Editorial: Grim prognosis for state budget

As the state Legislature ends its historically difficult session today, the work for its next one is already piling up. And a great deal of it — trying to square up the state’s costs with its plummeting tax revenues — won’t wait.

There will be more private business failures and, in the public sector, cuts in the payroll will have to be among the options on the table.

Gov. David Ige started the week giving notice of the looming fiscal crisis, caused by the coronavirus pandemic and the economic shutdown that resulted. He cited the most recent projections that Hawaii will face a $2.3 billion shortfall in revenues for the next 12-15 months. Ige also acknowledged that, as the economy recovers, that budgetary hole could shrink.

As the week wound down, however, the forecast only seemed to darken. Spikes in new cases of COVID-19 infections have unsettled state and county leadership — and the general public — nervous about how the arrival of new visitors may add to the community spread of the disease.

No matter when the state finally decides travelers can begin to arrive under amended quarantine terms, it’s clear that resumption of business will happen at a halting pace. If the public feels threatened by rising virus levels in the environment, that’s sure to put a damper on commercial activities that help to replenish the state’s tax coffers.

Without substantial further federal aid to remedy the budget hole, the governor is likely to cut spending substantially, too. In that process, which likely will extend into the 2021 legislative session, it will be imperative to preserve as much of the social safety net as possible. Economic hardship is sure to persist, and more people will be in need of assistance.

But the budgetary scalpel will be used, and it’s hard to see how it will avoid carving out labor expenditures. Ige said in an interview with Honolulu Star-Advertiser writer Kevin Dayton that pay cuts or furloughs are likely if the state is fiscally on its own.

The global pandemic in March led the governor to issue a stay-at-home order and lockdowns for all but essential businesses. Those restrictions were lifted gradually, but the economic strain has cost some 200,000 jobs, Ige said: In June alone, the state saw a 25% reduction in tax revenue.

The $4 billion infusion of federal money through the CARES Act has taken the edge off some household and business losses, but those funds are coming to an end. Hawaii’s congressional delegation surely is on board with pressing for more assistance for local governments.

Even as pressure mounts on Congress, as states backsliding on economic recovery due to coronavirus spikes need a hand, Hawaii can’t afford to count on any bailout materializing.

The governor’s financial plan includes borrowing $750 million from the Municipal Liquidity Facility, a program of the Federal Reserve. Although the state could secure a loan of up to $2.1 billion, Ige rightly rejected this level of borrowing because the terms would require repayment to begin almost immediately.

Throughout the 2020 session, the legislative budgetary analysis did not project as deep a hole as the governor’s. Lawmakers have advocated a disingenuous strategy including tapping the rainy-day fund as well as the federal loans, one that avoided labor cuts. Further, they passed previously negotiated pay raises that had been delayed, averting a hard political choice and frustrating taxpayers surveying the economic ruin around them.

Hard budgetary choices have a way of catching up with politicians, though, even in an election year. Ige, not on the 2020 ballot, is about to start that painful process.