As Hawaii looks for ways to rebuild an economy ravaged by the global pandemic, military spending is taking on a more important role as other streams of income run dry.

Tourism has collapsed but defense spending in Hawaii has remained steady and could grow as tensions between the Chinese military and American allies and trade partners have prompted a renewed focus on the Pacific at the Pentagon.

Policymakers have described Hawaii’s economy as a “three-legged stool” propped up by tourism, construction and defense spending.

For many Hawaii residents the pandemic has exposed the delicate nature of the state’s economy as travel restrictions have essentially knocked out tourism — arguably the most important leg of that stool.

“If we did not have our military and federal defense component of that three-legged stool, we would just be about as dead as could be,” said Hawaii U.S. Rep. Ed Case. “It has really provided some stability in an economy that is too highly reliant on just a few economic drivers.”

On Monday, economists said the economic fallout from the dearth of tourism in Hawaii will be worse than expected, judging by a new series of indicators they have been able to measure. The grim news came even as Gov. David Ige signaled that he likely will continue to hold off even longer than Oct. 1 on lifting the 14-day mandatory quarantine for travelers to Hawaii, something tourism industry officials had been counting on.

John Greene, the defense industry specialist at Hawaii’s Department of Business, Economic Development and Tourism told Civil Beat that military spending is one of the few parts of Hawaii’s economy the pandemic hasn’t seriously affected.

Greene’s job is to analyze how the military impacts Hawaii’s economy by tracking dollars coming in. He’s also part of a project that looks at how jobs and infrastructure meant for military purposes could be redirected to civilian purposes if for some reason the Pentagon cut back spending in the islands.

Hawaii Military Affairs Council Vice President Jason Chung said the military in Hawaii is critical to diversifying Hawaii’s work force. In an email, he said it offers “our youth an opportunity to go into a new, exciting field that can offer high paying jobs and the opportunity to remain home in the islands.”

Hawaii is home to the military’s Indo-Pacific Command which oversees all operations across the Pacific Islands, Oceania, East Asia, the Indian Subcontinent and the waterways that connect them. It’s the U.S. military’s largest theater of operations.

Joint Base Pearl Harbor Hickam Housing on the Pearl Harbor side with condominiums at left of photograph.
Joint Base Pearl Harbor-Hickam housing on the Pearl Harbor side with condominiums at left. Cory Lum/Civil Beat/2019

Military bases often function like cities. They rely on utilities like water and electricity and need waste management services. They also need engineers, plumbers, electricians and others to keep the base running day-to-day and work on future projects.

Many of the people who do that work are local Hawaii residents either directly employed by the Department of Defense or working through contracts with private companies.

During the 2018 fiscal year, direct Pentagon spending pumped $7.2 billion into Hawaii’s economy through contracting, making up about 7.7% of the state’s GDP.

That put Hawaii as second in the United States for the highest defense spending as a share of state GDP, according to the Pentagon Office of Economic Adjustment.

Those numbers are available through the state’s Hawaii Defense Economy project, which tracks defense spending up to May 30 of this year.

The military has spent about $2.3 billion in the state. Of the service branches, the Navy is the biggest spender, shelling out roughly $821 million.

An estimated $663.4 million went to construction projects, $313 million for engineering services, and defense spending on ship building and repair has so far netted about $197.6 million.

So far the top recipient of defense dollars for work in Hawaii this year is Colorado-based Hensel Phelps Construction at $154.2 million. Second is local construction contractor Nan Inc., which received $70.1 million. 

At third was local defense contractor Manu Kai with net cash flow of $63.3 million for several contracts, including managing the Pacific Missile Range Facility at Barking Sands on Kauai.

Of the Pentagon’s spending in Hawaii, 57.8%  went to businesses located in the islands. But regardless of whether the contract is awarded to a mainland- or Hawaii-based company most of the work is either carried out by Hawaii residents on staff or ultimately subcontracted to local businesses. 

“There’s always that flow of subcontracts,” said Greene. “Regardless of the industry you’re in, if it’s a large contract, then small businesses are going to be a part of it.”

A rendering of the planned Homeland Defense Radar-Hawaii. Lockheed Martin

Traditional big name military contractors like Lockheed Martin, BAE Systems, Northrop Grumman and Booze Allen Hamilton also get in on the action.

In December 2018 Lockheed won a contract to develop a missile defense radar that’s now expected to cost $1.9 billion by the time it’s complete

The Trump administration tried to defund the project for the current fiscal year as it explored alternative missile defense systems for the Pacific, but Hawaii’s congressional delegation fought to restore funding in spite of opposition from some Native Hawaiian activists and critics that question its strategic value.

A Stable Cash Flow

But the radar also has strong advocates in Hawaii’s business community. Chung said that when a military facility becomes established it often becomes the largest employer for surrounding areas and supports local businesses like restaurants.

While the pandemic has largely kept tourists out of Hawaii, military service members and families remain and have continued to patronize local businesses.

Between active duty troops, National Guardsmen and Reservists and civilians working for the Department of Defense, Hawaii has a military workforce of about 72,100 people, according to state data.

They’ve continued to order food, shop and patronize a wide variety of community businesses. Greene says that bases become “anchor institutions” for the towns and population centers that surround them.

“It’s not something that we’ve studied in depth,” Greene said of how specific spending by troops and family members helps keep the economy going, but the pandemic is starting to create a clearer picture.

“Anecdotally, you can see that the locations which are closer to a military installation aren’t necessarily as impacted as places downtown,” Greene said. 

Case noted that while there have been a variety of studies that have tried to track the military’s overall impact to include both contracts and service member spending, they often come to different conclusions about how much of the GDP it actually makes up.

“I think the best estimates are somewhere in the range of 15 to 20% directly and more indirectly,” Case said.

While the pandemic has meant tourists have stopped coming, the military is still here. Hawaii has a defense workforce of roughly 72,100 people. Cory Lum/CIvil Beat/2015

As technology changes how the military does business it’s opened the door to new opportunities and new threats. To guard against Russian and Chinese hackers, the military needs more tech savvy employees and contractors to adapt to an increasingly digital world. 

With critical headquarters in Hawaii the military has been boosting the state’s tech economy as it hires cyber security specialists and pays for training and education programs to expand the talent pool.

The Air Force played a key role in standing up the University of Hawaii’s Maui High Performance Computing Center and the Navy helped create its Applied Research Lab and continues working closely with the university. As of May 30 the Department of Defense has put about $40.6 million into the University of Hawaii system this year.

“Those are, you know, high skilled jobs, that the military is almost incentivizing here within our state,” said Greene. “You have a lot of DOD investment into the community in the counties that may not be as visible to the public as a military base, but it’s still there.”

But with COVID-19 starkly demonstrating the state’s over-reliance on tourism dollars, there are also concerns that leaning on the military to make up the difference will only lead to further dependence.

“There are obviously negatives that go along with the military as well,” Greene said, noting local concerns about pollution caused by fuel storage at Red Hill.

Local residents have regularly clashed with the military over issues ranging from environmental concerns to preserving Hawaiian cultural heritage sites. Military training in the islands has left decades worth of unexploded bombs across Hawaii despite efforts to account for and dispose of them.

But the state is hoping to use skilled labor jobs and infrastructure created by Pentagon spending to fill other sectors.

“Cyber security can translate to financial institutions to medical institutions, where information needs to be protected,” said Greene. “You have a lot of overlap as far as the needs of DOD and the needs of non-DOD for that type of workforce. “

Greene also points to Pearl Harbor Naval Shipyard which employs a workforce of about 6,500 people, noting that it’s created the largest industrial base in the state.

“A lot of that … work that goes into fixing their Naval ships can translate to fixing non-military ships as well, whether it’s for pleasure craft or their merchant vessels that need to be repaired,” said Greene. “You’re dealing with pipefitting, welding, those type of job occupations, which have a lot of flexibility to work in DOD and non-DOD fields.”

The Pentagon currently considers the Indo-Pacific it’s highest priority military theater, and Hawaii is the nerve center for missions across the region on both land and sea. As tensions escalate with China, it’s not likely the military will be looking to curb its presence or its spending in Hawaii anytime soon.

Hawaii’s Changing Economy”  series is supported by a grant from the Hawaii Community Foundation as part of its CHANGE Framework project.

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