What Hawaii must do to recover financially

Photo by Annika Young

A huge infusion of COVID-19 aid money from the federal government has solved Hawaii’s budgetary troubles in the short run. But what about the long run?

Institute President Keli‘i Akina addressed that question during remarks to members of the Hawaii Cattlemen’s Council at its annual convention on Nov. 19.

“There’s no question about it that the COVID pandemic has damaged our economic environment,” Akina said. “But even without COVID, we would have to recover from decades of bad public policy and regulations that have actually hurt your own industry.”

In his presentation, titled “What Hawaii must do to financially recover,” Akina drew on the institute’s 2020 report “Road map to prosperity,” to suggest ways the state can recover from its economic downturn caused by the coronavirus lockdowns. They include:

>> Reduce government spending and taxation.

>> Contract more with the private sector to deliver public services.

>> Reform the state public pension system to resolve its $14 billion in unfunded liabilities.

>> Reduce regulations on businesses.

>> Allow out-of-state licensed workers to practice in Hawaii.

>> Rezone 1% to 2% more land in Hawaii for residential development to help make housing more affordable.

>> Repeal the U.S.-build requirement of the federal maritime law known as the Jones Act to help reduce shipping costs for Hawaii businesses and consumers.

You can watch Akina’s presentation or read the transcript here.

John Morgan: Here is a recognized person in the Hawaii community for a long time.

Dr. Keliʻi Akina is a recognized scholar, public policy spokesperson, community leader in Hawaii. He holds advanced degrees from Northwestern University and the University of Hawaii. An expert in East/West philosophy and taught at universities in China and the United States.

Dr. Akina joins us and is going to discuss what Hawaii needs to do to financially recover after what we’ve been through.

Dr. Akina, can I turn it over to you?

Keliʻi Akina: Absolutely.

John, thank you very much, and Nicole, appreciate being with you today, especially with the Cattlemen’s Council.

Aloha, everyone. Can you hear me well enough?

Nicole Galase: Yes.

Akina: Very good. I am just thrilled to be with you today.

I’m the president/CEO of the Grassroot Institute of Hawaii, which happens to be an independent public policy think tank. We stand for individual liberty, economic freedom and limited accountable government, and our concern is that we want the economic environment to be optimal for the cattlemen of Hawaii.

Your industry is vital to our future. We need to support it much more here in the state. In addition to that, you play an extremely important role in the future of food sustainability of our island state.

I just want to tip my hat to you, appreciate your industry, and my purpose today is simply to give an overview of how we’re doing economically because that’s the context in which you operate as businesses.

First what I’m going to do is share my screen with you right now, and bear with me a moment as I do this … see if we’re on OK. I’m going to click this here … how are we doing?

Galase: Looks great. Go ahead.

Akina: Very good.

The presentation I want to give rather quickly is what Hawaii must do to recover financially. We’ve got a lot to recover from. There’s no question about it that the COVID pandemic has damaged our environment, our economic environment to a major extent, but even without COVID and the pandemic, we would have to recover from decades of bad public policy and regulations that have actually hurt your own industry.

Although the lockdowns may have saved lives, it also damaged the economy, and so a good question to start off with is how damaged is our economy?

Hawaii was probably more damaged than any other state when it comes to the pandemic impact. Through most of 2020 and ’21, Hawaii had the worst unemployment rate in the nation. Now that the unemployment rate has come down somewhat, we’re still a long way from a healthy economy.

As we go forward, one of the consequences of the bad economy in Hawaii is that people are leaving. We are experiencing a net population decline in terms of the rate of population growth. Our population is projected to decline by 20,000 people by the year, 2023, and that’s staggering.

At the Grassroot Institute, we started a project to chronolog this called “Why We Left Hawaii.” In this project, we’ve collected numerous stories of individuals such as Nate Hara, who said, “I was born in Waimea, Kauai, and raised in Hilo. I lived in Hawaii and so forth until I was 26. The cost of living, continuous raising of taxes and fees, and the state’s need to control everything led to my family and me moving to Texas.” Nate continues, “In order for my family and I to move back, we would need to see change that betters the hardworking local people. Reward the people for their hard work.”

I can’t tell you how many such stories have come to us. You’ll find them very familiar.

Michael Cheney said, “I was born in Kahuku and raised in Hauula. I lived in Hawaii for about 26 years. It was a hard decision to move out of Hawaii because Hawaii was all I knew. If you don’t have a steady job and you’re just starting out as a family, it will be a struggle far beyond what you can imagine,” and that’s a man who is now living in Bountiful, Utah.

We did a survey to find out what the specific reasons were for which people were leaving. The primary factor, of course, is the cost of living. If we don’t lower the cost of living, more people will 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. We don’t realize the extent to which the fiscal condition of the state of Hawaii is actually impacting the ability of people to live here because it damages the economy, and it reduces the services that they can have affordably and it increases the taxes they have to pay.

At the very least, one of the things that has to happen in order for your industry and all industries to move forward and for people to live in Hawaii is to have a fiscal course correction. We have to fix the finances of the government.

Now, over the past decade, Hawaii’s government has spent at double the pace of the private sector economy. That is exactly backwards of the golden rule, which says that the private sector needs to grow faster than the government.

The whole purpose of government when it comes to the economy is to stimulate the private economy, not to grow faster than the private economy. This is one of the conditions that’s at the heart of the difficult economy that we experience.

The other thing is that it is completely unsustainable. In order to keep that rate of spending going, the government needs to take on a massive amount of debt. Our debt for bonds has skyrocketed to $16 billion. Much of that debt was taken out to pay for salaries for government employees and to pay for debt servicing. That’s a totally unsustainable approach to managing government.

I just want us to realize the difficulty of that, but our debt is not just the regular debt that recurs in terms of the budget of the state that has to be funded at legislative sessions. There’s also the long-term balance sheet on which we’ll find we have a massive amount of unfunded liabilities such as $14 billion for Hawaii’s public pension system and $12 billion for Hawaii’s health benefit systems for public employees.

What that means is that there’s at least that $26 billion that we owe to our public workers that we simply don’t have in terms of their retirement and their health systems. In total, this is over $30,000 for every man, woman and child in the state. That’s a massive amount of debt to be on the backs of taxpayers.

The state’s debts are actually taking over the state budget. If we take a look at this pie chart, you’ll see that 54 cents out of every dollar of taxpayer spending goes towards benefits and debts. That’s an incredible amount. That’s over half of those dollars. That leaves less money for schools, for salaries, for roads, for parks, for bridges, for the kinds of services that we really need to go to the government for. This is a huge burden on the raising and spending of any money at all.

Now, at the same time, in order to fund this burden, our state has a tendency to raise taxes. Hawaii’s unemployment taxes are slated to increase by 38% in the new year. That’s the unemployment insurance tax, the portion that you, as businesses, pay.

The tax will go up most on struggling businesses. That means hotels and restaurants will pay higher taxes next year, and that will trickle down to everyone.

Lawmakers have now allowed the counties to increase visitor taxes by 30%, and Kauai and Maui already have done that. Some people are of the thinking that that only taxes visitors; all of that trickles down into the overall economy. Tourism tax rates increasing tremendously in our state. In addition to that, the cost of living here has gone up tremendously.

I don’t have to tell you that inflation is up. You know that every time you buy something, whether it’s as a consumer or as a producer. Inflation is up 6% since last year; the biggest price increases were in energy at 27%, cars and trucks at 26.3% and meats at 14.6%.

Young Brothers also got approval last year to increase its rates by 46%. That’s had a huge impact on the price of goods in neighbor islands, including shipping cattle. Housing costs have risen as well, with the median price of a single-family home reaching over a million dollars on Oahu and Maui.

There’s another cost that I know you’re familiar with because you’re in the cattle industry, the Jones Act; it adds cost to the cost of living. One of the things that we need to keep in mind is that there’s a lot of misinformation about this 100-year-old maritime law, and there’s a lot of extremism with regard to it.

It seems as though people fall into two camps for the most part, and that is keep the Jones Act exactly as it is or completely repeal the Jones Act. I want you to know, at the outset, we don’t take that kind of extreme positioning at the Grassroot Institute.

First of all, we study the Jones Act. You can go to our website and get the latest of several studies called “Quantifying the Cost of the Jones Act To Hawaii.” This is the authoritative study that helps us to understand that Hawaii’s economy is hit by over $1.2 billion every year for the Jones Act, but there are additional costs as well.

Hawaii shipping companies are burdened with the law because they have to buy ships that are five times more expensive than they otherwise would without the Jones Act. Young Brothers, for example, has to purchase tugboats that are five times more expensive, and that price gets passed on in the form of higher shipping rates.

We could talk a lot about the Jones Act, but to sum it up, there are just four things that you should keep in mind as to what it is. It’s a 101-year-old law that basically governs the transport of cargo between one American port and another one, for example, between Honolulu and Hilo, or, for example, Honolulu and Los Angeles, if it’s between two American ports. It must conform to four basic rules.

First of all, the ship must be built in the United States. Secondly, it must be crewed by a mostly United States crew. Third, it must fly the United States flag. Fourth, it must be owned by a U.S. company.

The most significant requirement that has the greatest economic impact is that the ship must be built in the United States, which really drives the prices of these ships through the roof, partly because the United States produces less than 2% of all the ocean-going, deep-bottom cargo ships in the world, and so to buy them is at a huge premium. As I mentioned earlier, if we were to buy them from our allies, they would cost one-fifth or 20% of what we pay for them.

That’s not the only cost that the Jones Act imposes. One of them has to do with something that’s very important in the cattle industry, and that is with the shipping of cattle. This is especially true for those of you who need to rely upon the transport of cattle between Hawaii and the mainland. Basically, the entire world, for the most part, ships cattle on ships specifically designed to carry cattle.

All over the world, this is done, except in Hawaii. That’s because there are no Jones Act-compliant livestock carrier ships at all for you to use. Hawaii ranchers have to use tiny “cowtainers” shipped on Jones Act carriers or use airplanes to fly the cattle.

Now, these options don’t allow for as much capacity, and they’re much more expensive. I don’t have to tell you because you know that. That effectively limits the number of cattle that can be exported to the mainland per trip, which is especially important during critical periods of the years such as during the grazing season.

If Hawaii ranchers could use these livestock carriers, more cattle could be shipped to the mainland in a single trip, and that would cut transportation time significantly, leaving more time for grazing. This could be one of the modifications that is made to the Jones Act.

As I mentioned before, at the Grassroot Institute, we’re not saying to get rid of the Jones Act; we’re not saying to keep it as it exactly is, but make appropriate modifications that could help industries in Hawaii.

These modifications would also allow ranchers more flexibility to expand the cattle business. Livestock carriers would be easier to charter. They pass by Hawaii all the time from international ports and could easily be charted by local ranchers to ship cattle to the mainland were it not for the Jones Act.

Well, enough said about the Jones Act for now. I’ll be glad to answer some questions. I just focused in on it because it’s one of those backdrop regulatory issues that does affect the capacity of the cattle industry in Hawaii.

To sum up, really, it’s time for the right ideas. This is what Hawaii needs. If you want a collection of the right ideas, a couple of dozen things that our government could do starting right now, we’ve put them together in a publication online called “Roadmap To Prosperity: How Hawaii Can Recover and Even Excel After the Coronavirus Lockdown.” Let me just give you a few examples of what’s contained in our prescription in “Roadmap To Prosperity.”

The first thing we can do is reduce spending and taxation. For example, Hawaii could return to the 2015 budget when we had an even larger population than we do now. Doing so would save us over $600 million, and that would provide wiggle room to reduce taxes such as the unemployment tax, or we could look more at privatization of services that are exclusively provided by the government.

Instead, look to the private sector to do them. Hawaii has a law that disallows privatizing government services, and that’s why you have the government running so many businesses in an inefficient manner. Reforming this law could help the state and county save on costs and provide competitive service.

Or reforming the benefits we provide to our public workers. Hawaii’s public pension system, as mentioned before, is $14 billion in debt, and the health benefit system is $12 billion in debt. There are ways to reform this that other states have used, and reforming these systems could save the public workers from underfunded benefits and save taxpayers money, too.

In addition to that, we need to reduce regulations overall on businesses. I talked about the Jones Act, but did you know you also need a license to open a lemonade stand in Hawaii? What we really need to do is reduce these regulations.

One easy step would be to get rid of the overburdensome requirements like licenses and permits for lemonade stands and home-based businesses. Hawaii should allow occupational licensing reciprocity. That means that we will acknowledge the licenses of other states, so people who are licensed in other states can more easily find work in the islands.

Another thing we need to do is loosen up on our requirements and zoning and land use regulation laws that limit homebuilding. Hawaii zones 95% of the land statewide as open space. Only 5% of the land is reserved for housing and development. We could just increase by a small percentage — go from 5 to 6 or 7% — and have a huge increase in the availability of housing.

Lawmakers need to reduce housing regulations. That could provide more homes for local residents and bring back the economy.

As we discussed earlier, it’s time to look for Jones Act reform, to update that 100-year-old law. We should reform the shipbuilding plank of the Jones Act, in other words, the rule that says that we can only use ships built in the United States. It needs to be expanded so that we can use ships that are bought from our allies.

We buy planes, cars and cell phones overseas. We should be able to buy our ships from overseas, too. That would allow us to buy the newest and most innovative livestock vessels from overseas to use in the trade between Hawaii and the mainland.

In conclusion, I’m actually optimistic, and at this point, I need to say that, because I could easily get depressed if I just looked at the negative statistics. If we really look at the positive ideas going forward, this is a great time to get a hold of our public leaders and to tell them to embrace some of these ideas.

Our economy can prosper with the right ideas. We can bring our economy back if we follow the roadmap to prosperity.

I’d love to share more with you, to have a personal discussion, answer any questions. You can get a hold of us at grassrootinstitute.org. Go to our website, and sign up for weekly materials for free or just contact us.

Thank you so much for inviting me today to the Hawaii Cattlemen’s Council.

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