Warren Buffett once said, “You only learn who has been swimming naked when the tide goes out.”
That includes states. And now that the tide has receded, it’s easy to see that Hawai‘i 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.
Hawai‘i’s leading industry, tourism, has virtually disappeared. Unemployment is at historic highs. Hundreds, if not thousands, of businesses have permanently closed. State and county tax revenues have evaporated. Budgetary finagling is rampant as Hawai‘i officials seek loans and other forms of relief from the federal government to cover their short-term obligations.
Even before the Great Lockdown Crash of 2020, the state had been on a spending spree, repeatedly busting through its useless legal spending cap, steadily eating into its rainy-day fund and allowing its numerous unfunded liabilities, such as for its public-pension and health-benefits programs, to balloon. It also was constantly adding new taxes and piling on new regulations.
The protectionist Jones Act also adds to Hawai‘i’s exceptionally high cost of living. Groundbreaking research by the Grassroot Institute of Hawai‘i released in July found that the 1920 federal maritime law costs Hawai‘i about $1.2 billion a year, including about $1,800 per average family, and 9,100 lost jobs.
But mostly, Hawai‘i’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. In the wake of the COVID lockdown, that tempo is expected to increase: University of Hawai‘i researchers estimated in June that up to 30,000 residents will be leaving over the next two years.
So what is to be done? Certainly not what Hawai‘i 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 brought on by the worst financial disaster in the state’s history, lawmakers approved $150 million in raises for state employees. Yes, while much of the private sector in Hawai‘i 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, which was amazing.
Looking ahead, Hawai‘i lawmakers should be looking at tax decreases, regulatory rollbacks and less state spending.
They also should be looking to revive tourism, the lifeblood of Hawai‘i’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.
To create construction jobs, lawmakers should consider land-use and zoning changes to allow for more housing. Only 5% of Hawai‘i’s land is available for housing. 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.
As outlined in a new Grassroot Institute of Hawaii’s “Road Map to Prosperity,” Hawai‘i lawmakers also could exempt food, medicine and health care 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 Hawai‘i.
Hawai‘i lawmakers also could finally reform the state’s public pension system, currently underfunded by $14 billion. And they definitely should reassess the Honolulu rail project, the price tag for which has ballooned from $3 billion in 2006 to over $9.2 billion, making it the most expensive in the world per capita.
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. That reform alone would save Hawai‘i $532 million a year, according to the Grassroot Institute of Hawai‘i’s study.
These are just a few of the things our policymakers could do to help Hawai‘i get back to work. Hawai‘i’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, Hawai‘i will continue to flail naked in the shallows.
Dr. Keli‘i Akina is president and CEO of the Grassroot Institute of Hawai‘i and an at-large trustee of the Office of the Hawaiian Affairs.