Budget: Does Hawaii Have a Boom, or a Bust?

by Joe Kent, Grassroot Institute, October 16, 2014

Only last February Governor Neil Abercrombie declared his administration turned the budget into an $844 million dollar surplus. Now, according to Paul Harleman, Budget Director of the Senate Minority Research, that budget may go bust in 2016.

“We are currently experiencing long term deficits,” said Harleman, at an October 15 Grassroot Institute forum at Honolulu's Pacific Club which also brought together economist Paul Brewbaker, State Budget Director Kalbert Young, and State Senator Sam Slom.

Harleman continued, “We have to make ... mandatory payments into the EUTF. And it’s my understanding that that amounts to about 400 million dollars, every year, starting in 2016, all the way up to 2019.”

Harleman said that the next administration has an important choice to make, “Whether to increase taxes, or whether to cut spending.”

Increasing taxes would probably mean increasing the GET, said Paul Harleman. “If we have to fund a deficit of about 400 to 500 million dollars, I think the only tax increase that could do that is probably increasing the GET.”

Cutting spending, on the other hand, is also a viable choice, said Harleman, “It comes down to cutting the budget about 5% or 6%, which in our opinion is doable.... We think it’s possible. It all depends upon what the next administration is going to do.”

Kalbert Young said “I agree with Mr. Harleman that a number of serious hard decisions need to be made financially for our state budget.”

However, Kalbert’s view of the economic future of the state was brighter, “I’m actually very bullish on the future prospects for Hawaii.”

Young said that Hawaii has recovered after the recession, and that the state is well positioned to make gains in the future. “It’s been done before. I’m very optimistic that future administrations and legislatures will be up to the task.”

The state budget cannot be talked about without bringing up retirement. Currently, there are over 117,000 government retirees are on the EUTF, collecting payments. That means about 10% of Hawaii’s population is on the EUTF. “90% of the population is paying for remaining 10%. That cost is always going up . . . that’s why we need to deal with the unfunded liability issue.”

Panelists discussed the possibility of privatizing the Hawaii Health Systems Corporation. Senator Slom said, “Don’t wait by your telephone. After sitting through two years of public hearings, it became abundantly clear, that neither the unions want this, nor the legislators that are most dependent on the unions.”

Paul Brewbaker said that since 2012, construction went down, employment went down, and tourism stopped growing. “That’s what sets up this fork in the road where you thought the revenues were going to go this way . . . and now the money that you thought was going to be there, isn’t there.”

One questioner asked the panel whether the economy had already gone bust, once public retirement costs were factored in. Paul Harleman said, “We’ve got this huge unfunded liability that is almost 25% of our entire economy. Is the state broke? To answer your question, from that point of view, we are.”

Harleman continued, “We’ve got to cut the General Fund budget by at least 500 million dollars so we can make those payments. As long as we keep making those payments, that liability can be paid for.”

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