Key to Hawaii’s Future is Business Climate

by Lowell L. Kalapa, Tax Foundation of Hawaii

With the loss of seniority in Hawaii’s Congressional delegation and sequestration setting in, the visitor industry will be Hawaii’s economic life line for the foreseeable future. Much as lawmakers have singled out this or that industry for its blessings of tax incentives, what we have known all along is that we, mere mortals, cannot predict what the prize industry of the future will be.

Although officials have assured local leaders that the military will continue to be focused on the Pacific theater, everyone is well aware that the overall size of the nation’s defense forces will be downsized in an effort to contain spending and reduce the nation’s overall deficit. There will be less civilian positions supporting the defense effort which will mean that federal payrolls in Hawaii will probably shrink which, in turn, will affect those businesses that are dependent on defense workers and military personnel. There is even the possibility that non-defense related federal workers will be affected by the sequestration orders, but probably not on the same scale as the military downsizing as defense spending was targeted to take the greatest hit.

No longer will Hawaii be able to depend on the federal spending security blanket for its economic well being and local policymakers will be faced with the same challenges that other states on the mainland have had to address for years, that is, how to foster economic prosperity. When one reviews Hawaii’s track record, it has not been a very business friendly state. In fact, at every twist and turn public policy has taken its due out of the entrepreneurial environment so important to economic well being. And there are numerous examples from which to choose.

Looking back, lawmakers thwarted industries left and right beginning with sugar and pineapple which had been the economic foundation of the territory and later the state. When federal support for the price of sugar disappeared, the industry struggled reaching out for help from the state legislature in the form of support for its research arm which had a world renown reputation for its cutting edge research. And while help did come, it came with all kinds of strings attached.

Then there was the dream of making Hawaii energy independent by building Hawaii’s own refinery. The dream became a reality but not without all sorts of regulatory mandates. And when the cost of the product started to go through the roof, lawmakers attempted to slap a cap on the price of the product believing that constituents were being “ripped off” without really understanding the forces of the market and supplies of the raw materials which were totally out of the control of the local refinery.

Now that there is the prospect that the refinery may close down or be sold, local officials, including union leaders, bemoan the fact and have even suggested that the state take over the operation. Heaven forbid! If it is taken over by government, everyone acknowledges that it would be a disaster and doomed for failure given government’s track record starting with the Kohala Task Force in the early 1970’s.

Then, just last week investors in Hawaii’s visitor plant reportedly bemoaned the fact that it takes so long to get government approval for new construction or renovation of facilities citing the fact that it has taken as long as ten years to secure approval of projects. And this not the first time the problem of securing approval for such projects has been reported. While some larger developments and projects have taken as much as twenty or twenty-five years to get off the drawing board, it is not unusual to hear stories of the approval taking anywhere from three to five years for a small cluster of single-family homes.

In fact, it is rather disingenuous to hear of lawmakers bemoaning the lack of affordable housing when it is the state and local government bureaucracy that has strangled the process to bring those affordable units on line. Until now there has been great interest in developing new housing and commercial projects, but the horrendous maze of government is a major reason why entrepreneurs become disenchanted and go elsewhere to invest.

If Hawaii is to prosper economically in the future, then it needs to support business. And before some public official says it is not his or her fault, they should look again at the rules and laws that have been enacted that make investment in Hawaii so difficult and costly. The key to economic prosperity is creating a nurturing business climate and that includes mitigating the regulatory stranglehold created by excessive laws that make absolutely no sense. If lawmakers persist in layering more bureaucracy, then they should also shoulder the blame for a poor economic outlook.

- 30 -