We’ve never before seen an economic plunge like the one brought on by the coronavirus pandemic. The abrupt economic reversal will result in significant reductions in state tax revenue, which supports about half of the state’s budget.

This has prompted proposed cuts to state worker salaries and the budget. However, these cuts would have a devastating effect on our already injured economy, as well as hobble government services that will be even more important in the coming year.

When an economic crisis paralyzes private business, only government is able to restore spending and spark a recovery. Government investment helped end the Great Depression in the 1930s.

Eighty years later, federal spending stopped the Great Recession by putting money into the pockets of individuals, businesses, and state governments to stimulate spending. That is also why Congress has taken unprecedented action to open the federal purse to address this crisis.

George Segal’s “Breadline” sculpture at the Franklin Delano Roosevelt Memorial in Washington, D.C.  Photographed by Carol A. Highsmith for the National Park Service. Cutting pay for Hawaii’s public sector workers will only delay economic recovery. Flickr: Tony Fischer

Over the past month and a half, Congress has passed substantive legislation offering loans and subsidies for businesses, a bump in unemployment compensation, stimulus checks for many households, resources for medical providers and funds for public programs to respond to increased COVID-related health and economic needs.

The worst thing a government can do during a recession is accelerate the fall by cutting funds. A 20% pay cut for state workers would slash earnings — and therefore spending — by $700 million.

However, the International Monetary Fund found that every dollar of reduced government spending resulted in as much as $1.50 in lost economic activity. That means that a $700 million wage cut would punch an even bigger hole in the economy.

We Need The Services

The University of Hawaii Economic Research Organization agrees in its recent analysis: “a cut of 20% to state salaries would lead to a drop in GPD of $3.3 billion over the 2020–2022 period.” Such a drop would prolong widespread unemployment that would lead to poorer health, lost productivity, and a drop in household economic security that would affect us for many years.

Another compelling reason to reject pay cuts for state workers is that we need them and their services more than ever now to:

  • run programs that help families meet basic needs for food, housing, and health, and that help businesses regain their footing;
  • provide the public health infrastructure to track and monitor outbreaks and develop safe plans to re-open the economy; and
  • create the systems for remote education and work many of us now rely on and ensure access to high-speed internet.

There exist better alternatives to unwise across-the-board state spending cuts. We started the year with a budget surplus. We have a rainy day fund and we can borrow from others like the hurricane relief fund. In fact, borrowing money may be the best option for the state right now.

Public debt in the hands of responsible governments is not always a bad thing, especially when interest rates are so low and our credit rating is at an all-time high. The Federal Reserve Bank will lend up to $500 billion to states and large municipalities. Hawaii would qualify for $3 billion from those funds.

Our state constitution authorizes borrowing for operating needs in the event of a declared public health emergency. The provision exists for exactly this kind of scenario and we should use it.

We’ve never faced a health and economic crisis like this one, but we’ve also never had more tools to deal with it. Let’s put good public policy to work to minimize the harm caused by the pandemic, and build an economy that offers more opportunities for success than did the old one.

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