This commentary was originally published in Honolulu Civil Beat, April 18, 2020.
Hawaii is leading the nation in per-capita unemployment right now because of government actions intended to stop the coronavirus.
According to the state Department of Labor, almost 250,000 people have lost their jobs over the past few weeks because of Gov. David Ige’s statewide shutdown — and the state is in a poor position to do anything about it.
State tax revenues, meanwhile, are expected to fall by up to 25%. According to a Grassroot Institute of Hawaii analysis, that would create a budget deficit for fiscal 2021 of between $710 million to $1.8 billion, undoubtedly forcing drastic budget cuts at a time when emergency services could be in extremely high demand.
But just as government policies in reaction to the pandemic have worsened this mess, there are some ways our lawmakers could help the state pull out of this budgetary tailspin and avoid prolonged economic pain and suffering.
State Government Options
First, for the state government itself, the governor should stick by his proposal to cut the salaries of public employees by 20%. In the past he has ordered departmental budget cuts —- of 10% in fiscal 2018 and 5% in fiscal 2019 —- but either way would be desirable. He needs to trim government expenses ASAP, though the current situation might require some discretion as to which department budgets are cut.
Additionally, state lawmakers could:
- Delay salary increases for public workers and legislators, especially since many private sector employees are being furloughed or laid off, leaving them with no incomes at all.
- Consider furloughs for so-called non-essential public employees.
- Run a budgetary stress test on the Honolulu rail so the public can re-evaluate how or even whether the over-budget and behind-schedule project should move forward.
- Create a new state budget from scratch that eliminates non-emergency spending and includes a multi-year financial plan with stress-test scenarios.
- Remove legal barriers to the contracting of public services, thus saving money and allowing for greater flexibility as to how those services are delivered.
- Create a state spending cap that can be waived only by a vote of the people, so a budgetary surplus can be assured and taxes kept under control.
- Defer unnecessary capital improvement projects to save money for emergency services.
Public Pension Crisis
For the state’s Employees’ Retirement System — whose unfunded liabilities could more than triple in the event of a prolonged recession, from $14 billion now to $44 billion by fiscal 2049 — lawmakers should:
- Allow the ERS to offer alternative types of pension plans, such as hybrid or privately managed plans.
- Freeze the 2% annual cost-of-living increase for public pension members.
- Establish a cost-reduction mechanism, such as conversion to a different plan, when the unfunded liability of a particular plan reaches a dangerous level.
- Disallow pension spiking for all public workers.
Broader Economic Reforms
To help Hawaii’s economy generally, state lawmakers should lower barriers to entrepreneurship and labor mobility so businesses and workers can get back on their feet as quickly as possible. Specifically, lawmakers could:
- Delay, suspend, carve exemptions for or eliminate the general excise and other tax and fee collections.
- Provide dollar-for-dollar tax credits to employers who cover the health insurance payments of their employees during layoffs.
- Leave the minimum-wage level where it is, so as not to choke off employment opportunities.
- Repeal or liberalize state occupational licensing laws to facilitate greater job mobility and opportunity.
- Remove or reform land-use regulations to encourage more housing and construction jobs.
- Seek an exemption from the protectionist shipping law known as the Jones Act.
These are suggestions that should be embraced no matter what the economic circumstance, as they are key to fostering greater opportunities and prosperity.
However, they are especially needed now, if we want our economy and social fabric to bounce back quickly from this coronavirus crisis.