Since the “Great Recession” of 2007-09, the U.S. economy has enjoyed an unusually long growth spurt. But there are signs that may be changing; another recession now seems likely. Before the situation becomes a crisis, we should take a look at what happened in Hawaii during the last economic downturn and, together, make a plan to help businesses, workers and the state government weather the next decline.
So what did happen during the last recession? Tourism — our state’s economic driver — took a big hit: Aloha Airlines was grounded and two of three Norwegian Cruise Lines’ ships sailed away. Between 2007 and 2009, 14% fewer visitors arrived, and those who did spent 22% less money. That would equate to 1.4 million fewer tourists spending $3.7 billion less today.
In total, 44,000 Hawaii jobs were lost during the Great Recession. One in three of those jobs was related to tourism and a quarter of them were in construction. Many people who retained their jobs got their wages trimmed. The state’s unemployment rate rose from 2.7% to 7%. But unemployment was worse on neighbor islands: Hawaii County’s unemployment rate was nearly 10% from 2009 through 2011. Bankruptcy filings also quadrupled during the recession.
The shrinking economy reduced state tax revenues, and that forced budget cuts. The most infamous austerity measure was probably the adoption of “Furlough Fridays,” which put state employees on unpaid leave two Fridays per month. While this prevented a large layoff of state workers, it also disrupted public services. The effect this had on public schools was severe. Every student lost a month of classroom time, and parents were forced to scramble for expensive child-care options in the midst of a recession.
Other ill-conceived budget cuts included more than $25 million in reductions to some of the state’s most effective and efficient public services provided by community- based nonprofits.
State-funded mental health and substance abuse services took a devastating $34 million cut. Nearly another million dollars was taken from the budget of the Office of Community Services for economic stabilization services aimed at Hawaii’s most vulnerable residents.
Hawaii’s state budget problems would have been a lot worse if not for the federal American Recovery and Reinvestment Act (ARRA), which added $1.5 billion to the state’s budget between 2010 and 2012. Funds from ARRA put people back to work in construction and essential services. But, in an era of growing federal deficits and uncooperative partisanship, it’s possible that a program like ARRA would be unavailable during a future recession.
Both the public and private sectors should agree on strategies to reduce layoffs and keep the cost of living — especially housing — under control. The state budget may have to be cut, but lawmakers should identify essential services that would be off-limits to cuts. The state should create a list of priority projects and streamline procedures to put stimulus monies to use quickly.
Our leaders must continue to work toward a more diverse economy that offers better- paying jobs. Tourism, which is subject to economic and other trends beyond our control, directly or indirectly accounts for 41% of all our private-sector jobs, and offers wages averaging less than $35,000 per year.
We must also rein in the increasing cost of living. Between 2007 and 2018, the earnings of low-wage job holders increased only 3.7% while the cost to rent a one-bedroom apartment grew by 14%.
The importance of good public policy is starkly clear during straitened economic times. Regardless of economic cycles, good budget and tax decisions are the foundation for opportunity and well-being, now and in the future.
Beth Giesting is executive director of the Hawaii Budget & Policy Center.
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