The Legislature’s Dangerous Illusion

From Grassroot Institute, May 15, 2020

The Hawaii Legislature reconvened this week in order to address the dangers facing the state budget. Unfortunately, state policymakers seem to believe that the answer to the worst economic crisis in decades is to borrow and spend — and very likely raise taxes.

Due to the prolonged statewide lockdown intended to stop the coronavirus, Hawaii's economy has collapsed and the state is facing an enormous drop in tax revenues. Yet, few in the Legislature seem to be aware of the budgetary implications of that fact. Instead of tightening their belts, our government leaders are pulling out the Gold Card, spending the rest of the state surplus and hoping the federal government will bail them out.

It isn’t yet clear how bad the situation is, but the Legislature is assuming a $1 billion shortfall. Even after spending the entirety of the rainy day fund, the state still doesn’t have enough revenue to meet its expenditures. So legislators plan to cut about $357 million and borrow $270 million to balance the budget.

That’s not all. Legislators also want to borrow $2.1 billion for construction projects. While most households in Hawaii are cutting back, the state is spending money as if there was no economic crash and borrowing as though the bill will never come due.

The state unemployment fund will be completely empty this month. If the money runs out, people won’t get their unemployment checks. Thus, the state plans to borrow $500 million to refill it in May, then an additional $800 million for June. That’s $1.3 billion in new liabilities, a staggering amount. 

That’s on top of the $26.5 billion in unfunded liabilities for public pension and health benefits. Given the current crisis, that number is likely to rise, putting even more stress on state finances. And the state is planning to borrow to pay those debts too!

The state did receive $1.2 billion in federal CARES Act money, but that can be used only for the state's coronavirus response, not to balance the state budget. Hawaii’s legislators are hoping that Congress will bail them out with federal funds, but that’s a huge gamble to take when you’re talking about the fiscal future of the state.

There’s no mystery about what state policymakers really need to do. Borrowing to pay your bills is as short-sighted for states as it is for individuals. The wiser course is to focus on cutting expenditures so you can pay down your debt — not drive it up with more spending. 

As I said to reporter Paul Drewes during a KITV interview on Wednesday, “The Legislature should be doing what households are doing now: looking at cutting expenses and doing it aggressively.” 

Instead, Hawaii’s leaders are acting as though they can get money for nothing. But that’s a dangerous delusion. The money that they are proposing to spend has to come from somewhere. Unfortunately, when the government has bills, it’s the taxpayers who always have to pick up the tab.

This borrowing and spending spree is nothing more than a shell game that will end in higher taxes and a higher cost of living for Hawaii residents. Our government leaders must drop the fantasy that they can spend their way out of the budget crisis. It’s time to look at real and substantial cuts. 

Policymakers can take inspiration from the 2015 budget, when the state spent $1.7 billion less (adjusted for inflation) while serving a larger population. They can also start by shrinking department budgets, letting the department heads decide where they can most easily afford cuts.

It’s not going to be easy, but the last thing we need is more debt, more spending and more taxes.

Keli'i Akina, Ph.D.
President/CEO