenue growth this fiscal year and 6 percent growth in 2008. The projected growth is slower than in the past few years, when the state's economy outperformed revenue forecasts.

Still, the numbers are solid enough to give legislators room to consider both tax relief proposals as well as new spending initiatives. By law, the Legislature is required to use the council's forecasts in writing its spending plan.

Economists are concerned about higher inflation and cooling in the tourism and housing sectors, but not enough at this time to lower the forecast.

"The bottom line in all this is there is not enough going on — really — to lead us to change the forecast materially," said Paul Brewbaker, chief economist for Bank of Hawaii and chairman of the council. "But there are a lot of swirling cross-currents."

Some state lawmakers had predicted the forecast might go down. But as the numbers came out, they said they were encouraged.

The state House has approved the first draft of the state budget, and lawmakers are waiting for the outcome of collective bargaining between the state and three public-worker unions before making any final spending or tax-relief commitments. Lawmakers are required by the state Constitution to provide tax relief this year because the budget surplus exceeded projected revenue by 5 percent for two straight years.

But House and Senate Democrats have said tax relief would not match the two-year $346 million package proposed by Gov. Linda Lingle in January. The Republican governor has called for a $100 rebate for most taxpayers along with several other tax breaks, including adjusting the standard income tax deduction and the personal exemption annually for inflation and eliminating the general excise tax on basic foods.

$1 TO $50 REBATE

State House Rep. Marcus Oshiro, D-39th (Wahiawa), the chairman of the House Finance Committee, said lawmakers likely would look at a rebate between $1 and $50 per taxpayer. A separate tax break, such as a state earned-income tax credit for the working poor, is also possible, but only after decisions are made on spending for priorities such as public education and affordable housing.

"It's good news," Oshiro said of the revenue forecast. "It allows us to consider some of the new initiatives, address basic needs and maybe consider some tax reductions."

State Sen. Rosalyn Baker, D-5th (W. Maui, S. Maui), the chairwoman of the Senate Ways and Means Committee, said there would be a tax rebate but, like Oshiro, said she had heard from constituents who feel state money would be better spent on basic social and infrastructure needs.

"They would rather us use the resources in that way instead of giving people a nominal rebate," she said.

GOP VIEW

Republicans said the steady forecast supports Lingle's call for substantial tax relief.

"The best way to keep the economy moving is to invest in people and give them a tax break," said state House Minority Leader Lynn Finnegan, R-32nd (Lower Pearlridge, 'Aiea, Halawa).

Linda Smith, Lingle's senior policy adviser, said the governor's tax package was based on the council's revenue projections from December, which now remain unchanged.

Although the administration hopes the entire package will be approved, she said lawmakers should at least adopt the proposal that adjusts the standard income tax deduction and personal exemption annually for inflation.

"The governor certainly feels we should have substantial tax relief to deal with the cost of living," Smith said.

Reach Derrick DePledge at ddepledge@honoluluadvertiser.com.