The HI cost of doing business

LIHUE — Lauren Benton, founder of Inside Kauai Inc., says the beauty and remoteness of the Hawaiian Islands attract tourist-based businesses.

“People want to come — get away from everything,” she said. “There’s the plus side.”

But you can’t overlook the minus side, she said, when it comes to doing business in Hawaii.

It’s expensive.

“Costs are sometimes higher, for sure, in terms of getting products here,” Benton said.

High costs are just part of the problem in Hawaii, which was ranked as the worst place in the nation for doing business, according to CNBC’s annual ranking of America’s Top States for Business.

Infrastructure, location and taxes were the main contributors to the Rainbow State’s bottom ranking for the second time in three years.

About 40 percent of the state’s bridges are rated deficient or worse, according to the U.S. Department of Transportation.

The Tax Foundation’s annual ranking of State Business Tax Climate put Hawaii at No. 30 in the nation for its tax system.

And being out in the middle of the Pacific Ocean brings its own challenges for business owners, such as high land, real estate and construction costs. Add to that the state’s Prepaid Health Care law which requires employers to provide medical insurance for employees working more than 20 hours per week and earning more than $672 a month.

It’s all part of the package when it comes to Hawaii, Benton said.

“As for a business owner, are you willing to accept the trade-off and the values of living in this beautiful space with the many dimensions of Kauai that we can take advantage of and love and with some small compromise?” she said. “Struggling infrastructure, crazy tax rates and high shipping costs are simply factors and there’s so many pluses that outweigh the negative.”

Shipping

Bob Gunter, president and CEO of Koloa Rum Company, said what really impacts costs here the most are logistics and the cost of freight — getting ingredients and supplies necessary to manufacture products.

Hawaii is under the Jones Act, or the Merchant Marine Act of 1920, which requires goods transported between two U.S. ports to be carried on U.S.-flagged ships, be U.S. constructed, be U.S. owned and be crewed by U.S. citizens and permanent residents.

Under this act, Gunter said, the lack of shipping competition results in high costs for businesses and consumers.

“The cost of getting an average ocean container to us here from the Mainland is three to four times the cost of getting the same container from the Mainland U.S. to a foreign country, such as China or Australia,” he said. “One of the things that would really help us all in Hawaii — not only businesses, but individual consumers — would be to find a way to exempt Hawaii or somehow reduce the impact of shipping rates.”

Infrastructure

Garren Millare, owner of G’s Juicebar in Waimea, said Kauai’s traffic affects his business. The island’s two-lane highways are often jammed with vehicles and Kapaa’s traffic woes are notorious.

“Kauai is slower. I did travel around the world when I was in the Air Force and I did notice traffic in other places wasn’t as bad,” he said. “I’m on the main highway in Waimea and traffic can get backed up.”

Benton said the infrastructure is a huge problem on Kauai.

“As a business owner, the word will start to become common that it’s impossible to get around the island or that it’s difficult to get to one place or another or there’s frequent traffic problems and jams,” she said. “This is something we struggle with, as residents and because I’m basically catering to guests on the island.”

On the North Shore, Benson said it can take drivers at least 15 minutes just to get through Hanalei town.

“There is frustration that everybody experiences in getting simply from the airport to the North Shore, any given day, and back,” she said. “Mostly it’s the roadways and it’s so narrow and tight and we don’t have the proper places to turn off.”

Benson, who operates a property management and vacation rental services business, said one of the problems is an influx of people on the island.

“It’s hard to live in a place that now feels like there are far too many people on it most of the time,” she said. “As well as in the water, at the surf breaks, on the road, on the hiking trails, it’s feeling very overpopulated. It’s just the nature of the small island.”

George Costa, director of the county’s Office of Economic Development, said some residents want to keep the existing infrastructure.

“In some communities, residents want to keep their rural character and opt not to have modern elements put in such as larger bridges and roadways and sidewalks,” he said in an email. “This helps to maintain the community’s charm and sense of place.”

Costa said, however, improvements are being made to our roadways, waterlines and wastewater facilities, “that in turn are helping to improve the quality of life for residents and visitors.”

Success

Some businesses have found ways to reduce costs.

Millare said he offsets shipping costs by trading locally.

“For instance my greens — like kale — I will trade my juice pulp and leftover banana peels for their greens at the Kekaha community gardens,” he said. “Green vegetables are pretty expensive, so in a way they build their community garden with my pulp and they gave me a handful kale every week.”

Misha Taylor, owner of Aloha Aina Juice Bar, is expanding.

“Business was so good that I decided to get my own storefront,” she said.

Taylor is moving from her Poipu location of two years to Lihue in the coming months.

She attributes the lack of competition to her success.

“If you go to Oahu, there’s a juice bar in every corner, a sandwich place on every corner,” she said. “On Kauai, there’s room for growth. The island’s growing. There are more visitors coming. There’s more people moving here.”

Costa said Hawaii is leading the way in innovation and sustainability.

“The utility companies are making great strides in utilizing alternative energy, particularly on Kauai where large-scale, commercial photovoltaic farms have been established,” Costa said. “Expansion of hydroelectric projects, battery storage, and the use of alternative fuel sources such as LNG and biomass materials are also being evaluated for development to meet Hawaii’s energy needs.”

Gunter said the brand of Hawaii is the state’s main appeal to visitors.

“Everyone that I have ever met always has good feelings about Hawaii — even if you have never been here. They imagine Hawaii to be a magical, beautiful place,” he said. “We get a steady influx of visitors coming to the islands on a regular basis. That presents business people in Hawaii to impact millions of people on an annual basis.”

He added that Hawaii offers entrepreneurs significant opportunity, but cautions them on the high cost of entry.

“I would encourage people if they got a good idea, if they got a sound business plan and have adequate financing and they plan well and execute well, there’s clearly no reason why others can’t be successful,” he said.

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