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Furloughs alone won’t solve budget crisis

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The following recording from Dec. 18, 2020 features Hawaii radio host Mike Buck interviewing Keli’i Akina, president of the Grassroot Institute of Hawaii, on The Mike Buck Show on AM 690 and FM 94.3, The Answer.

It’s about 20 minutes, and here’s how it started:

Mike Buck: I saw something, Keli’i, that really got my ire up. That’s why I contacted you to see if we could get this explained. I agree 100% with the position that you’re taking there on these furloughs. Let’s talk about: Are there some good furloughs and some bad furloughs? Are furloughs a good idea at all?

Keli’i Akina: Well, furloughs are painful, and I don’t want to pretend at all that teachers or other state workers deserve to be furloughed. We want our workforce to be able to work. We want our public sector workers to be able to make a living, but we’re facing some really tough times ahead of us. The state is in deep, deep debt, and the state’s budget has not come down to the extent it needs to. 

Listen to rest below or read the transcript that follows.

12-18-20 

Keli‘I Akina on The Mike Buck Show, AM 690 and FM 94.3, The Answer

Mike Buck: I want to explain a couple of things, and we’re going to get some help in that, because that’s what Keli’i Akina does at the Grassroot Institute. One of the things that I’ve learned is that sometimes you think, “Well, if you just cut the spending, everything’s going to be OK.” That’s not necessarily always true. Certain spending, like these teacher salaries and things, we should be taking a look at.

Not that I say that — I don’t want to have anybody in the private sector thinking we’re doing all the work and the state and the government, they don’t do anything to save money, they just spend more. Well, that’s partially true. It’s kind of a long introduction. Keli’i Akina joins us. Happy holidays, Keli’i. How are you doing?

Keli’i Akina: Well, happy holidays to you, Mike, and to all your listeners. Great to be with you this Friday afternoon.

Buck: I saw something, Keli’i, that really got my ire up. That’s why I contacted you to see if we could get this explained. I agree 100% with the position that you’re taking there on these furloughs. Let’s talk about: Are there some good furloughs and some bad furloughs? Are furloughs a good idea at all?

Akina: Well, furloughs are painful, and I don’t want to pretend at all that teachers or other state workers deserve to be furloughed. We want our workforce to be able to work. We want our public sector workers to be able to make a living, but we’re facing some really tough times ahead of us. The state is in deep, deep debt, and the state’s budget has not come down to the extent it needs to. 

So here is the problem: Our state workers, including our teachers, are facing the fact that the government might just fall apart. If it falls apart and can’t afford basic services, that’s not going to be good for them at all, so the very difficult and tough route of furloughs is one of those evil necessities at this time.

Buck: I know that that’s the case. The harsh reality is, if a family was sitting around the Sunday dinner table and Papa said, “Look, some of us aren’t working as many hours as we used to. Some of us lost our jobs. Here’s what we got coming in. Here’s what’s going out. You can see we’ve got a problem here. How are we going to cut back?” Isn’t that the approach that you personally, as well as at Grassroot Institute, has always done, to say, “Hey, if it hurts the families, it’s going to hurt everybody collectively. We have to do these things. There’s no way we can stop. We have to stop spending money.”

Akina: Well, the state often says that we are all in the same boat. That’s true from an economic point of view. If the state costs too much to run, and if the economy is in dire straits, everybody — private-sector workers, as well as public sector workers — are going to be affected, and so everybody needs to respond to that.

Right now, what the state is proposing as one of many solutions, and we can take a look at them. The state is grown saying that we furlough our workers two days per month. In fact, it’s more than a proposal. Governor is going ahead with that, and what he’s thinking —

Buck: Keli’i, albeit it’ll be challenged. I’ve already talked to all the union guys. They’re all calling me, and they said, “We’re challenging this stuff. Let us come on,” and I’m going to make for them all to come on, because they deserve to be heard. The jury’s still out whether he can pull it off, isn’t it?

Akina: Oh, yes, anything can happen between now and the next legislative session, and there will be a big fight over this. I was just saying that this is the intention of the governor at this time. 

Here’s his thinking: Right now, we’re looking at $1.4 billion in the red for each of the next four years., I got to say that again, because this is extraordinary. We’re going to fall behind $1.4 billion in each of the next four years.

Buck: That’s $5 billion. $5 billion is what we’re going to fall back.

Akina: Absolutely. What the governor wants to do is trim $300 million a year from that figure, and get that money by furloughing our workers two days a [month]. Well, one thing we have to realize is that that’s not going to solve the problem —

Buck: I was going to say, run that into the calculator — doesn’t work, does it?

Akina: That’s right. If he saves $300 million a year, he’s still going to be in the red $1.1 billion, and so that’s only part of it. One thing that we’re not talking about is he’s saying we’re going to cut government expenditure, and translate that into language that our workers can understand: It means layoffs. $600 million worth of layoffs is potentially planned at this time.

Buck: That’s shocking. Then there’s another thing. I’ve been staying on this, because it’s so apropos right now, about the social distancing and class sizes in schools and everything else. The holes that we have in that: We don’t have enough teachers, and they’re talking about furloughing the ones that we have. They’re pulling their hair out, and if we don’t educate our kids, we’re going to get a whole bunch of more welfare people. Another 10 years down the road, we’re going to have more people applying for government help than ever before.

Akina: Well, what the governor is looking at is furloughing 30,000 state workers. That’s 30,000, not including emergency workers. It’s going to look somewhat like the Furlough Fridays. You remember back in 2009?

Buck: Yes, I do.

Akina: That’s when workers took two unpaid days off. I hear from some teachers that they’re still feeling the pain of that. What that points out is that furlough does not affect every worker in the same way. There are some state workers that are well-positioned to manage two more days off. It’s almost like just taking two more vacation days. But there are others who are living very, very close to the edge, for whom that’s going to be a really tough thing to handle.

Buck: Well, let me tell you some of those that have contacted us already, and why I was so excited to be able to have you help me straighten some of this out, and that is, I got one family that’s three teachers. Mom and Dad and one of the kids are teachers. The other kids are working in the private sector, but there’s three generations in a house, and they don’t have any extra money, ever.

The furloughs alone … they’re going to give up something. What are they giving up — food? They cannot pay their rent. What are they going to do? … There’s lots of families like that here in Hawaii.

Akina: Well, the fact is, one size of furlough does not fit all. That’s part of the problem here, which is confounding many of the unions. And that is, that the general order across the board to furlough employees equally two days a week has a very inequitable result. People are in different financial situations, and some of our teachers, some of our state workers are really living near the edge. This is going to push some of them over it, and we’re going to see that as an impact upon the whole economy as well as government services.

Buck: I saw an episode of “Blue Bloods.” “Blue Bloods,” they have that traditional Sunday night dinner with all the cops sitting around the table. It was a similar story, and what that one was about, it was about budgets and number of policemen. What they started to talk about, it was actually about a policeman losing his job if he couldn’t physically pass a physique test, because they’re all getting out of shape.

He said, “Well, what you need to do now is, you can’t take a guy that’s been working for 30 years and is 30 pounds overweight and let him go because he’s heavy. But what you can demand is the new people coming in have a physical level that they have to be at or they can’t be on the force.” Didn’t we try to do that in the schools in a way, I’m not out of physical condition, but you need to be credentialed and you’re not going to get the big fat end of life deal that the current teachers are getting. That was one way to fix things down the road. Is that convoluted? Did you understand what I’m getting at?

Akina: Well, Mike, you’re on the right track. Basically, what we understood a few years ago is that we made promises to our public sector workers that we could not keep. In other words, we planned a system of employee retirement and health benefits and so forth based upon big promises, but never looking at how much it would cost. When it came time to try to balance that, the government realized we’ve got to change it, but we cannot break our promises to existing employees. Instead, new ones who come into the system will have to have a different system to help make it work.

So the promises that are made to newer employees are not as extensive as the ones made several years ago. You’re right in terms of that. But you know, Mike, what the really big problem is? It’s not that our teachers are making too much money. It’s not that we need to cut employees. It’s that overall, the government is just spending far more than it should. It’s spending huge amounts more than it was just a few years ago, and our population is decreasing.

What we really have to start looking at is cutting the fat, cutting programs that are inefficient, sending some of them over to the private sector that can do it at less of the cost, and so forth. That’s where we need to start looking.

Buck: Okay, and listen, everybody says, “yeah, yeah, yeah,” but then the other ones say, “yeah but,” and there’s more “yeah buts” than there are “yeahs,” and that’s the issue that I have a problem [with], because I agree, I think anybody would agree. Here’s the thing that’s really scary. I have about a dozen emails from people that ask me if I saw the story that the governor was willing to put a tax increase on the table.

Every time I hear that, the hackles go up in the back of my neck and I get very nervous, because I do know already that at the city level, our real property taxes pay for the city to go. The state level, it’s a lot of things including our income. I know that you spend a lot of time at this. What if any — what do you fear about this? I’m scared to death. I don’t know if we can take another increase in income taxes in Hawaii.

Akina: Well, if I put my public servant hat on, unfortunately, when I think the way our public servants are thinking, tax increases are being looked at, and we really shouldn’t be looking at that, because that’s going to hurt not only workers but businesses in Hawaii, which is going to hurt the economy, and it’s going to actually hurt the revenues that government gets.

One of our leaders in the Legislature recently said that we need to increase the taxes on the richest citizens in the state. But if you really look at that, that’s quite deceptive. The top 1% of taxing households in Hawaii, that is, those making over $400,000 a year, they’re already paying a quarter of the total income tax in the state, and we have a problem with our tax system. On one hand, we have the most progressive tax system in the nation, so we tax the richest more than virtually anywhere else —

Buck: Of course, yes.

Akina: But we also have one of the most regressive tax systems in the nation when it comes to our general excise tax, taxing the poor at an exorbitant rate. Whether you’re rich or poor, the prospect of tax increases is going to be devastating on our population.

[crosstalk]

Buck: What’s interesting to me is, even though the pandemic, we’ve seen either a steadying or an increase in real property values, which means that every time the property value — the medium home knows about what, $880,000 and some — and every time that goes up, doesn’t that just automatically put more money in the city coffers, for no reason other than there’s been an increase in value, and not a drop in the tax rate.

Akina: Now, we have to distinguish between market value and actual assessed value in the city. The market values are going up right now, and that may be a short-term boost in the real estate market. But the reality is, the City and County just of Honolulu just issued the assessments for the existing properties, and property values, according to that, have gone down, they’ve gone down tremendously. Part of the reason is because many of our hotels are empty, and that’s going to reduce revenues to the state altogether. What may happen is it may cause the county and state — I meant, I should have said to the county. It may cause the county to raise property taxes.

Buck: Yes, and there’s more of that coming up. Keli’i Akina is our special guest, if you’d like to join us telephonically, you may; themikebuckshow@gmail.com is operating; also, the phone number is 1-833-296-TALK, that’s 1-833-8255. If you do wanna come into the conversation, make sure you come in on the items that Kelii and I are talking about instead of introducing new ones because we still have plenty to cover. Taking a little break, and be right back. 

[Commercial]

Buck: Keli’i Akina is here from Grassroot Institute — not here, but here telephonically, and we’re talking about the good, the bad and the ugly about going forward here, and particularly the financial corner that we always seem to paint ourselves into. And this is as bad as it’s ever been, aided by, of course, the horrific increase in unemployment and other things because of the pandemic.

We are going to get through this, and calmer heads are going to prevail. But I want people to be able to sit around their dinner table tonight, Keli’i, and say, “I was here driving home with the radio. I was hearing Keli’i and Mike Buck talking about what the answers are.” We kind of identified the problems. You’ve got your think tank hat on. What are some of the things that we can do to lower the negative, if you will, or to decrease some spending to get that billions into the hundreds of thousands, or into the millions or something, anything?

Akina: Well, Mike, this is not as complex a problem as one might think. Anybody who has to balance the budget of his or her own household knows how to do it. You basically cut spending, and you pay off your debt. If that’s basically what we’re going to do, that would help the government get onto even keel much sooner. A lot of times people say we’re in a problem because of the current economic crisis caused by the COVID pandemic. Well, that’s not really completely true. Certainly, that’s compounded our situation severely. But the reality is, we created this problem long before the pandemic. The problem is fundamentally one of the government spending far more than it brings in.

In fact,this year we’re anticipating a $1.4 billion deficit. If you really look at what we’ve done since 2012, we have overspent by $1.4 billion. There’s actually a spending cap in our Constitution, and it says the government cannot exceed that amount.

In other words, are many states that actually come up with a different remedy, which is to say, you’ve got to go to the people and let them give you permission before you receive that amount.

Buck: I was going to say we hear that a lot, and I agree. But even if you went to the people, they’d have to say, “Well, OK, tell me why you think this money is necessary? Where do we start cutting?” What are the cuttable items?

Akina: Well, the University of Hawaii Economic Research Organization just pointed out that we basically have a lot of assets that could easily be sold. I have not researched this or looked into it, but solving the $300 million problem of needing to put teachers and the public sector workers onto furlough could be done by selling a piece of property in the state. Again, I’m not promoting that. I’m just saying there are alternatives. Another alternative would be to take agencies or organizations and businesses run by the state and have the private sector run them.

For example, many legislators have been talking about improving airport efficiency and actually making a profit rather than running a deficit, by letting some kind of public-private partnership some private agency manage the airport and turn it from a sector of debt into a sector of profitability. There are many solutions like this, not to mention cutting a lot of fat and inefficiency throughout government that could be implemented.

Buck: That’s really a great point. We did hit upon this in many conversations in the past, regarding some of the assets of the city, and mostly the state and private landowners as well. We are land poor. Getting rid of land or selling buildings or selling blocks of downtown Honolulu is an ugly thing to consider because, gee, there’s not that much land. But in retrospect, why does the state or why does the city need to own land?

If we can get out of the financial hole by selling some of this hard-to-get land, have at it. As a homeowner or a landlord — I mean, or a tenant, you’re going to be paying rent to somebody. If it’s not going to be the state, let it be a developer, for heaven sakes. Who cares just as long as our debt goes down?

Akina: That’s an important topic in itself, our debt going down. Our debt has been expanding massively. For example, even in this time of crisis, we’ve increased our debt. The governor has decided to stop paying for the liabilities we have on our public health benefits. We’ve got at least $13 billion of unfunded liabilities in our public health system benefits and another $13 billion in the employee retirement system, and that’s $26 billion.

If we stop making payments on that and bringing that amount down, we go deeper and deeper into debt. What that means is our bond rating gets reduced, we have higher interest charges that will go to the taxpayers. The bottom line is, you can’t get out of digging yourself into a hole if you’re filling up the hole at the same time or at a faster rate. That’s a mentality that just has to change.

Anyone who handles credit cards on the household level knows this. The solution to your problem is not to go out and get a higher interest credit card and use more credit and debt, because that’ll come back to bite you. That’s what the state has to learn.

Buck: Well, that’s where we are. We’ve known about this for a long time, but everybody just says “yeah,” and we keep kicking it down the road. Well, I think we’re at the end of the road where we can kick. You said that before, there have been some — and we’re not the only state in this condition — not that it makes it any happier to learn. But aren’t there several that are virtually on the verge of bankruptcy because they weren’t able to turn on a printing print like the federal government does? And the federal government’s not in much better shape, either.

Akina: Absolutely. We started today’s discussion by talking about the furloughs, which will put employees on leave two days a month. We have to realize this: As much as that may help a little bit, $300 million, it doesn’t make a big dent at all in the $1.4 billion every year that is going to be our deficit. 

Instead, the public needs to realize that the government is not just looking at furloughs; it’s looking at what it can do to make up the rest of that $1.4 billion deficit. There are some very dangerous things being considered. For example, as I mentioned before, stopping paying down the unfunded liabilities for public health benefits. That’s a very dangerous path to go on. They’re looking at freezing all hires, which is understandable, but they’re also looking at borrowing $750 million; again, borrowing in order to get ourselves out of a hole. Using up existing rainy day funds.

Buck: Here’s comes a great one. This comes from Manny. We’re going to run out of time, unfortunately, but it says, “Now they’re also trying to inject a desperation into it so we are wanting to be able to talk about casinos again.” 

Keli’i, can we get together again to talk about this, because I’m running out of time. I do know that there are some solutions that are maybe not with casinos. We might be able to do it a different way. But who knows? Maybe it’s time to sell some land and build some casinos. What do we do?

Akina: Great to be with you today, and I want to wish you and all the listeners a very, very Merry Christmas.

 

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