Like the rest of the country, Hawaii has skirted the budgetary "fiscal cliff," allowing a fragile economic recovery to continue.
But dangerous slopes lie ahead, and state lawmakers and our newly constituted congressional delegation must rise to the challenge.
Most Hawaii residents can be relieved in the short term by the fiscal legislation that Congress approved this week. It keeps their income taxes near their present amounts, provides some assistance to home sellers, limits workers’ pay only slightly toward Social Security. It also extends tax credits for such Hawaii enterprises as commercial biodiesel blenders and wind energy projects. Combined with a federal judge’s green light for the city’s rail transit project, there is real hope that Hawaii’s fortunes could improve.
However, a serious threat to Hawaii’s economic well-being looms large. The fiscal cliff legislation signed by President Barack Obama has delayed until only March 1 the draconian 2011 Budget Control Act’s cuts in both domestic and defense spending.
Unless it’s changed, the law would cut $55 billion in military spending yearly over a decade to make up for that spent on Medicare and Social Security.
It would reduce military spending in Hawaii by about 18 percent, totaling nearly $400 million a year, mostly on Oahu, through 2021, according to the Center for Security Policy, a Washington, D.C., think tank specializing in security issues.
Federal expenditures, much of them for the military, comprise Hawaii’s second largest economic sector, next only to tourism. "Sequestration will do great damage not just to America’s economy but to Hawaii’s economy," said U.S. Sen. Brian Schatz, quick to raise the issue upon being appointed to replace the late U.S. Sen. Daniel Inouye in the Senate.
Schatz and the rest of Hawaii’s congressional delegation have the unenviable task of carrying on the work of Inouye, a champion at procuring both military and civilian dollars for Hawaii. It’s a heavy load, but they will have to figure out a way to carry it.
Otherwise, the state will have to trim its economic sails yet again. The state’s finance director, Kalbert Young, sounded pessimistic yesterday, warning the Legislature’s finance committees that the "Inouye cliff" could result in painful losses of revenue even beyond the Budget Control Act.
According to a 2011 study by the RAND Corp., Defense Department spending in Hawaii averaged $6.5 billion per year during 2007-2009 fiscal years — spending linked to 101,000 jobs.
The ripple effect through the economy is even broader, accounting at times for as much as 18 percent of the state’s economic activity, according to RAND.
The Obama administration has argued that the nation’s security interests in Asia and the Pacific are growing — presumably making Hawaii a key part of the Pentagon’s global planning. Undoubtedly, massive, across-the-board spending cuts would seriously disrupt those plans.
Defense Secretary Leon E. Panetta noted that if Congress had not postponed the sequestration, he might have sent furlough notices to 800,000 civilian employees.
Other major victims of sequestration would be more than 300 aerospace and defense companies and their suppliers. The head of Lockheed Martin Corp. warned last July that the company would have to dismiss 10,000 employees of sequestration occurred in January.
The desire and need for reducing the federal deficit is undisputed, and no one can seriously doubt that the Pentagon’s budget must take a hit as well. Indeed, the Pentagon already plans to reduce spending by $487 billion over the same 10-year period envisioned under sequestration.
However, drastic and thoughtless budget slashing could be economically devastating for many federal employees, companies and communities near military bases. It could harm our national security as well.
Both consequences would hit Hawaii especially hard. Our policymakers, both here and in Washington, need to make it a top priority to mitigate such possible damage. In the meantime, it would be wise to plan for the worst while hoping for the best.
