We are in trouble, and need to make up for budget shortfall

Let’s first start by stating the obvious: We’re in trouble.

According to the latest forecasts put out by our Council on Revenues, we have a state budget hole of more than 2 billion dollars.

This has to be made up somehow.

The Legislative Auditor’s staff was busy at work trying to find idle cash parked in obscure special funds. They found some, but raiding it will be a one-time fix.

The governor is talking about furloughing employees for two days a month for four years, beginning in December, to shave roughly 10% off state payroll costs. He has also asked the executive departments to come up with another 20% in cost reductions.

Not much has been said about “revenue enhancement,” things like increasing taxes, suspending exemptions, lopping off tax credits. At least not yet. We fully expect the Legislature, when it opens next year, to be flooded with revenue-enhancement proposals. The question then becomes which, if any, will have enough traction to go all the way through the legislative process.

One very-important step that takes place before the Legislature convenes is, of course, the general election. That’s when we find out who will be in the Legislature.

Once we figure that out, we then need to remember a few things if we’re going to think about how to balance the state budget.

About half of the operational spending from state government is considered fixed costs. This includes interest payments on money that the state has borrowed in the past, and payments to support the retirement and health benefits that are due state workers who have vested in the benefits, whether or not they have left the state.

Governor Ige skipped this year’s payment to the retirement system and health fund, but it’s not something we recommend doing, and there is no way it can be done year after year. We already owe our creditors and our workers, and the debts need to be paid.

A long time ago, soon after the new hotel-room tax became law in 1986, state government committed to sharing some of its wealth with the counties. The amount of this sharing has been the subject of fierce and ongoing debates over the last decade or so, but there always has been sharing. Until May, that is, when the governor by proclamation shut down the law that required our hotel-room tax to be shared with the counties. That move perhaps eased the problem at the state level but is now causing pain at the county level.

If and when lawmakers look to taxes as the means of patching the leak, they are going to find that only two tax types bring in enough money to make an appreciable dent in the budget: the general-excise tax and the individual-income tax.

Most of you probably already knew that the general-excise tax, which is imposed on all business in the state, brings in lots of money, primarily because it is imposed on almost everything that moves and may be imposed many times in the economic chain that leads up to the retail sale of a product or service. What you might not have known is how much the individual-income tax rakes in. In fiscal 2019-20, for example, it brought in $2.3 billion compared with $3.4 billion in GET collections. Of that, $2.1 billion came from withholding tax on wages.

We’re in trouble, and the way out of this mess is a complicated one. How will the pain be shared? If you have an opinion on the matter, you can go to the ballot box, you can speak with your elected officials, and you can encourage others to do the same. Will you be one of the people who make things happen? Will you simply watch what happens? Or will you be part of the mass of people who have no idea what is happening?

•••

Tom Yamachika is president of the Tax Foundation of Hawai‘i.

4 Comments
  1. Kyle October 25, 2020 3:35 pm Reply

    I’m sure the legislators have been waiting with bated breath for my solution to this problem, lol, so here it is: I have worked on corporate budget shortfalls when revenue predictions went awry. If you cannot increase revenue, you must lower and defer expenses. There must be an equitable sharing of the pain. A good process is to parse the budget into many categories (20-30 categories is as granular as you can get without crossing budget lines), then you make an equal percentage decrease, say 10%, to EVERY category. This avoids the inevitable lobbying or cries of unfairness. It also prevents outright elimination of beneficial projects, and makes the fat parts of the budget contribute their share to the fix. This is the low-conflict fix…the other fixes are much more exciting.


  2. Ron Rodarte October 25, 2020 6:33 pm Reply

    All systems have limits that must be managed. It is a profound epoch of advancement when economic and natural systems are realized as one-in-the-same.
    As an island community our natural systems are ever-present yet noticeably distressed and buckling under the economic stresses demanded by the fast burn of an entertainment model for tourism that has dominated the State economic model.
    Tourism as an industry must morph to a sustainable industry. That sustainability must be supportive of the Hawaiian residents and the Hawaiian natural systems, for without a healthy population or a healthy ecosystem there is no tourism to sell to short-visit tourists.
    Our State has reached the limit on carrying capacity for non-residents and the limit for island economic self-sufficiency as indelibly marked during a global pandemic.
    Hawaiian leaders and residents must break the profit-fable of tourism alone as the economic driver and assimilate the new sustainability models in natural systems coupled with economic systems.
    Balance economics with nature and you will balance all the books.
    This link leads to a study that is indicative of the promise in making that breakaway corporate-political move to sustainability and prosperity:
    https://hbr.org/2013/03/making-sustainability-profitable


  3. Her D’immun October 25, 2020 11:44 pm Reply

    Had the economy and the Covid19 virus been left alone for nature to run its course this is what would have happened:
    1. The 98% of the people infected with Covid19 would have had
    zero to mild symptoms. This happened anyway, but because of
    the lockdown not enough people contracted the Covid19 virus
    and so we never reached Herd Immunity like we do every other
    year. Unnecessary media fake news fear prevented Herd
    Immunity. Too bad! We missed our chance!

    2. Of those infected and were positive, within 3 days to 14 days they all had enough production of antibodies to deactivate all the covid19 virus in their body. This happened, and so all the left over antibodies, after all the virus were deactivated, those left over antibodies by the billions became that person’s immunity, making it so that person and the same others developed immunity and what comes along with immunity is they are no longer contagious because there are no more active virus in their bodies, and when new same covid19 virus infect their body their left over antibodies immediately deactivate the new incoming covid19 viruses, and there is no wait time for the antibodies to attack the new covid19 virus, this instant antibody attack against any new invading viruses is called immunity. That happened anyway but the lockdown prevented enough people to develop immunity and the mistake of locking down the state prevented Herd Immunity. Too bad, we missed our chance.

    3. While every day more and more people are testing positive, that is good, thanks to Nature those people after 2 weeks become part of the safety of herd immunity. But not enough people with or without testing positive are able to produce Herd Immunity, the immunity that will eventually shut the covid19 virus down when it has no more people to enter and survive and thrive in, because the virus will eventually, without lockdown, enough people will have contracted the covid19 virus to have effected Herd Immunity. Too bad we lost our chance and now we have not enough herd immunity, which will drag this Dumbdemic on and on because we did not let nature take its course, Nature that would have brought us swiftly to herd immunity instead the silly Governor and Mayors following some medical people not educated well enough in the immune system and missed our chance at herd immmunity; which by now the covid19 flu would have, like every other year, would have come and gone…but oh we missed our chance…we allowed the state to get locked down and shut out the primary healthy no symptom covid19 virus spreaders that would have brought us herd immunity. We missed that chance choosing the mere educated mind to over rule Nature.

    4. As well, had the governor and mayors followed the history of herd immunity they would have allowed people to share and spread the covid19 virus and by now we would have has herd immunity and the virus would have by now be “sent” back into virus oblivion from all of our collective active antibodies that by now would have caused herd immunity. We missed our chance, we should have followed the Natural Path and we’ d be done with this virus already like all the other seasonal viruses that come thru Hawaii each year. Instead the medically appointed and the polítically elected chose to ignore nature and tried to outfox a virus you can run from with your silly mask, 6’ distancing, and wash your hands till their raw; But You Can’t Hide, from this virus that is so small you cannot see them with the naked eye, and so far neither have lab microscopes. So the price of relying on the puny mind of men, and women, now we are paying for our stupidity with bankruptcy and permanent closures all because the guys at the top thought they were smarter than Mother Nature, Queen of the universe and solar system, and instead relied on their minuscule educations, compared to Nature, and relied further on their meager skil set of prescribing multiple side effected prescription drugs for diseases needing to get well, instead of the diseases drugged with cancer causing petrochemicals instead of having undergone the natural healing process.

    Find out all the sick seniors on multi prescription drugs and protect them, and open the economy and let nature fix the virus, and provide nutrition for the seniors so that they can withstand the virus and themselves develop herd immunity.

    Shutting down the almost entire world’s economy in exchange for a few container ships full of pills, given to senior citizens who are old and alee sick, and who are full of prescription drugs taken daily taking people, when the whole world could have taken the Natural Path and gotten herd immunity already, instead of exhausting public funds and tax dollars.

    What are we gonna do if the money runs out?

    We need a ruthless business man as president and not a 50 year unemployed almost ‘80 year old politician who never had a real job in his life, nor a vice president whose only ever been a government employee herself.

    The USA is a big business and it needs our same super businessman to compete against the other conniving business nations of China and Russia.


  4. Trust Nature October 26, 2020 12:09 am Reply

    Mr. Mayor you have been doing a fine job, but you can over protect our community to death.

    Virus and bacteria are a natural and frequent phenomena always best handled by Nature, the same nature that brings you your waves to ride, and when they go away, they come again, something you can rely on.

    You can rely on nature to cause Herd Immunity and she does not need your human help or interference. Have you ever tried to stop the waves. People with waterfront properties have tried to stop the waves and it resulted in a shoreline disaster.

    You can’t fight a virus, you can run, but you cannot hide. If you keep us from our natural immunity, and we have no personal antibody reaction protection, you will have only yourself to blame when too may succumb to the virus when we could have had natural herd immunity.

    You and Gov Ige can’t possibly think you are smarter than NATURE.


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