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Sustainability applies to economy, too, Akina says on ‘Stan The Energy Man’

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Usually it’s Keli’i Akina, president of the Grassroot Institute of Hawaii, who interviews notable people on the ThinkTech Hawaii Network, during his show “Hawaii Together,” which airs every other Monday.

But recently, on Feb. 2, Akina was the interview subject of a different ThinkTech Hawaii program: Stan Osserman’s regular “Stan The Energy Man,” which airs on Tuesdays.

Akina and Osserman talked about what types of policies are needed to revive Hawaii’s economy from the devastating effects of the coronavirus lockdown, as well as the state’s general harmful economic policies. They further discussed the role of entrepreneurs in helping create not only sustainable energy options but also a truly diversified, sustainable economy.

A full transcript of the conversation is below.

2-2-21 Keli’i Akina on “Stan the Energy Man” on ThinkTech Hawaii

Stan Osserman: Hey, aloha and welcome to “Stan Energy Man.” Stan Osserman here.

Instead of coming to you live and direct from Kailua today, I’m coming live and direct to you from the other Kailua, the better Kailua: Kailua-Kona, on the Big Island. We had a great meeting this weekend about a great project that a group of us are starting up to actually kick-start clean energy and clean environment and clean transportation on the Big Island of Hawaii. We’ve got a quick video that will show you what we’re doing. We’re going to build some hydrogen stations, bring in some vehicles and try and help get things started because, as the rest of our show will point out, it’s going to be tough to have the state do much more than policy stuff to help get things kicked-off because our economy is riding pretty rough. It’s been ridden hard and put away wet, as they say here on the Big Island. Let’s roll that video and get you excited.

[Shares brief video]

Osserman: So we’re really excited about Hawaii Hydrogen, or Hydrogen Hawaii rather. What it means, it’s a beautiful station. It was designed by a local architect here. That was brand-new Toyata Mirai. The new model is what’s illustrated in the video. We’re bringing in some of the three-year-old Mirais with 15,000 miles on them. We’re going to be leasing them out for three years, with the fuel at a pretty reasonable price. Actually, a really reasonable price. We’re looking forward to getting that started here in Hawaii and building the infrastructure and kick-starting hydrogen-electric fuel cell vehicles in Hawaii.

And today, to talk about why we need to do things like that is another host here on ThinkTech Hawaii, Dr. Keli’i Akina, from the Grassroot Institute. 

I’ve been wanting to have him on for a long time because, really, it’s all about the economics of Hawaii. When you think about why we should get off of fossil fuels, it’s not just to be clean and green, it’s not just to be environmentally friendly. It’s economics. We import so much oil and so much fuel every year into the state that we’re sending all our money overseas or out of the state and out of the country.

What we need to be doing is using the renewable resources we have here in Hawaii to stop that outflow of cash. We call that an import. When we’re importing fuel, it’s taking money out of the state. When we’re exporting products, it brings money into the state. 

Dr. Keli’i Akina, thanks so much for being with us today. I’m excited to have you on. I’m beyond words. I’ve been trying hard to get you on here. 

Could you give us a picture of what Hawaii’s economy is like right now, just a snapshot?

Keli’i Akina: Well, certainly Stan, and just delighted to be on the program with you, always enjoy talking with you, and I think it’s a time for new thinking, absolutely. 

Because of the COVID lockdowns across the country, many economies have suffered greatly, but none has suffered as much as the Hawaii economy. Last year, we saw, in 2020, tens of thousands of our workers in the state lose their jobs. Our unemployment rate is now the highest in the nation. It was the lowest. Now it’s the highest at 9.3%.

We have something going on here. We have a high cost of living due to two factors. 

First, we have high prices of everything, including housing. Secondly, we’ve got low salaries. In fact, did you know Stan — I know you’re working on a new house now — but a monthly mortgage on a typical home here in Hawaii costs most people 41% of their monthly salary. That’s just incredible. It’s the highest in the nation. 

As a result, thousands of people are leaving our state, we have a mass exodus and we are the second-highest per capita rate of people leaving the state for greener pastures elsewhere. 

I could go on with hundreds of statistics, but I think that gives a picture that our economy is definitely not where we want it to be.

Osserman: Being that our state collects taxes from us and those revenues run the state, the more people we lose, and the tougher it gets, the tougher the state’s economy gets. 

Now that we had the pandemic hit us and we have all that unemployment on our shoulders, it’s really dragged Hawaii’s economy down. 

Can you talk a little bit about how … that happened and how maybe we can get it out of the hole, how we can get in the hole with it?

Akina: Sure, there’s no question about it, Stan, the pandemic has hurt our economy tremendously. The economic lockdowns have really damaged our major industry, tourism, and we’ve been overly dependent on that one industry. But very few people realize that it wasn’t just the pandemic response, it’s decades and decades of bad economic planning that has really been at the heart of what’s taking place. Economic policies by our government have actually put us into a weaker position and have accelerated the rate at which the pandemic has been able to make us very vulnerable.

For example, we’ve seen over the last decade increased tax rates to record high levels in some categories. We’ve seen increased burdens and regulations on businesses, which has reduced opportunity and really just stymied innovation here in Hawaii. 

Probably something that has been an albatross for a long time has become a bigger albatross and that’s the cost of government. That’s a very expensive cost to every individual and every business in Hawaii. One of the biggest factors is the level of debt that our government has taken on. 

I think many of your viewers would be familiar with the fact that we have unfunded liabilities. This is something that we have made a point of letting the public know about at the Grassroot Institute. Our ERS, or Employees Retirement System, which is the retirement system for public workers, is $14.6 billion in the hole. That’s $15 billion it owes public workers for their pensions, and we don’t even have that. 

If you take a look at their health benefits, the EUTF, that’s underfunded by $12.4 billion. So you add those together, we owe our public workers $26 billion that we don’t have, and their great-grandchildren are going to be paying the price tag.

Now that the state’s other debts are up to $14 billion, and there’s a new one that just happened last year and that’s the unemployment fund. It’s projected to be a billion dollars in debt coming up. And if you take a look at deferred maintenance and infrastructure costs — and I’m going to say something that’s really staggering: Before the COVID crisis, we were $88 billion of unfunded liabilities. That’s $88 billion which we will owe to our people over the next 30 years that we don’t have, for everything, from the Employee Retirement System, through infrastructure and so forth. Well, that is now at a level of $100 billion in total debt.

And the consequences are staggering. The biggest one is we’re going to have to pay it off. But along with that our bond rating fell last year and interest rates go up. That means our taxpayers are paying higher rates just to keep the government going. 

That’s just half the picture, Stan. And I better stop here so I can let you ask another question. The other half of the picture is that, in addition to the debt I just described, our government has been increasing its spending. So when you’re going deeper into debt and you’re raising your spending levels, you know what that’s like as a manager of a business and a household.

Osserman: Yes. I can tell you that it’s pretty relevant that the retirement system has been a burden coming to us and the COVID actually accentuating the debt, and the interest of the debt can be huge as that interest rate climbs.

Akina: Absolutely.

Osserman: It compounds on itself and makes it even worse.

But something else is in there too. The federal government has had a role in this over the last few years, and that is the burden of federal regulations. President Trump lifted a lot of those regulations.

For example here on the Big Island, I’m going to be building a house that requires an aerobic sewage system, a waste-disposal system. Normally, that system would cost about $7,000 or $8,000. Mine cost $21,000, and it’s all being driven by the EPA because I’m within a thousand feet of a water well. But it’s based on generic … anywhere in the U.S., which might have hard clay soil or sandy soil, it doesn’t matter, and all those are different.

Our well is 24 … it’s quarter-mile deep — almost a half-mile deep, actually — and there’s no way my effluent is going to get down to that well, but I still have to put in this expensive system. It’s like it’s all driven by government regulations. 

So you’re right: It’s not just the management of our own personnel systems and our own retirement system, but a lot of the regulation that’s being put on businesses, that drives the cost of everything up, and also makes the cost of government more expensive, because when the EPA hands down a regulation like that, the Department of Health or Department of Ag, those guys end up handling it, and that means they have to have more manpower to do all the paperwork. It gets out of control. 

So that’s how we got here, but really, how do we get ourselves out? 

The numbers you gave us were staggering and you didn’t even talk about the rail. Heaven forbid the county of Honolulu started a $3 billion project that’s already four years late to need, $7 billion over budget and climbing, and not even going the full route that it was supposed to go. So, holy mackerel, it’s so depressing to think about it. How are we going to get ourselves out of this, Doctor?

MARK HAS EDITED TO HERE

Akina: That is quite an incredible situation we have found ourselves in, and you talk about the federal impact on the State of Hawaii. There are numerous industries and businesses that are impacted by federal regulations here, and it just makes it harder. 

And you’ve talked about the city. We’ve got to recognize that there’s a difference between the city budget and the state budget. The city is in pretty much a similar situation that the state is in terms of its unfunded liabilities, and it uses the same ERS system for its pensioners as well. So what’s happening at the state, we see in the microcosm it’s happening at the city. 

Now, talking about the state, Governor Ige’s accountants have told us that when we look at what he’s planning to spend over the next four years, every year we’re going to have a $1.4 billion deficit. That’s huge. So Our legislators are right now scrambling to figure out how in the world we’re going to pay for that. 

One of the ways we’re doing is a very bad precedent: Just to make payroll, the state took out $750 million in loan funds. That’s the first time that’s happened, and that’s a terrible thing, because payroll is supposed to be something that lends toward our productivity; it’s not something that we should be paying debt for.

The state unemployment taxes are also set to triple next year because the fund was so depleted. It kicks into gear — something you’re going to have to worry about as a small businessman — and that is a nearly tripling for most businesses of the taxes they pay for unemployment. So that’s not looking good. 

But Stan, before we go on I do want to mention, there are some bright spots. If we can take these and really develop them and leverage them, they’ll be helpful. 

The economy, we’re told by the Council on Revenues, is not going to be as bad as predicted. It’s still going to be bad, but that little margin [laughs] of not being as bad as predicted means that we can inject another $400 million into this year’s budget, and that’s good news. A little bit of a good economy goes a long way, and that’s the lesson we should learn, that when the government takes its hands off of regulation and taxation, we can have a better economy, and that goes a long way in terms of tax revenues. 

So lawmakers are doing the right thing now, they’re considering lowering the unemployment tax, and the state seems to be focused, at least for the time being, on cutting its spending. Those are good signs, and I hope that they’ll continue to cut spending.

Osserman: Yes, I agree that’s really critical. I’m not a big economics fan. Unfortunately, when I took my master’s [degree classes], all my extra classes, my optional classes, were in economics, because that’s all that was available. The big takeaway I had from the economics classes that we had is: What you want to do is grow the pie instead of trying to cut the pie into these thinner pieces for everybody. Growing your economy is really critical. If you can stimulate your economy, your tax revenues go up, your unemployment goes down, all the right things happen. 

Is the state gearing itself for growing productivity and increasing productivity to solve our problems, or are they stuck on trying to slice the pie into smaller pieces to handle things?

Akina: Well, Stan, that’s a great illustration. Unfortunately, as you point out, the state has got it backward. You see the problem that the state struggles with is how do we raise more revenue? How do we get more money for the rising cost of state government? 

Instead of dealing with the question of how can we bring the costs down, or how can the state possibly even become more efficient and make money, the most common answer given is,”Raise taxes.” But there’s a problem when you raise taxes and that is, you’re killing the goose that lays the golden eggs.

You see, by raising taxes whether they’re the GE taxes — and there’s a proposal to raise GE tax again this year — or other taxes, you make it harder for the consumer to live. As a result, the consumers buy less from businesses. Businesses, as a result, don’t raise as much money and therefore they don’t pay as much taxes. So it’s kind of backward.  

But when you do it the other way and recognize reducing taxes — for example, reducing the GE tax could do this — would put more money back into businesses; they would grow, they would become more productive. As a result, they make more money, and making more money, they’d employ more people; people would have more money, they’d spend more money, and businesses would make more money and guess what? In the end, the government would have higher tax revenues. 

That’s how it works in the real world. Unfortunately, we’re not expanding the pie, as you mentioned, and that’s really what we need to be doing. 

Osserman: When we hear the term GDP, or gross domestic product — that economic term comes in — that’s really the key measurement of growing that pie. It’s how much are you exporting, or how much are you selling versus how much are you paying debt on or buying. So that growing the pie, in my mind, when you hear economists talk about growing your GDP or expanding your GDP or raising your GDP, that’s the key you’re looking for: lowering unemployment and expanding your production and your sales and exports. Another thing … 

Akina: That’s right. In fact, Stan, I know on your program you talk about overall sustainability. A part of sustainability has got to be economic sustainability. If you were to ask me the question, “Iis Hawaii’s government budget sustainable?” It clearly is not at this time. One of the ways we know this is that, over the past decade the state government has grown at nearly double the rate of the private sector economy. Can you imagine that? That the government costs have grown at a rate double that of the private sector economy? That’s absolutely unsustainable. It’s unhealthy for the entire state of Hawaii.

Our research shows that in the meantime, over the last 10 years, our government has breached the constitutional spending limit by over $1.4 billion. This is forcing us, at least for the time being, to tighten our belts in government, but the government is looking at a very terrible solution, which is to borrow to the hilt, to borrow as much money as possible from future generations and from the federal government. While that’s a short-term solution, it has to be paid back, and as we discussed earlier, it impacts our bond ratings and our ability to raise credit and ultimately, we have an unsustainable government economy. That translates into an unsustainable private sector economy.

Osserman: We started off talking about tourism being a major driver of our current economy, but over my lifetime here we’ve had three major drivers, agriculture — when we had sugarcane and pineapple — tourism, and the military. And those are all exports. 

It doesn’t sound like tourism is an export, but those people bring their money here and leave it here and we rotate it through our economy. The military brings military people here and their families and they bring their money here and into our economy. We have 10% of our population are military and federal retirees; they bring their money in here. So we’re not sending any money out of the state, that’s all bringing money in. 

But sugar and pineapple are gone, they’re not coming back. That sustainability piece on agriculture needs to be: We need to get local farmers and local ranchers feeding us instead of importing all the food that we bring in. That’s a sustainability piece.

Tourism, we can grow it to a certain point, but at a certain point, it becomes unsustainable as well. 

And the military is a great piece here with the shipyard and the 25th Infantry Division up at Schofield bringing people and civil service jobs here. But we can’t keep depending on the federal government to keep us going. 

So in the sustainability realm, I see energy and agriculture, particularly, as the two legs we have to keep growing to make Hawaii’s economy come back. That’s why I started off with that video. I think there’s going to be in the clean-energy world. We’re not doing clean and green just to be environmentally friendly. We’re going to start doing clean and green because Hawaii has at least eight times the energy it needs to run, and we’re not harvesting it; we just waste it. Whether it’s water flowing downhill in old sugar flumes, or whether it’s solar electricity, or whether it’s wind-powered electricity, or whether it’s geothermal, we need to look at all those things and use agriculture and energy to help bring our economy back. 

Would you agree with that?

Akina: Absolutely, Stan. And let me say something that our listeners or our viewers may not realize. You and I had a nice little chat before today’s program in which you mentioned that you are absolutely frustrated with the government’s role in diversifying our economy or in growing the energy sector and so forth. 

You said something which is not often heard, and basically you told me that you and a group of other business people are just going to take it into your own hands and use your private sector means to raise capital and make an industry happen.

I wish you could have seen me, I was virtually standing up and applauding, because that kind of dedication and that kind of approach from the private sector is exactly what is needed. 

You see, our government here in Hawaii has known since as early as the ’50s and the 1960s and ’70s that the tourist economy is putting our eggs into one basket. While it’s always going to be part of Hawaii’s economy and we need to grow tourism within a sustainable framework, we can’t put all those eggs in one basket.  So there has been this buzzword that has been around since largely the ’60s and ’70s, and mainly the ’70s, and that was diversification.

In concept, it sounds great. “Diversify the economy, have multiple sectors bringing in revenues to the islands.” But the flaw in all attempts to diversify the economy by the government is that it has been the government’s attempts. It has been the government saying, “We’re going to put tax breaks and credits and we’re going to do incentives for this one industry, or for that one industry, or this friend’s industry.” The problem is, industry doesn’t grow by government playing the odds and saying, “I’m going to choose winners and losers.” Industry grows by competition in the free market. 

And that’s what I want to applaud you and your colleagues for because competition in the free market, going back to your question of agriculture and energy, is precisely what we’re going to need to grow these sectors and other sectors such as high-tech. The more the government takes its hands off and allows free market competition, the more it’s likely for capital to come to Hawaii and for businesses to really be able to compete and flourish without the government picking and choosing winners and losers. 

So I’m all excited about the prospects for the future if we can somehow get that drive on the part of private industry to really innovate and really go after market competition.

Osserman: You said something really important there. I don’t know if many people picked up on it. 

Part of the problem I see is that we do have government picking winners and losers, or maybe even picking friends that can give them some money for their campaigns, versus the best decision or the best solution and the best sustainable answer for Hawaii. 

How do we get past that? 

The “C” word, corruption, is really ugly so we don’t want to raise that, but in reality, it’s kind of a, we call it “mission creep,” where it starts off as being a good thing; you get your friend a contract and he does a good job and see, but then after a while, it becomes a detriment because it’s government controlling too much stuff and not giving the free market a chance to do what it needs to do. How do we start to regulate that in our state?

Akina: Well, that’s a very profound question and you know that the Grassroot Institute plays the role of a watchdog on government, watching for transparency and accountability and so forth.

But let me just go back to something that really made me excited when I heard about you and your colleagues starting a new venture. Simply don’t play the game with the government. If you have to play the game of corruption, of favored parties in terms of contracts, or of lobbying in order to get the government to pass a tax credit or an incentive for a certain industry, just don’t play the game.

Get out there and show that private industry can actually compete in the free market and can do so successfully. Take the risks, lose some, but win at least once. And in the long run, the consumer wins, the market wins, and we are no longer dependent upon the processes that have become corrupt within government. I think that’s the way to go.

Osserman: That’s good advice, and I’d like to add to that. 

There’s a local component here too, where, especially here on the Big Island and places like Molokai where we bring in innovation or big companies, and there’s a lot of pushback from the local folks because they’ve been messed up over too many times by big companies or mainland companies or people that are out to get profits for themselves and not take care of the community. 

How do we rally the community behind the sustainability effort and growing our economy effort through the private sector and avoid having pushback from our own people and our own communities? How do we convince them that it’s really in their best interest?

Akina: I think we have to move out of an either/or mindset into a both/and. In other words, it’s not either the environment or the economy, it’s not either left or right. It’s got to be we bring all people together around our common values, and there’s no better place to demonstrate that than in Hawaii. Because when we do bring people together, when we’ve practice what I’ve called “E hana kākou” — “Let’s work together” — it means that from the beginning of any venture, we exercise our kuleana, or our responsibility. That means that we understand that we are related to one another and we bring stakeholders to the table.

You see, no economic venture exists in isolation. Every economic venture in some way involves and impacts the entire community that surrounds us. I think as entrepreneurs reach out to the entire community and recognize our kuleana and engage stakeholders from the start, they all have a much more successful pathway than processes that leave people out in isolation.

Osserman: I agree with you. Part of the effort that we’re doing here on the Big Island in our venture is I set up a separate standalone committee that’s going to do outreach to the Sustainable Energy Hawaii Group and to other local groups to make sure that they are on board with what we’re doing, and if they have questions or problems or issues that they can bring them up. 

We have about 30 seconds left. I’d like to leave that to you to give us some closing comments.

Akina: Well, I think we’ve got a bright future ahead of us when we all come together as stakeholders around the table. When we practice “E hana kākou,” let’s work together for the greater good, then we’re no longer pitting options against each other. Instead of being at odds with each other, we’re working together for a better Hawaii. If anybody wants information on some of our toughest issues, visit us at the Grassroot Institute website. That’s grassrootinstitute.org. Thanks, Stan, for letting me be with you today.

Osserman: Well, Dr. Akina, I appreciate you spending some time with us and sharing your thoughts on Hawaii’s economy and what we need to do to move forward in sustainability. I hope you’ll be able to join us again in the future.

Akina: Glad to be with you.

Osserman: Until then, aloha to you and mahalo.

 

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