For the better part of two years, retired aerospace industry consultant Victor Craft worked with veterans groups, government leaders and some local business executives on an array of proposals to try to diversify Hawaii’s economy.

In the end, he essentially threw up his hands in frustration, and moved to Nebraska.

Craft describes Hawaii’s business and government leaders as “lethargic,” and “comfortable.” The pandemic was a shock, but “they’re still hanging on to that comfort zone,” he said from his new home near Omaha, where he moved with his family last year.

If the governor and lawmakers intend to dramatically change course this year, they have not said how. The State Capitol has now been closed for nearly two years, and the pandemic is dragging on. Tourists are returning and people are getting back to work, but the political process still seems stalled.

As the Legislature prepares to open a new session on Wednesday, the state’s finances are vastly improved from a year ago, and lawmakers will have an extraordinary amount of money available to spend on new initiatives.

They will also be under political pressure to perform because every lawmaker is up for reelection this year, something that happens only once each decade.

The state Capitol has been closed for nearly two years now, and was literally fenced off from the public before the start of session a year ago. Claire Caulfield/Civil Beat/2021

The state’s finances are in such good shape that Gov. David Ige proposes to tuck away $1 billion in the “rainy day” budget reserve fund to prepare for the next fiscal crisis. Just weeks after Ige made that proposal, the state Council on Revenues projected the state will collect nearly $900 million more in taxes than even Ige had anticipated.

But the Ige administration’s proposed budget appears to be focused largely on restoring state government funding that was cut in the last budget cycle at the height of the coronavirus crisis, before the huge bailout from the federal government was assured.

Ige was pleased to announce state tax collections are making a phenomenal recovery that will provide more than enough money to patch up the state budget, but his central proposal for using that extra money is to simply bank $1 billion in the rainy day fund.

That plan offers little new hope for Hawaii’s struggling workers and tenants, nor does it represent a new vision for the economy. Leading lawmakers rejected Ige’s proposal literally minutes after he made it.

Diversifying The Economy: An Elusive Goal

State political leaders have talked about diversifying Hawaii’s economy for decades, but when the pandemic hit, the state’s continuing over-dependence on tourism became brutally obvious as unemployment soared to record levels.

The dominant tourism industry is all about service sector jobs such as workers in restaurants and hotels, and today’s economy does not reward people in such jobs, said Gavin Thornton, executive director of the Hawaii Appleseed Center for Law and Economic Justice.

The issue is what we value, “and we don’t give service workers value. We don’t value them, and that shows up in our minimum wage, it shows up in our lack of housing opportunities for lower and middle-income families.”

People wait at the intersection of Kalakaua Avenue and Lewers Street during a recent surge in Covid-19 cases. August 22, 2021
While the tourists have been returning, local residents have been leaving the state, underscoring the limitations of the state’s service-oriented economy. Cory Lum/Civil Beat/2021

It may also be showing up in residents who abandon the state. Population has been leaking out of the state for years, which is a sign of “fundamental, long-term problems,” according to economist and University of Hawaii Economic Research Organization researcher James Mak.

The U.S. Census reports Hawaii had the fourth-highest percentage loss of population from July 2020 to July 2021, a pattern of out-migration that predates the pandemic.

Marilyn Niwao, a member of the state Council on Revenues, glumly told her colleagues earlier this month that virtually all of the businesses on Maui now have “Help Wanted” signs out front.

“I fear that people are leaving,” she said, and that could slow the economic recovery from the pandemic. Niwao is generally the most pessimistic member of the council, but no one argued with her.

Thornton frames the problem this way: “The issue is, people are working for our economy, versus the economy working for our people.”

To begin to remedy those problems, House members including Finance Committee Chair Sylvia Luke want to revive at least some elements of a package of bills lawmakers proposed in 2020, just before the pandemic hit and state tax collections collapsed.

Those ideas include increasing the very modest food and rent tax credits for low-income families, and creating a refundable state earned income tax credit that would put some additional money in the pockets of working families.

Lawmakers said in 2020 they planned to structure the EITC to offer help to about 90,000 Hawaii taxpayers, a step that social services advocates have urged lawmakers to take for years. Appleseed estimates making the earned income tax credit refundable would cost the state an extra $20 million per year.

Top lawmakers in 2020 also planned to sweeten the tax credit for food purchases, increasing the annual credit to $150 per person for each household earning less than $50,000 per year.

That credit was originally designed to offset the impact of the state excise tax on food, and currently ranges from $110 per person for Hawaii’s poorest households to $35 per person for families making $40,000 to $50,000 per year. It is still unclear exactly what changes to the food tax credit may be in the works this year.

House members are separated by plexiglass dividers during COVID-19 pandemic. March 9, 2021.
Lawmakers on the House floor during the 2021 session. One plan being floated this year is to revive a package of tax relief measures that were first proposed in 2020, but failed when the pandemic hit. Cory Lum/Civil Beat/2021

Wages And Housing

Thornton supports those ideas, but also wants lawmakers to increase the state’s minimum wage, which has been stuck at $10.10 an hour since 2018. That is a top priority this year for Appleseed, which argues people should be able to survive in Hawaii working 40 hours a week at a minimum wage job.

Ige backed an increase in the state minimum wage to $15 an hour during his reelection campaign in 2018, and California has already increased its minimum pay to $15 per hour for many employers. But proposals to increase the wage floor in Hawaii died at the Legislature in 2019, 2020 and 2021.

The prospects for passage of a wage increase this year in Hawaii appear to be better. House Democratic Majority Leader Della Au Belatti said during a Civil Beat Civil Cafe panel discussion on Thursday that “I think what’s different about this year is we are no longer in the depths of the pandemic.”

House Speaker Scott Saiki recently told the Honolulu Star-Advertiser he plans to introduce a bill to raise the minimum wage to $18 by some point in the future, and Luke said lawmakers are also considering a proposal to establish automatic increases in the minimum wage that would take effect as the consumer price index escalates.

Without question, another factor in Hawaii’s population outflow is housing. Justin Tyndall, assistant professor of economics at the University of Hawaii Manoa, tells his classes that it is wage levels, cost of living and “amenities” such as surf and sun that tend to drive population shifts.

For government policymakers, the “obvious lever” they can use to slow or stop Hawaii’s out-migration is housing costs, which largely drive the cost of living here, he said.

“We have the ability, if we have the political will, to build more housing to reduce the cost of housing in the state, and that would allow a lot more people to move here or stay here because they wouldn’t face that huge negative cost,” he said.

To answer that need, Senate President Ron Kouchi said he is inclined this year to pump another $100 million to $150 million into the Rental Housing Trust Fund and the Dwelling Unit Revolving Fund, which are both used to subsidize development of affordable rentals.

Senate President Ronald Kouchi Gov Ige state of State 2019.
Senate President Ron Kouchi watches Gov. David Ige deliver his State of the State address before the pandemic. Kouchi hopes to sink more than $100 million into affordable rental subsidies to try to “move the needle.” Cory Lum/Civil Beat

Kouchi wants to focus this year on affordability for middle-income working people such as teachers, police officers and firefighters, who mostly find it nearly impossible to buy now with Oahu’s median home price of more than $1 million.

That $100 million to $150 million “would be enough to make a difference and move the needle,” he said.

Luke, however, said she has concerns with that plan. She recalled that lawmakers injected about $200 million into the rental housing trust fund several years ago, hoping that would increase the inventory. Years later, the balance in the fund was about $300 million, she said.

That shows there are limits to how much the trust fund and the administration can actually spend each year, she said. “If we were to give all this money, is it going to just sit in a trust fund, and then we need to wait for six years before the project actually gets done?”

Instead, Luke is interested in tackling the housing problem this year through the Department of Hawaiian Home Lands, which has a list of 28,000 Native Hawaiians who have submitted applications and are waiting for housing. She said last week the Senate is also committed to finally addressing the DHHL backlog.

“If we have the money, we need to do something, and we need to do something big.” — House Finance Chair Sylvia Luke

“If we’re sitting on basically $1 billion, it’s our obligation to deal with the thousands of people on the waitlist, and I don’t think we can get out of this session without making a huge commitment and making a dent in DHHL,” she said.

“If we have the money, we need to do something, and we need to do something big,” she said.

Luke is also interested in swapping state lands that can readily be developed for Hawaiian Home Lands where it may be impossible for the department to ever build housing.

Of the 203,000 acres in the department’s inventory, about 60,000 acres are in conservation or other special district classifications, much of which likely cannot be used for housing development for Hawaiians. An obvious example is the cliffs above Waimanalo.

Innovative Investments

One of the constraints that some lawmakers cited this year is the sense that the extra cash flowing into the state may very well dry up in the years ahead.

Senate Ways and Means Chair Donovan Dela Cruz has suggested the state should be looking at “one-time expenses” such as infrastructure or housing that will benefit state residents, but won’t require more money every year the way entirely new programs or services might.

Dela Cruz also suggested this is the time to find innovative ways to invest in finally developing economic engines other than tourism.

“What investments do we make to diversify the economy so we’re not in the same mess the next time this happens?” he asked.

On the Republican side of the aisle, House Minority Leader Val Okimoto said one of the main reasons residents have been leaving “is because there aren’t enough economic opportunities.”

“We can solve this by supporting sustainable, local, and modern development projects that will create high-paying jobs for the next generation of local kids who don’t want to move away because Hawai’i is too expensive,” Okimoto said in a written statement.

“The legislature can contribute to the solution by getting government out of the way of progress,” she said.

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