The Great Recession is over. Nationally, the recession ended in June 2009. While unemployment remains stubbornly high, particularly on the mainland, the Council on Revenues projects continued growth and substantially higher revenue for the state in the coming months and years. Currently the Council is predicting 10% revenue growth in fiscal year 2012 which starts in July 2011 and 6% growth in FY 13.
So what are the lessons of the worst recession since the Depression for state government? And what should the Legislature and the Governor do this session to be sure state government applies these lessons?
Lesson 1: Do not allow the private sector to regulate itself. The risks financial industry companies were willing to take to keep their profits high and the unethical behavior they were able to recklessly engage in because there was little or no regulation of new financial products cannot be allowed to be repeated.
How does this lesson translate to the state level? Lawmakers must be skeptical of claims that everything will be alright if they simply let the free market work. Evidence to the contrary is overwhelming.
Lesson 2: Save some money. Further cuts will be necessary in the next two fiscal years, but we need to start planning for the next expansion. Like all states except Vermont, Hawaii’s constitution mandates a balanced budget. While this has the advantage of making it very difficult for state government to live beyond its means, it also brings with it certain disadvantages. When the economy goes into recession and tax revenues fall, the Governor and the Legislature almost always end up making pennywise and pound foolish spending decisions.
The obvious one during this recession was furloughing teachers. In the short-run, the 17 furlough days saved over $93 million. In the long-term, while hard to calculate with precision, there was substantial damage done to our children and to the future of our state.
In fairness, previous legislatures and governors had saved some money: the Hawaii Hurricane Relief Fund functioned as a savings account. Twenty three million dollars were utilized from the Emergency Budget and Reserve Fund to protect the most vulnerable of society during these difficult economic times just as the authors of the bill creating the EBRF had intended. But compared to the cuts ($796 million voted on during the 2010 legislative session alone), these amounts were small.
Now that the recession has ended and revenues are picking up again, the pressure to fund areas that were short-changed during the downturn will be intense. For example, as the representative of a district where about half of the population live in high rises, I am very concerned about the frequency and thoroughness of elevator inspections. Routine inspections are not being done on time because the Department of Labor and Industrial Relations does not have the personnel to keep up.
Unless we systematically save money during expansions, the same thing will happen during the next recession/expansion cycle. And there will be another recession. Just as another hurricane will strike Hawaii, another recession will occur.
Of course, there is no legal impediment to the Governor and the Legislature setting aside funds. But there is a major barrier to saving money in addition to the pressure to catch up when times are good: many feel that if the government does not spend their tax money right away, that those funds are not needed and should not be collected. The problem with that view is that when those funds are needed, the economy will be in recession. Unless a person is truly wealthy, raising their tax rates during a downturn is the last action a government wants to take for economic reasons.
As a result of all these factors, state government saves very little general fund monies. This needs to end. I introduced a bill, HB 2098, which would have put a constitutional amendment on last year’s ballot to require saving when revenues are rapidly increasing. It did not pass, but voters should insist that funds be saved whether by passage of a bill like HB 2098 or simply as a result of the current budget process. If nothing changes, it will not be long before we are facing another furlough Fridays situation.
Lesson 3: The really big problems have not gone away. Understandably, most Hawaii families have been focusing on economic issues for the last four years. If you have lost your job or are simply worried about losing one, it is hard to be concerned about other issues. Fortunately or unfortunately, the laws of physics continue to operate whether we are employed or not.
The scientific consensus is that climate change is real and that it will have profound consequences for Hawaii. But even for those who question that consensus, the advantages of reducing our dependence on oil are tremendous. The most obvious advantage would be lowering America’s profile in the Middle East. While the Bush Administration’s real motivations for invading Iraq in 2003 may never be known, there is no question that the first Gulf War in 1991 came about as a direct result of our concern about protecting Saudi oil from Saddam Hussein. It is hard to imagine that the United States would have committed the resources it did in 1991 or 2003 if it were not for our reliance on oil.
Voters have every right to expect state government to advance more than one initiative at a time. The electorate should pay attention to whether the state government continues to move forward during this coming legislative session on tapping the many energy resources like wind, solar and wave that we have right here in Hawaii. Our oil dependency needs to be addressed sooner than later.
Karl Rhoads represents the 28th District in the State House (Palama, Chinatown, Downtown, Lower Makiki, Sheridan) and is currently the chair of the Committee on Labor and Public Employment.
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