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Working for a better economy, better governance and a better society

Keli’i Akina of the Grassroot Institute of Hawaii outlined the financial problems Hawaii is facing, and the “best practices” that could help it recover, during the 60th — and first virtual — annual conference of the Hawaii Society of CPAs.

Other speakers at the Nov. 20, 2020, event included Tracey Golden, chair of the American Institute of CPAs, IRS Commissioner Chuck Rettig and retired state Circuit Court Judge Randal Lee.

Akina’s comprehensive presentation covered the state’s growing massive debt, the projected tripling of the state’s unemployment insurance tax, Honolulu’s financially ailing rail system, Young Brothers’ recent 46% rate hike, the uncertainty of Honolulu’s “tier” system to emerge from the county’s coronavirus lockdown measures, the prospects for privatization, reducing regulations, increasing the supply of housing, reforming the Jones Act and more.

“Lowering the cost of living is easier when the state’s finances are in order,” he said. “It’s harder to do when the state’s finances are crumbling. So we have to take a serious look at Hawaii’s finances. To put it mildly, they’re collapsing. … So currently, the state is in panic mode.”

Watch the video at your earliest convenience. It will be well worth your time. A full transcript is included below.

Our thanks to the HSCPA for inviting Akina to address its membership. As Akina said at the end of his presentation, “Your work is very important and valuable to us, and it was a real honor for me to be here today with you.”

Nov. 20, 2020

“Restoring Hawaii’s economy in a post-lockdown world”
Featuring Keli’i Akina, Grassroot Institute of Hawaii president,
Speaking to the Hawaii Society of Certified Public Accountants

Keli’i Akina: Aloha, everyone. So glad to be with you today, and I hope you can hear me. Can you wave or node if you can hear me okay? We’re all connected. That’s fantastic. I want to thank Kathy Castillo for arranging this. I appreciate the work of the Hawaii Society of CPAs. In fact, some of you who know my background know I have a penchant for audits and auditing organizations, so I have the highest esteem for CPAs and the work you do.

We couldn’t run business or government without you, and we need you to stay honest — but just appreciate all you do. I hope you’re having a good time at your conference today. I hope you enjoyed lunch, and I want to say to everybody an Aloha Friday. Let me tell you how honored I am to be one of your featured speakers today. 

I know that Zoom usually lends itself to more informal and smaller settings. I hope we can have some discussion in Q&A when I’m done, but Kathy mentioned that you’d like to have a formal presentation.

That’s what I’m prepared to give you, because the times that we live in now require serious thought, and all of you are engaged in that thought for your clients and for your own businesses and for the state at large. I just want to thank you so much for letting me be here with you today. I appreciate the opportunity tremendously.

Now, what I understand is that the theme for today’s conference is “a whole new world.” I don’t think we’re thinking of the Disney theme song in this whole new world. The context for our gathering today is an economic crisis we’re going through because of the COVID-19 crisis, and perhaps not so much the pandemic itself but the response to that in terms of government lockdowns and their impact upon the economy. That has changed the world tremendously. In light of that, I decided to give you a presentation today entitled “Restoring Hawaii’s economy in a post-lockdown world.” That’s something that is very important to us.

I’m going to move now to share my screen with you. If you’ll hang on for a second, I’m looking for that little button here that says share screen, and we should be on, I think, right now. Can you give me a wave if you can see my screen? All right. I see that. 

I’m from the Grassroot Institute of Hawaii, which is an independent research think tank. We’re independent, which means we don’t take money from the government or from any political parties, or from the military or from the university, and that’s so that we can say anything we want and not get fired. [laughs] I think that’s an important role to play here in Hawaii. 

Today’s presentation is entitled, “Restoring Hawaii’s economy in a post-lockdown world.” Those of you who are part of this conference have a copy of my pdf. 

One of the most important concepts that I want to start with is that our economy has been damaged terribly by the lockdowns. Whether you agree with the lockdowns or not, or the extent of the lockdowns or the lockdowns we’ve had or the lockdowns to come, they’ve had a tremendous impact upon the economy.

In fact, Hawaii has probably been damaged more than any other state. One way we can see this is looking at the unemployment rate in our country, at 14.3%, according to the Bureau of Labor Statistics. That’s new. That’s Hawaii’s unemployment rate. That came out in the news today from the Bureau of Labor Statistics. That’s terrible. Hawaii’s tourism has fallen tremendously, more than 95% during the lockdowns. Hawaii’s economy is now projected not to recover until at least 2025. That has also affected a very important sector, which is government itself.

Hawaii’s tax revenues are projected to fall by $10 billion by fiscal 2026. That’s going to impact every aspect of life in Hawaii. Hawaii’s lawmakers were spending down our reserves during the boom years, and now they don’t have enough cushion left to deal with the economic depression. That’s something that’s going to put a huge burden on the economic engine.

In addition to that, UHERO has projected that we’re going to see a big loss of population here in Hawaii, a decline by 20,000 people by 2023. For the most part, those people who are leaving Hawaii are going to represent the brain drain; they’re going to be productive people who are looking for greener pastures, and they’ll be productive in other states rather than Hawaii. We’re going to lose some valuable members of the economy because of that.

As a result, just to illustrate this, at the Grassroot Institute, we started a project called “Why we left Hawaii.” We did that to collect stories. You may have seen some of this on social media. They’ve been the most popular features of Grassroot Institute’s work recently.

For example, Ashlynn Sakaria said, “I was born and raised on Oahu. As hard as it was to leave Hawaii, we knew we had to do better for our daughter.” In Arizona. She’s a former resident of Waipahu. Another one, Michael Hernandez, who said, “The only way I would return to Hawaii is if I hit the lottery here and could make enough to move my family and retire. However, that seems almost impossible with the way the government is run, and with just how much more everything costs on the islands.”

Now, a survey last year found that Hawaii’s high cost of living was the primary factor in people leaving. In that high cost of living, the cost of housing is probably the highest factor altogether. We all know that story. The grass is truly greener on the other side. The important thing to understand is that, if we don’t lower Hawaii’s cost of living, more people are going to leave the state, and that will further damage our economy. 

Lowering the cost of living is easier when the state’s finances are in order. It’s harder to do when the state’s finances are crumbling. So we have to take a serious look at Hawaii’s finances.

To put it mildly, they’re collapsing. The state was already headed for an economic recession even before the lockdowns, and this was the message of the Grassroot Institute. That’s based upon decades of policy that put a high premium on spending and borrowing without actually putting revenues back into our coffers. The lockdowns, although well-intentioned, have also damaged the economy. So currently, the state is in panic mode.

Let me give you some examples. Take, for example, the EUTF, the Hawaii Employer-Union Trust Fund, which provides healthcare benefits to our state and county employees and retirees. Currently, it’s $12.4 billion in debt. That’s money we owe our public sector workers, which we just don’t have. It’s underfunded. Lawmakers are supposed to be paying down that debt, but now they’re skipping out on $1.8 billion of payments. That’s a bad practice. We did that in the past with the Employee Retirement System, which resulted in bringing us into deeper levels of unfunded liabilities. If the money is not in the fund, the state won’t be able to realize the investment returns on that money. This will increase the state’s unfunded liabilities, beyond anything we’ve seen, in the long run. What that’s going to do is put public union members and taxpayers in jeopardy.

The thing I want to stress here is, this is not about union versus nonunion. We’re all in the same boat here. We’ve got to fix the Employee Retirement System and the Employee-Union Trust Fund for the sake of everyone. Public union members may have their benefits reduced in the future if the cost is too high, and taxpayers, in the end, will be holding the bag and paying more. That’s a clear example of short-term thinking with long-term consequences. 

The second problem that we have in our state finances is the problem of growing massive debt. We’re taking on unprecedented levels of debt. For example, this year, the lawmakers waived the state’s constitutional debt limit. That’s a very dangerous practice. The state is now borrowing record amounts to balance budget shortfalls. 

Take a look at this chart here. It’s the debt service plan before the lockdowns. As you see here, we had a constitutional debt limit, which was fixed at about $1.5 billion, and we were paying debt service that was approaching that amount. The trend is not good at all. What’s even more frightening is to see what’s happened after that. Here’s the debt service plan after the lockdowns. Lawmakers are actually breaching the state debt service limit.

Clearly, we’re drowning in debt. The state’s debts are taking over the state budget also, as you take a look at this pie chart. 52 cents of every dollar, if we add up Medicaid, health benefits, pension and debt, goes toward benefits and debt. That’s about half of the entire general fund in 2021. Other spending is only 48%. A simple way to sum that up is to say we’re drowning in debt. As you see over here, that could also affect another area, which is the capacity of the state to raise funds, because the bond rating is going to be impacted. In fact, it already has been.

We’ve been downgraded this year. For example, Fitch downgraded Hawaii to AA status from AA+. Moody’s downgraded Hawaii to Aa2 from Aa1, saying it was partially based on suspending payments to pre-funding EUTF, what we just talked about. The S&P ratings says Hawaii’s economic outlook is now negative. A lower bond rating means more tax money will go toward debt service instead of public services. This is a very tenuous position to be in.

In addition to this, if you’ve seen the breaking news from Grassroot Institute over the last week and a half, the unemployment insurance taxes are rising. Hawaii’s unemployment taxes are slated to triple next year. That’s not a new law, that’s not in response to the coronavirus crisis. That’s because of the way the law has been structured already. The annual tax will go up this year from about $534 per employee. Many of you have employees. You know you’re paying that unemployment insurance. Next year, it will be $1,757 per employee. That’s triple.

Now, do the math in your head. If you’re a small little business, maybe a small accounting firm, [for] your five employees you were paying $2,670 this year for the unemployment insurance — it’ll be $8,785. Or think of some of your clients, a small retail shop or a restaurant with 10 employees, paying $ 5,340 currently. That will go up to $17,517. As we get larger businesses that are still small businesses, do the math, that’s an exorbitant tax for them to absorb. Now that they’re down because of the coronavirus and the impact of the lockdowns, it’s almost like being kicked while they’re on the ground, and the consequences will be terrible.

The tax will go up most on struggling businesses. That means hotels and restaurants will likely pay the highest tax rates next year because of the draw that their required employees have taken and the layoffs they’ve had. That’s going to slow the recovery, since many businesses won’t be able to pay for additional taxes. 

Why is the tax going up? When the unemployment fund goes down, the tax goes up. That’s how it works. Hawaii has been borrowing hundreds of millions of dollars to pay unemployment benefits. We started the year $600 million in the black, but look at that steep decline. Now we’re more than $600 million in the red.

Now, the Ige administration, to their credit, is considering using unspent CARES Act money, putting that into the fund. But if they even put in $500 million, that would not get us out of the debt situation, and so the rate of tax that would have to be paid by all businesses would skyrocket nonetheless. 

The bottom line is that we have to tighten our belts. Lawmakers need to cut spending, and that’s the bottom line, and they have to refill the fund with more and more revenues.

There are other issues that we’re dealing with as well. Top of mind is one that has just been in the news. It’s the rail system. It was announced recently, I’m sure you saw this in the news, it’s going to cost $11.2 billion at least and be delayed until 2033. Experts are also saying that these figures are also underestimated. That’s a huge hit. You know that recently in the news, the last several months, we’ve seen the Young Brothers rate hike of 46% for inter-island transport of cargo. That’s a huge increase that’s going to hurt neighbor island businesses and residents.

Government is implementing 10% furloughs to balance the budget, beginning next month. That may be necessary, but it shows how dire the situation is. And probably the question facing all of us, as we saw the news yesterday, where the City and County is not anticipating that we’re going to move out of Tier 3 in the lockdown: What about future lockdowns? Are we going to go back to Tier 1? Businesses are holding their breath, not knowing if somebody is going to move the football. It’s kind of like that cartoon from Charlie Brown, where Lucy holds the football and Charlie Brown tries to kick it, but then she moves it. We’re in uncharted territory and have a huge amount of uncertainty and risk for businesses.

Now, I’m going to stop here with my litany of what’s wrong, because I don’t want us to get depressed. It’s Aloha Friday and it’s lunch time, and I think we need some positive ideas as we move forward. I hope that the elections will give us the opportunity to call upon our public officials and to say, now that you’re in office, I hope you’ll fix things. At the Grassroot Institute, we have made some proposals in terms of trying to promote the right ideas, in a report that you can get online called “Roadmap to Prosperity: How Hawaii can recover and even excel after the coronavirus lockdown.” In our report, we mentioned several possibilities.

Let me go over a few. As I do this, I want you to know, I’m not pessimistic. Although I don’t think that there’s a lot of openness to some of our proposals, I think that we’re at a time where we’ve hit bottom so badly, people are going to be open to doing something different, based upon best practices across the country, and in some cases, across the world.

Bottom line, we’ve got to reduce spending and taxation. For example, Hawaii could return to the 2015 budget for the state when we had an even larger population. We could manage on that budget, and doing so would save us over $600 million. That could fill the coffers of the EUTF. That would provide enough wiggle room to reduce taxes such as the unemployment tax.

Another possibility that is being used increasingly across the nation in municipalities and also in states [is] increasing the level of privatization. Hawaii currently has a law that disallows privatizing government services, although the studies on this show that privatizing government services brings greater economy and greater efficiency. Reforming this law could help the state and county save on costs and provide competitive service.

For example, our airports are run very inefficiently, and anyone who travels to world-class airports across the world knows this. If we could privatize the management of our airport, we could save money and actually make money, and that would be something that would help the government. 

We have a little taste of this recently, and Grassroot Institute was involved in this: With the privatization of the Maui State Hospital, it’s been about three years now since that has gone through. Its labor has moved from the public sector to the private sector. They’re on track for becoming profitable in a few years. We could see that in many different sectors.

Another area that could help us in terms of money is to reform the benefits programs for our public workers. Hawaii’s public pension system, as I mentioned before, is $14 billion in debt. The health benefits system is about $13 billion in debt. That’s about $26 to $27 billion that we owe our public sector workers that we just don’t have. Reforming these systems could save public workers from underfunded benefits and save taxpayers money too. It’s not too late for us to create a hybrid system that uses best practices that we discover from across the country.

There’s another thing we could do. We could reduce regulations on businesses. Do you know that we’re one of the most regulated states in terms of business regulations? You even need a license to open a lemonade stand. Hawaii needs to reduce these regulations on businesses. One easy step would be to get rid of overburdensome requirements like licenses and permits on lemonade stands, or home-based businesses. We should also allow occupational licensing reciprocity with other states, so people who are licensed in other states could more easily find work in the islands.

Another area that could help our economy tremendously is in terms of increasing the supply of housing and land available for housing. Hawaii zones 95% of the land statewide as open space. Do you realize that only 5% of the landmass in our state is actually used for urban development? If we just increased that percentage slightly, by 1%, going from 5% to 6%, that would be a 20% increase in the supply of housing potentially, or from 5% to 7%, that’d be 40%, or 5% to 8%, that would be 60%. Just do the basic economics here, supply and demand. As the supply increases, we can see the price point drop, as long as we don’t take all of that land and sell it to billionaires from China. 

The point is this: If we simply reimagine — let me use that word — reimagine our zoning and development rules in terms of housing, we could increase the supply, and that would be a real big boon to us. It wouldn’t damage the economy — excuse me — the environment whatsoever. We would still have enough land for agriculture and for watershed preserve. What our lawmakers need to do is to reduce regulations that prevent much needed housing, and that could help bring locals back to the economy, because the No. 1 reason that young people are leaving is the cost of living, and the biggest factor in that is the inability to afford a home here in Hawaii.

Then there are other areas that I think are important to look at, and Grassroot Institute has been speaking about this for a long time, such as reforming the Jones Act. That’s a 100-year-old shipping law that increases the cost of shipping in Hawaii tremendously, at least $1.2 billion every year. One of the things I want to say about this is that, while it’s a little bit too complex to go into right now, the bottom line with the Jones Act is that it raises the cost of shipping in Hawaii.

In the past, there were attempts to repeal the Jones Act. We don’t propose that at the Grassroot Institute; we believe that that law has been around for 100 years, and it does serve certain purposes. All we need to do is reform it. We need to update it for the 21st century. We need to allow our commercial shippers to do what our military does, which is to use ships that are built by our allies, and that will increase the competition in the shipping industry, bring down the cost of ships and as a result, we’ll be able to benefit our economy tremendously. We buy planes, cars and cell phones from our allies from overseas; we should be able to buy our ships from overseas as well. 

Well, with that said, let me close with a few words of conclusion, and then open to any questions or answers or comments you may have. Our economy can prosper with the right ideas. We can bring our economy back if we follow a clear roadmap, and that’s why we have proposed at grassrootinstitute.org — and you see at the very bottom, our website and then our email, info@grassrootinstitute.org — that’s why we have proposed a “Roadmap to Prosperity,” and I invite you to get a copy of that report and any other report. 

With that said, I’m going to go back to my nonpresentation here, put me back in, and thank you, everybody. I appreciate that, enjoyed being with you and I want to open up to any questions or comments that you may have for me. Congratulations on listening to a long speech after lunch. I used to be a professor, so I know what that’s like.

Moderator: We are going to check to see if we have any questions. Adrian Hong has a question.

Adrian Hong: Yes, sure. What do you think is the most critical issue? What’s the one thing that you know you could get past the Legislature? What’s the one thing we should be focusing on the most?

Akina: Well, actually, I don’t know. And let me tell you why: because so much of what we can do depends upon what’s politically feasible. I would say that people who want to advocate for any one measure should take a look at a handful of possible measures and then weigh what they go forward with. 

Let me give you, for example, one that should be a no-brainer, but it’s going to require some political will. And that would be to increase the supply of housing. Housing was, before the coronavirus, the biggest factor in our high cost of living, and housing will continue to be that. We currently have a shortage of inventory. As I pointed out earlier, we need to increase the zoning to allow 1, 2 to 3 three percentage points for housing. 

Now, I think that’s a no brainer. I think that’s where we should start. But the problem is we’ve got to get the political will to bring people around that and help them to see that’s not going to hurt the environment. We’ve got to be able to get through the huge maze of regulatory rules that prevent us increasing the supply of housing in Hawaii. So I would say that’s a great place to start.

Let me give you one other one that I think is very important and whose time has come, and that is, we have to cut down the cost of government. We have one of the most expensive governments per capita in the entire nation, and sooner or later that cost is going to cause the private sector to collapse. One of the ways economies are measured in terms of health is by comparing what is growing faster, the private-sector income or government income, and if you take a look at the last decade, our government has grown at a faster pace than the private-sector economy in Hawaii.

When you consider that, it puts us in a very dangerous situation, because in order to build a good government — if you take a government like Singapore, you really need a massive private sector that is bringing capital into the country, and Hawaii is the opposite. We’re actually trying to build the private sector on the government here, which is a backward approach. So I would say that in addition to increasing the supply of housing, we really need to go after cutting down the cost of government. So that’s what I would recommend as starting places. Good question.

Hong: Thank you.

Ed Nakano: I have a question.

Moderator: Ed Nakano.

Nakano: Yes. Besides the airport that you had suggested, and the hospital, what other functions of the government do you advocate perhaps privatizing?

Akina: Well, that’s a great question. I would put the question this way: What aspects of government work should we not privatize? There are so many. Let me just take one right off the top of my head that we’ve all experienced: getting your driver’s license at the Department of Motor Vehicles.

If we let a private firm handle that, can you imagine how much more efficiency there would be? I could go on and on in terms of various functions. 

We could take a look at one area that a lot of governments across the country are saving money on, and that is just the janitorial services and maintenance work that is done on government property. That’s one where we could get a huge benefit. Permitting as well. The problem with government employment is that you add up the cost of the benefits, the cost of job security, and along with that, the work rules that prevent you from actually firing people who are unproductive.

Don’t get me wrong. I’m not saying that our public sector workers are unproductive in general, but I’m saying that the inability to be able to do what you do in the private sector to bring competitive economies to bear upon your business is not something we can do in most government-owned businesses and practices. I think there’s a huge area, and we can be very creative. At the Grassroots Institute, we study governments across the country that actually are starting to privatize, and there’s a county about the size of Maui that has privatized over 85% of all of its government functions in Georgia. Let me ask my colleague here. Yes, Sandy Springs, Georgia. You can go to the Grassroots Institute website and see their story. It’s really been a boon to the people. So as a result now, the taxpayers in that county, instead of paying a net negative of their income, instead of paying for taxes, are actually getting a dividend because the government has become profitable. Can you believe that?

So I think there are all kinds of possibilities. There really are. We’ve just got to get the ball rolling.

Nakano: There are best practice examples to promote.

Akina: Yes. It’s a growing practice across the country.

Nakano: Thank you.

Moderator: We have another question from Loretta, and her question is: What’s happening with job development outside of the tourist industry?

Akina: Well, that’s a terrific question, and let me go to the more general issue that it addresses, and that is diversification. Since the 1960s, our government has been addressing the need to diversify the economy.

Back in the days of Ariyoshi, in fact, when he was governor, it was already predicted that although the tourist sector is always going to be an important part of Hawaii’s economy, if not the biggest part of our economy in the private sector, we can’t depend solely upon tourism. We have to develop other sectors and industries in order to be competitive.

But the government, if you really look at it during that period of time, and Grassroot Institute has studied these efforts, has not been successful at diversifying the economy outside of military, government spending and tourism.

One of the reasons is our approach to that. When we talk about — and the question was job development — we’re talking about trying to develop a certain sector where the government decides “This is where we need more jobs” or “This is where we need to provide tax credits or incentives for a new industry.”

The problem is fundamentally this: The government is not in a position to make a good decision as to which industry will succeed and which industry will not succeed. It doesn’t have a crystal ball. The private economy is designed on success and failure. So the government needs to get out of the way and create the conditions that allow the free market competitors to come in and compete. Some of those competitors are going to win and some of those competitors are going to lose. But they’re going to bear the burden of actually finding out what works and what doesn’t work without government pouring huge amounts of money into a single area. 

Let me just respond now on a more specific level, job development.

The history of the state of Hawaii trying to invest in job development over the last several decades has not resulted in the building of industries, because government simply is not a crystal ball to be able to tell where we should be developing jobs. The No. 1 thing that we can do to create diversification, and ultimately create jobs, is for the government to get out of the way by reducing regulations on industry, and reducing taxes on industry, and fixing problems like the unemployment insurance rule that’s going to triple the cost of unemployment insurance next year. Make Hawaii a more fertile ground for businesses to come to, and that’s what we can do to contribute to diversification.

Moderator: We do have a question from Steve Holmberg. His question is: Do any of our politicians have any interest in lowering spending? 

[Laughter]

Akina: I sure hope so. Go around and ask them. Ask them, “Do you want the rail to go up another $1 billion dollars at the next estimate?” At least they’ll say that. I think we have to make that message much clearer to our governing leaders, that it’s time to reduce spending. That’s something that people have to really rise up and say very clearly.

Moderator: There’s another question from Cathy Meyer: Any chance of reforming the government pension and legacy health benefits for new or existing employees? It seems the original thought was, because the current wage was less than in the private sector. However, the wages appear to be in part, or in excess, of the private sector. Can this ever be done with the union control?

Akina: Well, that’s really a political question. From a government or a business efficiency point of view, the answer is very simple. Our model for our benefits program for public workers was a defined-benefits program, which means that at the front end, we make promises and we are stuck with fulfilling those promises regardless of whether the program is profitable or not. What we need to do is move somewhere along the spectrum toward a defined-contributions program, where we link the benefits to the contributions. It’s not an either-or thing, because I don’t think we can just jump from one system to the other.

There are places along the spectrum where governments across the nation have been actually making progress and making headway. A couple of things we need to do: No. 1, we need to cut overall government spending and pay back the money that we owe, reducing the unfunded liabilities, and getting rid of that huge debt which is an albatross on the system. No. 2, we need to find some way of coming up with a hybrid between the defined-benefits and the defined-contribution plan.

We have a study at the Grassroot Institute that looks at all 50 states and the reforms that have worked there. I can tell you this: As we have done a survey across 50 states, there are many municipalities and states that have gotten themselves out of the trouble that they are in with the public sector pension and health fund. That’s important to everyone in the state. 

I want to reiterate something again: It’s not union versus anti-union. It’s to everyone’s benefit to make sure that the system is sustainable.

Now, even in Hawaii, there are systems outside of the government in the private sector that are well-funded. In fact, they’re overfunded, many of them, and they are sustainable. Universities, for example. Private universities have had to figure out how to give pensions to their faculty and so forth using private-sector models. For people coming into the system now in state government employment, I’d say a couple of things: No. 1, many of them are more open to a reduced-benefits program. That’s because they realize that having a job is better than not having a job.

No. 2, many of them are not looking at government service the way earlier generations did. They’re not saying, “I’m going to spend 20, 30 years in the system working on my pension.” Many of them will move around to multiple jobs, so they might be in government service for maybe five years. So they would be looking for a pension plan that’s portable. Portability is one of the key features of some of the best pension plans, rather than having a single plan that you have to stay in for life to be vested in. And that could be a solution for us. 

Suffice it to say, there are solutions, and so take a look at our report at the grassrootinstitute.org. That’s a good question, thank you.

Moderator: Wendell Lee has a question.

Wendell Lee: Yes, thank you. Hawaii has been allocated close to $12 billion under the CARES Act. It has not spent all of it. My understanding is that excess should and would go to UI, unemployment insurance. The money has to be encumbered and downloaded by the end of the year. I’m hoping maybe the Grassroots organization can monitor our state’s ability to ensure that those dollars are spent — No. 1. And No. 2, that any excess dollars that are not spent goes into unemployment insurance, because if we are successfully able to get those monies allocated to UI, then we should be able to hopefully reduce the increase to employers going forward. That’s my comment. 

Akina: Wendell, that’s a great comment, and your thinking is along the right track, I would say. It’s necessary, but not sufficient. It’s a solution that is necessary but not sufficient. Let me explain. In terms of the remaining CARES money that will expire if we don’t spend it, rather than having a spending spree on so-called creative ideas as to how to spend it, we should look at getting rid of our debt. I agree with you completely. Many politicians are looking at the use of those CARES funds to fill the coffers of the unemployment tax.

However, we don’t have the amount that you actually mentioned. It’s divided between the state and the counties. The counties have about $200 million of that CARES Act money, and the state has about $500 million. So even if we took the entire $500 million that is allotted to the state, the current debt in the unemployment to fund, as of today, is about $670 million, and it’s growing as well. Even if all $500 million of the available CARES money for the state was actually used for the unemployment fund, it wouldn’t fill the gap.

The law is structured that, if there is a debt in the fund, the tax rate for businesses is going to go up anyway. Even if we did, and I doubt if they’re going to pour all $500 million in, but even if the state did pour all $500 million of CARES money into the unemployment tax fund, we’d still have a sharp increase in unemployment taxes. It is a necessary solution, but it’s not sufficient. It’s a good step in the right direction. 

As I mentioned earlier, the government also has to cut back on its spending outside of the fund and commit itself to filling the fund.

One thing I’ll add is this: We’ve been down this road before. One of the reasons that our employment retirement system, the other side of public benefits, is $13 billion is because we stopped paying into the debt retirement in that system, and as a result dug ourselves into a deeper hole. We at the Grassroot Institute are really sounding the warning against that with this unemployment fund. I think it’s very important for us to get rid of our debt, because it’s an albatross around our necks.

Lee: Do you see that, if the federal government doesn’t provide more stimulus and more monies next year, do you see states filing for bankruptcy and therefore giving them a fresh start to renegotiate all of this debt and obligations?

Akina: I think most of you in this room would probably know more about whether states can go bankrupt or not. Being bankrupt on paper is one thing, but I’m not sure that states are able to file for bankruptcy. Maybe somebody can answer that question directly. Yeah, I don’t think states can file for bankruptcy, so as a result we can’t simply get out of the trouble that we’re in, and so the problem with borrowing more federal money as a solution is that we ultimately end up having to pay it back, and that’s a dangerous position to be in.

Moderator: Thank you. Marla? Marla has a question.This is from Marla. She says: I can see where privatization of some of government’s functions would make sense, but please do not put the administration of our private information, drivers licensing, into the hands of a for-profit company. In my opinion, this relates to identification, passports and national security.

Akina: I wouldn’t have any argument with you there. The point that I’m trying to make today is that a huge amount of what government does, it does inefficiently. And in general, it’s not as capable of running businesses as the private sector is.

There’s more than enough room to find segments of government to privatize, and there will be issues such as privacy and so forth that have to be looked at very carefully. Don’t get me wrong. I’m not actually advocating for the privatization of all functions of government; in fact, I could give you a list of many functions of government that should probably remain in the hands of the government. But that’s a good point. I appreciate that. Thank you.

I’m going to just for a moment share the screen again so you can take a look at this, because I really want to encourage you, if you all would go to Grassroot Institute of Hawaii — it doesn’t have an “s” at the end, so you just go to grassrootinstitute.org, and down at the bottom here — if you do go to grassrootinstitute.org, you can sign up for a weekly newsletter, a weekly column from me, reports, and you can get access to all of our research reports. We’d love to let you do that free of cost. It’s available to anyone, grassrootinstitute.org. Any last question?

Moderator: Any more questions? Alvin, did you want to make a comment or just leave it in the chat? Okay then, that’s a wrap. Thank you, Dr. Akina. Certainly appreciate the information you shared, and this presentation is available on our website, or it will be available on our website.

Nakano: Thank you, doctor.

Akina: I want to say thank you to all of you at the Hawaii Society of CPAs. Your work is very important and valuable to us, and it was a real honor for me to be here today with you. And if there’s anything we can do, discuss any issue or provide you any background, we’re here to do that at the Grassroot Institute, and I hope to get to know all of you, invite you all to sign up as well. Have a wonderful Friday. Have a great happy hour this afternoon.