Hawaii must cope with a third straight year of population decline and a shrinking labor force while looking at a slowing economy in the coming years.

But that doesn’t mean that the state’s economy, or even the country’s, is facing a recession, according to state economist Eugene Tian.

“Our economy is going into a slow growth period, but we’re not in a recession yet,” Tian told a panel of legislators Tuesday.

Tian’s presentation to the Legislature’s money committees was a round up of the dark clouds looming on Hawaii’s economic horizon. The building industry, one of Hawaii’s largest industries, is expected to see a downturn. Visitors coming to Hawaii are expected to increase, but spending will stay flat. And growth is slowing in tourists coming from other countries, Tian said.

Eugene Tian, an economist with the state Department of Business, Economic Development and Tourism, warned lawmakers that a slower economy is coming.

Blaze Lovell/CivilBeat

“It is not surprising Hawaii’s economy is slowing down,” he said.

The state Department of Business, Economic Development and Tourism projects slower growth in the building industry because of a decline in private construction permits issued. But the construction industry could be bolstered in the coming years.

Gov. David Ige’s administration is asking lawmakers to approve an additional $1.47 billion worth of capital improvements statewide in fiscal 2021, which starts July 1, as part of his supplemental budget request.

Tian said governments typically step in to fund infrastructure projects during slow economic years to stimulate the construction sector.

Hawaii has also been producing fewer housing units, according to DBEDT data. In the 2000s, the state built an average of 7,000 units each year. In the past decade, the average has shrunk to 3,300 units a year.

State and county lawmakers have been concerned about who is buying up available housing units. Tian said that, on average, 24% of units in the state are owned by someone who is not a Hawaii resident.

Broken down by county, non-residents own about 15% of housing units on Oahu. That number is closer to 40% on the neighbor islands, Tian said.

Californians are buying many of the units, he said. Often, non-residents buy them to use as a second home or as a vacation rental.

“This is where the counties should understand, with their home-sellers, while they are generating revenues for Airbnb, they’re not generating revenues for local business, nor are they generating taxes,” Sen. Michelle Kidani said.

Vacation rental owners still pay property taxes, and the vacationers pay excise taxes on items they buy in Hawaii. Last year, lawmakers tried to tax short-term vacation rentals, but the governor vetoed that proposal.

With a shortage of available housing and nation-leading costs, Hawaii is second only to Utah for the number of people per housing unit.

While Hawaii has a low unemployment rate at about 2.8%, it doesn’t reflect the reality of Hawaii’s labor force.

Another number to look at, Tian says, is the “unemployment due to economic factors,” which was closer to 4% last year.

That includes people who looked for work but weren’t hired. It also includes those who sought full-time positions but work part-time instead.

“They couldn’t find the job they wanted, so they went to the mainland,” Tian said.

What jobs are in demand will be the subject of several state reports due in a couple weeks, he added.

There were 3,500 new non-agricultural jobs in 2019, more than half of which were in the service industry. That’s followed by government employment, construction and health care. The state lost 2,100 jobs in retail, in part due to internet sales and a decrease in visitor spending.

Tourism spending is expected to stay flat. When adjusted for inflation, it’s about the same level as it was in 1989.

Bigger planes, like the All Nippon Airways Airbus A380, are expected to boost travel from Japan, which is forecast to increase 8.3% over last year. The grounding of some jet models, like the Boeing 737 Max 8, could contribute to fewer people coming from Canada, parts of Asia and Oceania.

Tian’s projection of tax revenues is rosier than other economists. His projection of the general fund revenue increasing 4.7% this year is higher than the Council on Revenues’ most recent projection of 4.1%. And while the council expects growth to hover around 3% in 2021 and 2022 because of a possible recession, Tian says a figure around 4% to 5% is more likely.

Lawmakers will consider the council’s multi-year forecast when deciding on funding proposals this legislative session, which opens Jan. 15.

The state currently has an operating budget of about $16 billion, half of which comes from the general fund.

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