The coronavirus will have a greater effect on Hawaii’s economy than initially predicted, with tourism spending expected to decline by 10% this year, according to a new report by University of Hawaii economists.

That equates to an estimated $1.7 billion, based on the 2019 figures for visitor spending.

The report, released Tuesday by the University of Hawaii Economic Research Organization, is the first major economic research on the local economy produced since the virus’ widening economic effects have come into focus.

Visitors to Oahu’s Waikiki Beach with Diamond Head in the background.
Oahu’s Waikiki Beach is popular with visitors. That’s Diamond Head in the background. Cory Lum/Civil Beat/2018

The report marks a decidedly more pessimistic outlook than a previous one released by UHERO just two weeks ago.

UHERO based the earlier, first quarter forecast on February data that showed only a 2% decline in visitors from the key Japan market.

UHERO also looked at Hawaii’s experience with the SARS virus in 2002-2003. In its earlier report, that suggested a V-shaped trend, with a sharp decline and quick recovery.

Now, with new data showing widening issues, UHERO expects something much worse.

“While new infections have slowed markedly in China, the spread of the novel coronavirus in South Korea, Iran, Italy, Japan, and now more than two-thirds of US states, suggests a more prolonged outbreak is in the cards,” UHERO reported. “And the longer the virus spreads, the greater the human and economic toll.”

The report comes as a panel of tax experts and economists known as the Council on Revenues prepares to gather on Wednesday to decide how much money the state can expect to collect in tax revenue this year.

Council members on Tuesday declined to predict how much tax revenues might drop. But there was general agreement on a looming slowdown and declines in tourism.

“I hope the council recognizes the reality that there will be a slowdown in tourism,” said Councilman Jack Suyderhoud, a retired UH business economics professor.

Marilyn Nawao, a council member and accountant on Maui, agreed that businesses that depend on tourism will be hit hard but said the state also needs to consider how the virus will affect supply chains, including key goods. For example, she said, many of the state’s pharmaceuticals come from China.

“We have to learn to be more self-sustaining,” Nawao said. “You can’t have local people all dependent on tourism.”

Although council members declined to predict the impact on tax collections ahead of Wednesday’s official meeting, UHERO Director Carl Bonham is a member of the council. And the report thus should carry some weight in the organization’s deliberations, which provide guidance to state lawmakers crafting the state’s budget.

The impact may be profound: a loss of 3,900 jobs in addition to $1.7 billion in revenue. Asked to confirm the staggering numbers, Bonham acknowledged, “It’s a lot of money.”

But he also said it’s not without precedent.

“Go back and look at 9/11, and there was a 15% decline in 2001,” Bonham said of the terrorist attacks on Sept. 11, 2000. And that decline was mostly the result of a fear of flying.

“A 10% decline is within the range of historical events,” he said. “It’s not pretty.”

It’s not clear if the council will decide to lower its forecast more in future years. The projection was already slowed to 3% growth in 2022 and 2023 to factor in a possible recession.

Lawmakers have already budgeted over $10 million through Senate Bill 75 to fund precautionary measures that the departments of Health, Transportation and Defense are taking to mitigate against the virus.

Linda Chu-Takayama, the governor’s chief of staff, told a Senate committee Tuesday that the administration may need to ask for more money if the virus spreads through the state.

Takayama said each department has already been asked to look at how the departments could be impacted by a great number of workers calling in sick. She also told the senators that the state has been reaching out to various industries, like dockworkers and shipping companies, to provide guidance on how to contain COVID-19.

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