The state Council on Revenues yesterday lowered its revenue forecast for this fiscal year, signaling a slowdown in the growth of Hawai'i's economy.

The forecast backs up concerns among some lawmakers at the end of last session that the state needed to be cautious about tax relief and spending.

The council estimated 4 percent revenue growth for the budget year ending in June, down from the previous projection of 6 percent. This would mean a drop of more than $88 million out of what had been a $4.7 billion revenue picture.

The council left the forecast for next fiscal year at 6 percent.

The downgrade was based on actual revenues with only two months remaining in the count. "You kind of had to see that one coming," Paul Brewbaker, a Bank of Hawaii economist and chairman of the council, said in an interview. "The revenues for the past couple of months weren't coming in.

"We've all been anticipating a cyclical slowdown that started to show up in housing and, we anticipate, in construction. The tourism numbers have been much weaker than people thought a couple years ago. It reflected the economic environment that we've entered."

Economists have been warning of slower growth rates and higher inflation as the state comes down from double-digit tax revenue growth of the past few years.

State lawmakers were confident after the council predicted in March that revenue growth would hold at 6 percent this year and next, but many started to worry toward the end of session this month.

State House lawmakers cited slower growth as an influence in their decision to provide $50 million in tax relief to low- and middle-income taxpayers instead of the more generous tax package favored by Gov. Linda Lingle. Lawmakers steered most new spending in the new two-year budget toward education and health and human services.

"I hate to say 'I told you so,'" said state Rep. Marcus Oshiro, D-39th (Wahiawa), chairman of the House Finance Committee, who was among lawmakers urging caution in negotiations with the state Senate over spending. "It's not good news, but it supports our assumptions and the budget and spending measures that we passed out this year."

The council's projections are used by the Lingle administration when drafting the state budget and financial plan, and by state lawmakers when they approve the budget. Some had been critical that the council's forecasts failed to accurately predict revenue growth in the boom years, but economists believe the forecast model has caught up and now reflects the economic cycle.

Despite warnings about a slowdown in growth, the Lingle administration is optimistic about the economy.

Kurt Kawafuchi, the state's tax director, said general-excise tax revenues remain healthy even though the forecast dropped. "That's usually one of the best indicators of the economy," he said.

This month, the state Department of Business, Economic Development and Tourism released a report that predicted moderate growth and said the economy, while cooling, is still on an expansion path.

Linda Smith, Lingle's senior policy adviser, said the governor has the administrative tools not to release money approved by the Legislature if revenue slows. "Even though it may be appropriated, we can adjust those appropriations based on our fiscal reality," she said. "That's a tool the governor has to keep state spending in check and match it to what is happening in our economy."

Reach Derrick DePledge at ddepledge@honoluluadvertiser.com.