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Emergency powers reform thwarted by revised HB1902

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Senate Committee on Judiciary on April 2, 2024.
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April 2, 2024, 10:05 a.m.
Hawaii State Capitol
Conference Room 016 and Videoconference

 To: Senate Committee on Judiciary
       Sen. Karl Rhoads, Chair
       Sen. Mike Gabbard, Vice-Chair

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

TESTIMONY OPPOSING HB1902 HD1 SD1 — RELATING TO EMERGENCY MANAGEMENT

Aloha Chair Rhoads, Vice-Chair Gabbard and other Committee members,

The Grassroot Institute of Hawaii would like to offer its comments opposing  HB1902 HD1 SD1, which would amend the state’s emergency management statute to state that the powers granted for emergency purposes must be consistent with the Hawaii Constitution; clarify the powers of the governor and mayors to extend an emergency via proclamation; and shorten the duration of price control periods during an emergency.

More specifically, our opposition is limited to Part II of the bill.

Part II would add seven new sections to the emergency management law allowing the governor or mayor to suspend rent payments for up to six months; defer mortgage payments for three or more years; defer loan payments for up to six months, including for commercial, consumer, and student loans; and declare a moratorium on foreclosures and evictions .

Regarding Part I of the bill, we agree that the emergency management statute is in need of an update, but we are concerned about the potential effect of these amendments. The requirement that the exercise of emergency powers be consistent with the Hawaii Constitution is a welcome addition, but it does not go far enough to protect civil liberties.

In particular, the clause allowing the governor or mayors to extend an emergency via 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.

However, shortening the period of price controls during emergencies 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.

That said, it is perplexing that the last committee that considered this bill would sensibly limit price controls but also create the potential for catastrophic economic effects in its treatment of rents, mortgages and loans.

Part II of HB1902 HD1 SD1 was clearly created in response to the difficulties experienced by the survivors of the Lahaina wildfire, but it is also an excellent demonstration of the adage that “hard cases make bad law.”

Whether talking about rent, loans or mortgages, these proposed changes would be more likely to hurt rather than help the people that they are intended to help.

For example, consider proposed rent suspensions. Research demonstrates that even over a limited period of time or limited geographic area, rent control can have a negative impact on the rental market.[4]

Put simply, landlords who are fearful of the impact of a rent control law often protect their interests by either raising their rental rates in advance or choosing not to rent long-term any more.

Unfortunately, this bill is about more than imposing a rent freeze, even for a short period. Rather, it deals in the total suspension of rental payments for up to half a year. It may even be possible for the suspension of rental payments to extend far beyond the six-month limit, depending on how the governor’s power to extend emergencies is interpreted.

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 suspensions — whether for the short-term or indefinitely.

This is also true of mortgages. The potential of lengthy mortgage deferments will incentivize mortgage lenders to mitigate this risk to the detriment of Hawaii homebuyers.

In fact, all lenders will be forced to reevaluate the wisdom of lending to Hawaii residents and businesses, as they will have to consider the possibility that a natural disaster will make it impossible for them to collect payments for an indeterminate amount of time.

In business, this is known as a bad loan and it will make the state a significantly less attractive place to invest.

It is difficult to understate the harm that could be done to the housing market, local businesses and financial institutions via these provisions. Ultimately, Hawaii’s residents would be the ones to suffer the most as landlords, mortgagors and lenders would act to protect themselves against the risk that could come from going months or years without payments.

Putting aside the question of whether all of these provisions are constitutional and enforceable, there are better ways to help tenants, homeowners and others in financial difficulty due to a natural disaster. Those could include private assistance programs or even government assistance and other incentives to lenders and landlords.

In any case, we urge you to remove Part II of this bill in its entirety.

It is important that Hawaii’s emergency management law reflects the lessons we have learned over the past few years. There is room to protect civil rights and the constitutional balance of powers 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 submit our comments.

Sincerely,

Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii
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[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.

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