The head of the state’s largest public worker union is urging Gov. David Ige to borrow money from the federal government if necessary to avoid deep pay cuts for public workers, and U.S. Sen. Brian Schatz said Tuesday he also wants to explore the borrowing option to help close a $1.5 billion state budget shortfall caused by the coronavirus pandemic.
Hawaii Government Employees Association Executive Director Randy Perreira wrote to Ige on Tuesday warning him that the 20% pay cuts or furloughs Ige proposed last week would have “a devastating effect” on Hawaii’s economy.
Perreira cited data from a report by the University of Hawaii Economic Research Organization that concluded a 20% public worker pay cut would reduce the state’s gross domestic product by $3.3 billion between 2020 and 2022.
“This would severely, if not permanently, affect our local economy,” Perreira wrote. He added that “a furlough would become the self-fulfilling prophesy of a deeper economic trough, creating a negative spiral downward from which we may not soon recover.”
“We would hope that reason and economic sense, and not a fear of public reaction will guide the decision of your administration. It is time to do the right thing and not be guided by knee-jerk public opinion,” he wrote.
As an alternative to pay cuts, Perreira and Schatz both cited UHERO’s suggestion that the state might borrow from the Federal Reserve’s Municipal Lending Facility, which was designed to allow states and municipalities to borrow money when they don’t have other ways to raise cash.
The Municipal Lending Facility can make loans of up to 24 months, and the state and counties together could borrow as much as $4 billion, or 20% of their general fund revenues, according to UHERO. For the state, the proceeds could be used to bridge what Ige expects will be a six- to 18-month downturn in state tax collections and other revenues.
Schatz said in an interview that if the state’s problem is temporary cash flow, “then this is the solution.”
UHERO also suggested the federal government might borrow money to provide additional grants to the states, and in fact the CARES Act is already providing $1.25 billion to support the state and counties.
Advocates were unable to include more financial support for states and counties in the fourth COVID relief bill that was approved by the U.S. Senate on Tuesday, but Schatz said bailing out state and local governments is a top priority for Democratic U.S. House Speaker Nancy Pelosi and U.S. Senate Minority Leader Chuck Schumer.
“The politics of this are a bit unpredictable and scrambled because lots of governors are Republican, and as much as they may be theoretically in favor of small government, they’re also facing impossible choices and want help from the federal government,” Schatz said.
He cited the example of fossil fuel-producing states that are being hammered by the oil price nose dive, and said the ugly dynamics of the recession might stitch together what he called “an unusual coalition.”
“If I were in the state government, I would wait if at all possible before doing anything too draconian,” Schatz said, adding that he told Ige as much. Ige initially told representatives of the state’s public worker unions that 20% pay cuts could take effect as early as May 1, but union officials say he later amended that date to June 1.
“We will know a lot more in a month or so, and if terrible and painful decisions need to be undertaken, then at least we can know that we’ve exhausted all of the alternatives,” Schatz said. ‘There are no guarantees in life or in politics, but this is one of the highest priorities over the next several weeks, and we are not alone in facing a dire fiscal situation.”