Hawaii budget needs lifestyle change in 2022

by Keli'i Akina, Ph.D., President/CEO Grassroot Institute, January 1, 2022

Happy new year from the board and staff of the Grassroot Institute of Hawaii.

The first day of a new year is traditionally a time for resolutions and self-improvement. So, in that spirit of personal growth, it’s time we engage in some brutal candor about a problem in our state that’s difficult to ignore. Yes, Hawaii’s state budget needs to go on a diet.

I admit, the past two years have been tough for all of us. Who hasn’t put on a few pounds since March 2020, when most of us were ordered to hang around the house more  — where our refrigerators are located — in an effort to stop the spread of COVID-19?

But Hawaii’s state budget had been packing on the pounds long before the coronavirus lockdowns started; its current ballooning figure is the result of years of indulgence and bad habits.

If anything, 2021 was a wake-up call. Some state policymakers actually started to consider eating a few fresh vegetables, which in this case means spending cuts. But then state tax revenues came in higher than expected, the federal bailout added more money to the coffers, and most of them went right back to snacking on high-calorie tax dollars, avoiding balanced budgeting as if it were an actual treadmill.

In releasing his executive supplemental budget for fiscal 2023, Gov. David Ige announced that Hawaii’s rebounding economy has resulted in “astounding” tax revenues. As a result, I am happy to say, he says he is not planning any tax increases.

But the Legislature is a wild card, and I am pretty sure some of its members have different plans. The truth is, however, that the best way to increase state revenues is not through tax hikes, but through policies that grow the economy. The state can reap far more through economic growth than it can through an increase in taxes, as the first five months of fiscal 2023 just proved.

During the 2021 legislative session, too many of our lawmakers refused to see this and simply went ahead and increased our taxes, further burdening Hawaii’s businesses and taxpayers.

The panic over the possible loss in revenues caused by the lockdowns was so severe that the Legislature took away the county shares of the state transient accommodations tax, leaving the counties to levy their own TATs, which they nearly all have done.

Combined with the existing 10.25% state TAT, the new 3% county TAT surcharges give Hawaii the highest accommodations taxes in the country — not exactly ideal to help Hawaii’s ailing tourism industry recover.

But back to the bloated budget: At present, the state is looking at a budget windfall, thanks to higher tax revenues and an infusion of federal aid funds. But rather than revert to its usual bad habits, the state should resolve for 2022 to slim down and achieve good health. As any fitness guru will tell you, the first step toward improvement is to stop the bad habits.

No more saddling future generations with high debt. Don’t postpone paying down unfunded liabilities. Don’t borrow more for new projects. Post a reminder on the refrigerator to not raise taxes on Hawaii residents or businesses. Even better, look for ways to cut taxes and lower the cost of living, perhaps by working more with the private sector to deliver certain public services. As I said, the best way to produce tax revenues is through economic growth. It’s also the least harmful way.

Sure, it won’t be easy; significant self-improvement is usually a major challenge. But we’re not looking to put the state budget on a crash diet.

We want state policymakers to embrace a lifestyle change for 2022, one that will lead to a healthier, happier and more prosperous Hawaii for generations to come.