Without intervention, Hawaii government could run out of operating funds next year

Hawaii’s economic situation is so dire that state government could run out of operating funds by June 2021 if lawmakers and officials don’t find a way to slash expenses and increase tax collections.

State Sen. Donovan Dela Cruz said Thursday during a joint hearing of the Senate Ways and Means Committee and the Senate Committee on Energy, Economic Development and Tourism that current government operations cost $677 million a month — much of which is contributed by tourism.

Hawaii’s tourism has collapsed amid COVID-19 fears and government lockdowns and, according to the state’s chief economist, Eugene Tian, recovery could be at least five years out.

When asked about the state’s financial position, Craig Hirai, director of the state Department of Budget and Finance, informed Senate committee members that by year’s end “we could have a cash-flow problem. We also have a budget problem and a bond-rating problem.”

Hirai said the state probably has enough operating funds to get through the calendar year but might not have enough to get through the upcoming fiscal biennium, which ends June 30, 2021.

State Department of Taxation Director Rona Suzuki said preliminary tax numbers for the May report include just $238 million in general excise taxes, transient accommodations taxes and income taxes. Suzuki said that number could rise; however, Dela Cruz said it’s still likely to be less than half of the $699 million outlined in the May 2019 report.

Scott Murakami, director of the state Department of Labor and Industrial Relations, said he expects, given tourism’s decline, that at least 150,000 people will continue to be unemployed in Hawaii for some time.

Dela Cruz said DLIR, community colleges and the state Department of Business, Economic Development and Tourism must find a way to diversify Hawaii’s economy and create tens of thousands of new jobs.

“If we can’t supplant tourism, we are going to be operating in the red for quite some time, and that’s something that we just can’t do,” said Dela Cruz, who chairs the Senate Ways and Means Committee.

Dela Cruz said lawmakers already are looking at having to borrow money and make cuts.

“The governor’s plan may have to end up resurfacing,” he said.

State lawmakers had hoped to call on DBEDT on Thursday to outline a plan to begin replacing tourism jobs. Instead, DBEDT Director Mike McCartney used his time to accuse unidentified senators of creating a hostile workplace.

McCartney, who said he had shared his concern with Senate President Ron Kouchi, declined to allow his staff to testify.

“We can’t just work together and collaborate if it’s under fear or if there’s bullying or harassment or intimidation,” McCartney said.

McCartney and Kouchi did not immediately return calls from the Honolulu Star-Advertiser.

This latest government conflict follows a decision from state lawmakers last week not to use $10 million in federal CARES Act funds to pay for the Hawaii Economic and Community Recovery & Resiliency “navigator.”

The initiative, which is strongly supported by DBEDT, is still moving forward despite last week’s financial impediments.

Gov. David Ige, who appointed Alan Oshima head of the “navigator” effort, did not respond to the Star-Advertiser’s request for a comment Thursday about how the program is being funded.

State Sen. Glenn Wakai, chairman of the Senate Committee on Energy, Economic Development and Tourism, said he was disappointed in McCartney’s decision not to participate.

“Today we saw why I was absolutely correct last year that he’s the wrong person for this job,” Wakai said following Thursday’s hearing.

Last year Wakai moved not to confirm Ige’s nomination of McCartney to head DBEDT, citing poor communication as a major concern.

“It’s all hands on deck, and some of the most important hands are deciding that they don’t want to participate,” Wakai said. “We are past urgent. We are underwater and only going deeper. We were hoping DBEDT would at least help us get our head above water.”

Dela Cruz said the Senate committees have reached out to Kouchi to resolve the issue with DBEDT.

“If we can’t move forward, the governor has to insert himself,” Dela Cruz said.