Federal shutdown hurts Hawaii in ways unseen

On the surface, Hawaii this week skipped much of the trauma of the federal shutdown — but below decks, the state’s budget, just climbing to a recovery, was about to split open.

Kalbert Young, the state budget and finance director, in remarks during the annual Hawaii Economic Association meeting and in an interview later, revealed the tense times.

First the federal sequestration, and then the federal shutdown and the real threat of not raising the debt limit showed the real threat of financial wreckage ahead.

The action by Congress this week to vote for the stopgap measures saves the day, but it shows how closely Hawaii’s state government is lashed to the federal budget.

There are more than a billion dollars in state programs that are federally funded.

Federal programs inside state government would have closed, state workers paid with federal money would not have a paycheck, and there would be an open question of how the state budget could make up the difference.

If the Republican-inspired shutdown and threatened credit default continued, instead of a state, Hawaii, like most other states, would be a debris field.

"You haven’t heard much about the state curtailing services and this is a conscious decision, which will largely change day to day depending on how long the shutdown lasts," Young said just a day before Wednesday’s congressional vote.

"There are more than 3,500 state employees that are partially or completely federally funded; you have not heard about the state furloughing any of these employees even in the midst of their counterparts on a federal level that are out," Young said. "That is a conscious decision depending on how long the shutdown lasts and how long the state can continue (to pay them)."

There is about $400 million a month in federal money for social programs and benefits.

That includes $47 million a month in food stamp benefits to 193,000 people in Hawaii. If that stopped, where would those people get money for food? How could the state make up the difference?

Perhaps the biggest action Young made was his September decision to stop the purchase of Treasury bills.

Of course, when you are essentially responsible for the investing of more than $4 billion in state money, you have to be more than just cautious — but for Young to start worrying about the "full faith and credit" of the United States, speaks to the uncertain times.

"It is not an indictment against the U.S. Treasury; it was a move to preserve state liquidity," Young told me.

"If you need a lot of cash fast, I am going to hold it in a cash account.

"The credit fear … is we are heavily exposed to U.S. debt when Congress talks about their willingness to default; there is a personal impact," Young explained.

The state of Hawaii suffered losses of around $20 million because of the sequestration, a manageable amount. The estimates for the losses because of the federal shutdown were about $462 million, which economists said would translate into a loss in tax revenue of $50 million.

The state’s strong tourist economy, Young said, more than balanced out the losses.

At the moment, it appears that the adults are back in charge of Washington. But if the fringe elements continue to think that shutting down government is a winning solution, every state will be the loser.

Richard Borreca writes on politics on Sundays, Tuesdays and Fridays. Reach him at rborreca@staradvertiser. com.