Hawaii might be recovering from the COVID-19 recession more quickly than anticipated, but that does not mean we are out of the woods.
Inflation, economic setbacks and a possible recession are reason enough for policymakers to tread carefully when it comes to the budget.
Fortunately, there is a simple guideline that can prevent overspending and debt: The government should not grow faster than the economy.
It’s called the golden rule of spending. Stick to that rule and our elected officials can make sure that our state and county budgets are sustainable.
The rule is especially important to remember when you get a sudden infusion of funds, such as relief money from the federal government or a sudden increase in tax revenues for whatever reason. Should you rush out and spend it on every project that makes a case for being worthy? Or do you pay down any outstanding liabilities and prepare for future emergencies?
The right answer should be obvious, but looking at what Hawaii’s counties have been considering doing lately, it appears we need to emphasize the point.
Hawaii’s gross domestic product is down by 4.43% since 2019, yet even as the economy suffers, all four counties seem determined to spend like crazy and expand.
The Honolulu City Council’s fiscal 2023 budget proposes a spending hike of $220 million, a 14% increase since 2019. It also calls for 521 new employees and salary increases of 5%.
On Kauai, county officials are considering a $42 million or 21% spending increase over fiscal 2019. Total salary expenditures would go up by 18%.
On Maui, the Council is proposing a record-high $1 billion spending plan, representing a 27% increase over fiscal 2019. It also is looking to add 232 new employees, an 8% increase.
I am happy to say that the Maui Council did recently lower its tax rates on most categories of property, to account for increased property values — as all counties should. But in general, those reductions will be offset by the other tax rates that were increased, and by its unsustainable spending plan.
Hawaii County, meanwhile, is considering an 18% increase in its annual spending compared to fiscal 2019, with its personnel costs to go up by 2%.
The point is that no matter how much the counties spend, the money has to come from somewhere. And no matter how they structure it, that money ultimately comes from us.
It could be directly, through taxes on income, property, gifts, inheritance or capital gains. Or indirectly through “the rich,” “the tourists,” “empty rooms,” the gasoline we buy, the food we eat, the liquids we might drink, and on and on.
Hawaii’s “tax law and rules” are highly detailed and complex. But their effect is simple: They increase our cost of living and crimp our range of economic opportunities, which, along with Hawaii’s high cost of housing, is why so many residents have been leaving the islands in search of greener pastures.
Since 2019, Hawaii’s labor force has declined by 2.8%, to 648,150. Hawaii’s population in general has suffered net losses every year since 2016. Our economy is literally shrinking, yet our counties want to go on spending sprees.
As Grassroot Institute founder Dick Rowland always warned, “When the government gets bigger, you get smaller.”
This is a time for budgetary restraint, not excess. Policymakers at every level must embrace the golden rule of budgeting. Otherwise, they will force even more of our family, friends and neighbors to leave our beloved Hawaii.
This commentary was Keli’i Akina’s weekly “President’s Corner” column for May 28, 2022. If you would like to have his columns emailed to you on a regular basis, please call 808-864-1776 or email email@example.com.