Emergency powers need update, but SB2908 doesn’t go far enough

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the House Committee on Judiciary and Hawaiian Affairs on March 27, 2024.

March 27, 2024, 2 p.m.
Hawaii State Capitol
Conference Room 325 and Videoconference

To: House Committee on Judiciary & Hawaiian Affairs
      Rep. David A. Tarnas, Chair
      Rep. Gregg Takayama, Vice-Chair

 From: Grassroot Institute of Hawaii
            Ted Kefalas, Director of Strategic Campaigns


Aloha Chairs and Committee members,

The Grassroot Institute of Hawaii would like to offer its comments on SB2908 SD1 HD1, which would clarify the powers of the governor and mayors to extend an emergency via proclamation; shorten the duration of price control periods during an emergency; and prohibit residential rent increases in specific areas for an unspecified amount of time following a severe storm warning or emergency proclamation.

We agree that the emergency management statute is in need of an update, but we are concerned about the potential effect of these amendments. In particular, the clause allowing the governor or mayors to extend an emergency via supplementary proclamation would exacerbate a problem in the state’s current emergency management law that was not apparent until the COVID-19 lockdowns, which is the lack of a meaningful legislative check on the governor’s emergency powers.

Currently, the law includes a 60-day limit on emergencies, but it does not address what should happen if an emergency exceeds that limit. This bill would make that problem even more severe by guaranteeing that the governor and mayors would be able to extend their emergency proclamations indefinitely, with little input or oversight from the legislative branch.

What is needed is a legislative check on the possibility of an unending emergency arising from the governor’s or a mayor’s ability to issue supplemental proclamations extending the original emergency period. For that reason, we respectfully suggest an amendment that would authorize the Legislature to terminate a declared state of emergency after 60 days via an affirmative two-thirds vote in both chambers.

An amendment that retains legislative power over the prospect of unending supplemental proclamations would help ensure that the public retains a voice in an ongoing emergency, and that the emergency powers do not become a tool for unchecked executive power.

This bill also shortens the period of price controls on commodities specified in an emergency proclamation, which would be a step in the right direction.

Economists frown on price controls — even during emergencies[1] — as they tend to create economic inefficiencies and distort the market, often hurting the disadvantaged and vulnerable populations they are intended to help.[2]

If anything, such controls incentivize those with more resources and advantages to take advantage of artificially lower prices, leading to hoarding and unnecessary purchases. One study found that pandemic-era price controls actually undermined COVID-19 mitigation efforts, as they exacerbated shortages and forced consumers to travel to more stores in order to locate goods, thereby frustrating social-distancing efforts.[3]

Keeping the duration of price controls to a minimum, or even eliminating price controls completely, would help address the problems caused by the market disruptions they cause

Finally, we are concerned about the vagueness of the emergency rent control period described in this bill. Without a clear statement of the intended length of this proposed rent freeze, it is difficult to properly anticipate its effect on the state’s rental housing market as a whole.

Recent years have seen an increase in the use of emergency proclamations for situations outside of the natural disasters envisioned in this bill. Combined with the legal uncertainty surrounding the governor’s ability to extend emergencies indefinitely via supplemental proclamations, this presents the possibility that SB2908 could affect the financial calculations involved with renting residential housing.

Because there is a real and ever-present threat of natural disasters in Hawaii, this bill may unintentionally contribute to higher overall rent prices or lower rental availability as landlords try to mitigate the risk of being affected by the bill’s potential for rent freezes.

Research demonstrates that even over a limited period of time or limited geographic area, rent freezes can have a negative impact on the rental market.

A recent study of Berlin’s 2020 rent freeze found that even in the short term, rent control in Germany’s capital city resulted in a dramatic drop in the number of properties advertised for rent.[4] In fact, many of Berlin’s rentals appeared to permanently disappear from the rental market. Meanwhile, the policy created a significant rent gap in neighboring areas, pushing up rental prices where the freeze didn’t apply.

In other words, landlords who are fearful of the long-term impact of a rent control law often protect their interests by either raising their rental rates in advance or leaving the market entirely.

Another example: When the city of Buenos Aires in Argentina announced a plan to “stabilize” rents in 2021, rental prices shot up 67% in anticipation of the coming rent freeze.[5]

If the rent control period created by this bill were to be of substantial duration, it could have an undesirable effect on the housing market as a whole. If a rent freeze is deemed necessary anyway, perhaps it would be best to subject rental rates to the existing law’s more general price control provision.

Regardless of how it is included, however, the rent control period must be kept as short as possible in order to prevent a negative effect on the housing market as a whole.

It is important that Hawaii’s emergency management law reflects the lessons we have learned over the past few years. There is room to balance civil rights concerns and protect Hawaii residents without handicapping the ability of the governor to respond quickly and effectively to emergency situations.

The goal should be to amend the law so that Hawaii is better able to address future emergencies.

Thank you for the opportunity to testify.

Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii

[1] ”Price Gouging,” Chicago Booth, Kent A. Clark Center for Global Markets, May 2, 2012.
[2] Ryan Bourne, “Abolish Price and Wage Controls,” Cato Institute, Sept. 15, 2020.
[3] Rik Chakraborti and Gavin Roberts, “How price-gouging regulation undermined COVID-19 mitigation: county-level evidence of unintended consequences,” Public Choice, Vol. 196, 2023, pp. 51–83.
[4] Anja M. Hahn, Konstantin A. Kholodilin, Sofie R. Waltl and Marco Fongoni, “Forward to the Past: Short-Term Effects of the Rent Freeze in Berlin,” Management Science, March 22, 2023.
[5] Patrick Gillespie, “How a Plan to Stabilize Rents Sent Prices Skyrocketing,” Bloomberg, April 16, 2021.

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