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Hawaii unemployment could soar to 25% before recovery begins

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                                The State Unemployment Office has closed its front doors to the public but people continue to show up in person in an attempt to file for unemployment at 830 Punchbowl St, Rm 110 after unsuccessfully trying to connect online, Monday, March 23, 2020.


    The State Unemployment Office has closed its front doors to the public but people continue to show up in person in an attempt to file for unemployment at 830 Punchbowl St, Rm 110 after unsuccessfully trying to connect online, Monday, March 23, 2020.

Hawaii’s unemployment rate is projected to soar to 25% later this year in the economic free fall triggered by the coronavirus disaster, but the state is also in line to receive at least $4 billion in federal aid from the new federal relief bill approved Friday, according to testimony before a select state House committee Monday morning.

VIDEO: Watch the livestream here.

Carl Bonham, executive director of the University of Hawaii Economic Research Organization, said there is vast uncertainty in the UHERO projections, in large part because “there is no comparison for this.” Hawaii’s unemployment rate in January was 2.7%.

“We know Hawaii is already in a deep recession, and that recession will surpass anything that we’ve seen in our lifetimes,” Bonham testified Monday in a hearing held remotely by the House Select Committee on COVID-19 Economic and Financial Preparedness. “There’s really not any comparison that you can make to an economy where you’ve basically shut down hospitality and tourism, and will remain shut down for several months.”

He added that “even as the health crisis wanes in Hawaii, even if it passes quickly, it’s going to take an extended period of time for the recovery to reach previous economic levels. The really disturbing part about all this is no one can say with any real certainty how long the recovery will take.”

Any economic forecast of the recovery has to make key assumptions because there are no data or models that will accurately describe how fast the recovery will happen, he said.

Bonham said UHERO’s latest economic forecast projects the trough of the downturn will be in the next three months, with employment declining about 20% from a year earlier. That translates into a loss of more than 140,000 jobs from the recent peak, and the Hawaii unemployment rate is expected to climb to about 25% before it begins to decline again.

How quickly the unemployment rate will decline “is just as uncertain as knowing how fast the visitor market is going to recover,” he said.

Those unemployment numbers are comparable to the unemployment levels of the Great Depression, but the situation t oday isn’t similar to the 1930s, said Paul Brewbaker, principal of the economic consulting firm TZ Economics.

“In magnitude it’s Great Depression territory, but the Great Depression lasted 3-1/2 years and we’re in this one month, and it could be done in six,” Brewbaker said. He guessed that immunity to the novel coronavirus in the general population might reach a point in a year where “we can work around it,” and a vaccine may be available in 18 months.

In the meantime, Bonham said, Hawaii residents’ incomes will be propped up somewhat by the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress and signed into law by President Trump on Friday.

That new law will assure that incomes will not drop nearly as much as jobs will, Bonham said, but UHERO is still projecting the job count for 2020 will average 11% lower than 2019, while real, or inflation-adjusted, income will be more than 3% lower than last year.

U.S. Sen Brian Schatz told the committee there will be a minimum of $4 billion in federal assistance coming to Hawaii from the CARES Act, including $1.25 billion to help fund state and county government coronavirus response efforts, and another $1.14 billion in estimated unemployment assistance.

Hawaii also will receive an estimated $1.24 billion in direct cash payments to residents, and $130 million in estimated funding for the Supplemental Nutrition Assistance Program, formerly known as food stamps.

Another $53 million will be paid out in Hawaii to support local schools and colleges during the pandemic, and another $11 million will be forthcoming to help support Hawaii’s community health centers. Another $8 million in Community Development Block Grants is also being earmarked for Hawaii.

Schatz said the $4 billion estimate is quite conservative because it does not include the loans and grants to small businesses that are built into the act. Those include zero-interest loans for eight weeks to cover the operating costs for businesses with fewer than 500 employees, loans that can be forgiven if the owners keep the required records, he said.

Also not included in the $4 billion estimate is a $100 billion package to support hospitals across the country, because it isn’t clear yet how much of that money will be directed to Hawaii.

Bonham questioned how long it will take to pay the enhanced unemployment benefits that were established under the CARES Act, which temporarily increases unemployment payments by $600 per week above the base amounts.

Scott Murakami, director of the state Department of Labor and Industrial Relations, told committee members that before the flood of unemployment claims this month, his department managed to start benefit payments within 21 days of filing in 85% of the cases it handled.

But Murakami said his department has been ”fighting a wildfire with a squirt gun, with Scotch tape and glue; and I will tell you, just to get to this point where we can receive these filings and process them is nothing short of a miracle.”

“We’re still trying for the 21 days, but quite clearly, given some of the challenges that we’ve had, and the system degradation and the solutions that we’ve had to run up, I’m anticipating some delays. It’s hard to say at this point,” he said.

Bonham suggested the department could accept the claims and make payments subject to review later, arguing that “three weeks, that’s just simply too long for … many households that are out of work. Three weeks is homelessness.”

Murakami acknowledged a delay of a few weeks is “tough,” but said the state could lose federal matching funds if it does not meet federal requirements for reviewing claims upfront. If that were to happen, Hawaii businesses would pay more later to cover the loss of federal funding, he said.

“We’re staying within rules of what we can do, but we’re stripping down the system to pay out checks as quickly as we can,” he said.

Bonham said that suggests Hawaii’s congressional delegation needs to intervene to get the federal government to relax its rules to allow for more rapid payment, and U.S. Rep. Ed Case said he would look into the issue.

Schatz’s office has produced a guide to the new law that is designed to be used by small-businesses owners, workers, tenants and others to help them tap into the benefits offered by the CARES Act.

Correction: A previous version of this story incorrectly stated the amount that unemployment benefits will be increased by the CARES ACT. The increase will be $600 per week.
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