Great Lockdown Crash of 2020 is wake-up call for Hawaii lawmakers
by Keli'i Akina, Ph.D. Grassroot Institute, Oct 7, 2020
Warren Buffett once said, “You only learn who has been swimming naked when the tide goes out.”[1]
That includes states, and now that the tide has receded, it’s easy to see that Hawaii has been swimming naked for years. Without any savings to buffer it from the economic collapse brought on by the state’s rash coronavirus lockdown policies, the Aloha State is exposed like the emperor without any clothes.
Hawaii’s leading industry, tourism, has virtually disappeared;[2] unemployment is at historic highs;[3] hundreds, if not thousands, of businesses have permanently closed;[4] state and county tax revenues have evaporated;[5] and budgetary finagling is rampant as Hawaii officials seek loans and other forms of relief from the federal government to cover their short-term obligations.[6]
Even before the Great Lockdown Crash of 2020, the state had been on a spending spree, repeatedly busting through its useless legal spending cap,[7] steadily eating into its rainy day fund[8] and allowing its numerous unfunded liabilities, such as for its public pension and health benefits programs, to balloon.[9] It also was constantly adding new taxes and piling on new regulations.[10]
The protectionist Jones Act also adds to Hawaii’s exceptionally high cost of living; groundbreaking research by the Grassroot Institute of Hawaii released in July found that the 1920 federal maritime law costs Hawaii about $1.2 billion a year, including about $1,800 per average family and 9,100 lost jobs.[11]
But mostly Hawaii’s dire situation has been self-inflicted, with its various state and county lockdowns only making things worse.
Little surprise that thousands of residents have been fleeing for the mainland for years.[12] In the wake of the COVID lockdown, that tempo is expected to increase: University of Hawaii researchers estimated in June that up to 30,000 residents will be leaving over the next two years.[13]
So what is to be done? Certainly not what Hawaii officials have been doing so far.
Besides borrowing and moving funds around within the state budget, and despite staring at a $2.3 billion state budget hole[14] brought on by the worst financial disaster in the state’s history, lawmakers approved $150 million in raises for state employees.[15] Yes, while much of the private sector in Hawaii is basically unemployed because of the state-imposed lockdown, state employees who have been getting paid all along were gifted a raise.
One good thing that came out of the latest state legislative session was the lack of any new tax increases.[16] Which was amazing.
Looking ahead, Hawaii lawmakers should be looking at tax decreases, regulatory rollbacks and less state spending.
They also should be looking to revive tourism, the lifeblood of Hawaii’s airlines, hotels, restaurants, tour companies, dinner cruises, farmers, bars and many other businesses. There has been a lot of talk about how to do this, and plans are still being hammered out.[17]
To create construction jobs, lawmakers should consider land-use and zoning changes to allow for more housing.[18] Only 5% of Hawaii’s land is available for housing.[19] Expanding that by just 1 or 2 percentage points would be a 20% to 40% increase. On land already developed, zoning reform could facilitate more “infill” housing.[20]
As outlined in the Grassroot Institute of Hawaii’s new “Road map to prosperity,”[21] Hawaii lawmakers also could exempt food, medicine and healthcare from the state’s general excise tax; temporarily suspend some occupational licensing requirements; remove restrictions on home-based businesses and cottage foods; reduce regulations on short-term rentals; enact tort reform to protect businesses during the reopening period from coronavirus-related lawsuits; and make permanent the emergency measures that expanded telehealth and allowed out-of-state doctors to practice in Hawaii
Hawaii lawmakers also could finally reform the state’s public pension system, currently underfunded by $14 billion.[22] And they definitely should reassess the Honolulu rail project, the price tag for which has ballooned from $3 billion in 2006[23] to over $9.2 billion,[24] making it the most expensive in the world per capita.[25]
At the federal level, Congress could reform the U.S.-build requirement of the Jones Act, since U.S.-built vessels cost four to five times more than ships on the world market.[26] That reform alone would save Hawaii $532 million a year, according to the Grassroot Institute’s study.[27]
These are just a few of the things our policymakers could do to help Hawaii get back to work. Hawaii’s residents need greater flexibility and more opportunities to cope with the state’s radically changed economic landscape. But if our lawmakers stick to their old habits, Hawaii will continue to flail naked in the shallows.
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This commentary was originally published, without the footnotes, in The Garden Island on Sunday, Oct. 4, 2020.
NOTES:
[1] Warren E. Buffett, “To the Shareholders of Berkshire Hathaway Inc.” Berkshire Hathaway, Inc., February 2008, p. 3.
[2] “Total Passenger Counts,” Hawaii Department of Business, Economic Development and Tourism, September 2020, which show an average change in visitor arrivals of more than -90% compared to the previous year.
[3] “Hawaii’s Unemployment Rate Ties for Third-Worst in Nation,” The Associated Press, Sept. 18, 2020.
[4] Email reply from Eric Hernandez of Yelp.com to the Grassroot Institute of Hawaii on Aug. 10, 2020, “The state of Hawaii endured 1,312 total business closures (both temporary and permanent) between March 1 [and] July 10, 2020. 554 businesses are marked as permanently closed as of July 10, 2020.” See also “Hawaii has among nation’s highest rates of businesses closed for now or for good,” Hawaii News Now, Sept. 22, 2020; and “Increased Consumer Interest in May Correlates with COVID-19 Hot Spots in June, According to the Yelp Economic Average,” yelpeconomicaverage.com, Q2 2020. See table, “Where are the Most Businesses Closed?” See also, “Report: Nearly 900 Honolulu businesses shut down by pandemic,” The Associated Press, July 28, 2020; and Dave Segal, “Hawaii bankruptcy filings remained steady in July,” Honolulu Star-Advertiser, Aug. 9, 2020.
[5] “With latest gloomy economic outlook, lawmakers prepare for a long road to recovery,” Hawaii News Now, Sept. 9, 2020: “The Hawaii Council on Revenues said tax revenues for the 2021 fiscal year will be down 11% — or about $770 million.”
[6] “Governor: Hawaii faces more public worker cuts without aid,” The Associated Press, July 6, 2020.
[7] “Governor’s budget exceeds spending cap — again,” Grassroot Institute of Hawaii, Jan. 9, 2020.
[8] Ibid.
[9] “Hawaii ERS headed for disaster, if economy keeps heading south,” Grassroot Institute of Hawaii, April 29, 2020.
[10] “Rich States Poor States, 12th Edition,” American Legislative Exchange Council, 2020, p. 86. See also, “Economic Freedom of North America 2019,” Fraser Institute, 2019, p. 3.
[11] “Quantifying the cost or the Jones Act to Hawaii,” Grassroot Institute of Hawaii, July 2020.
[12] “Exodus from Hawaii continued in 2019,” Grassroot Institute of Hawaii, Dec. 13, 2019.
[13] Carl Bonham, executive director of the Economic Research Center at the University of Hawaii, in comments to to House Committee on COVID-19 Economic and Financial Preparedness, June 1, 2020; video clip starts at 34:00 minutes in. “Our models are predicting big outflows in population. Bigger than we have seen certainly in my lifetime. The reason for that is, as the national economy recovers more rapidly than Hawaii, and we say that because Hawaii depends on air travel, and because tourism is such a dominant piece of the economy, many other state economies and county economies will recover much more rapidly, and the job opportunities will simply not exist here, that will exist in the rest of the country. Think about at the end of this year and into January, when our extended unemployment benefits have expired. If you don’t have family ties in Hawaii, and you were working in tourism here and your unemployment benefits run out, there’s absolutely nothing to keep you here. And even people who have deep family ties will be drawn to other parts of the country where tourists can drive to get to Vegas or Orlando, where businesses have reopened more rapidly. In our baseline forecast, if I remember correctly, in 2022, we have about a 30,000 person loss in population, and it’s not quite double that in the pessimistic scenario.” On Oct. 4, 2020, it was reported that UHERO was projecting a loss of about 19,000 over the next two years. See Andrew Gomes, “Economists anticipate Hawaii’s shrinking population will decline further due to coronavirus,” Honolulu Star-Advertiser, Oct. 4, 2020.
[14] “Governor: Hawaii faces more public worker cuts without aid,” The Associated Press, July 6, 2020.
[15]“Hawaii public worker pay raises would cost more than $150M,” The Associated Press, June 26, 2020.
[16] Tom Yamachika, “Two Tax Bills This Year,” Tax Foundation of Hawaii, July 27, 2020.
[17] Kehoulani Cerizo, “Economist explores three keys to reopen tourism to Hawaii,” The Maui News, Aug. 8, 2020.
[18] Jackson Grubbe, “Reform the state LUC to encourage more housing,” Grassroot Institute of Hawaii, September 2020.
[19] “Table 6.04 — Estimated Acreage of Land Use Districts, by Island: 2017 and 2018,” The State of Hawaii Data Book 2018, Dec. 31, 2018.
[20] Greg Brooks, Salim Furth, et al., “How to Build Affordable, Thriving Neighborhoods: A State and Local Zoning Reform Tool Kit,” State Policy Network, 2019; and “How infill housing can work with existing infrastructure,” Small Time Developments Ltd., New Zealand, Aug. 30, 2019.
[21] “Road map to prosperity: How Hawaii can recover and even excel after the coronavirus lockdown,” Grassroot Institute of Hawaii, May 23, 2020.
[22] “Report to Board of Trustees on the 94th Annual Actuarial Valuation for the Year Ending June 30, 2019,” Employees’ Retirement System of the State of Hawaii, Jan. 13, 2020, p. 1. See also Joe Kent, “How to resolve Hawaii’s public pension debt crisis,” Grassroot Institute of Hawaii, Jan. 5, 2019, p. 18.
[23] Mike Leidemann and Robbie Dingeman, “Rail transit system cost estimate: $3 billion,” Honolulu Advertiser, June 23, 2006.
[24] Gordon Pang, “Public-private partnership bids are accepted for Honolulu’s rail project,” Honolulu Star-Advertiser, June 24, 2020.
[25] Joe Kent, “Honolulu rail project most expensive in the world,” Grassroot Institute of Hawaii, June 22, 2017. See also, David Shapiro, “Oahu rail careens toward yet another fiscal train wreck,” Honolulu Star-Advertiser, Aug. 2, 2020.
[26] “Quantifying the cost of the Jones Act to Hawaii,” Grassroot Institute of Hawaii, July 2020.
[27] Ibid.