The state Council on Revenues has drafted a relatively sunny updated economic forecast, pinned on hopes that the incoming administration of President-elect Joe Biden will accelerate rollout of COVID-19 vaccine and testing for infection, which in turn will encourage more travel to tourism-dependent Hawaii.
If all goes smoothly, the council maintains that by December, Hawaii should see visitor arrivals rebound to 20,000 per day — or about 70% of previous, record-setting levels in 2019. After a gloom-drenched year, in which the pandemic crushed much of our economy, that’s an outlook Gov. David Ige and state lawmakers are likely cheering on.
However, even if Hawaii’s tax revenues surge, right now, as preparations are underway for the legislative session that starts Jan. 20, the state must grapple with a projected deficit of $1.4 billion a year for four years.
In an effort to start patching this monster-size hole, Ige is proposing various cost-saving measures. Among them: budget cuts of between 10% and 20% for the two years in state departments funded from the general treasury, hiring freezes, and suspending pre-funding of state retiree health benefits liabilities.
For now, state worker furloughs are pulled from the lineup because federal COVID relief funding is on the way, which will help pay for vaccine distribution, virus testing, contract tracing and some public education costs.
Speaking on Friday’s “Spotlight Hawaii,” the Star- Advertiser’s webcast, Ige said: “The last thing we want to do is have furloughs or layoffs because we know it exacerbates the slow down in our economy.” Still, due to the state’s daunting budget-balancing challenge, both must remain on the table.
The state must chip away at deficit where it can, especially with the aim of avoiding situations that could set back economic recovery even further. One case in point: Hawaii Labor Department officials last week said that the state has yet to figure out how to cover nearly $60 million in interest payments that will come due.
Since COVID-19’s economic fallout quickly drained Hawaii’s Unemployment Compensation Trust Fund — the employer-funded pot of money that covers the state’s jobless benefits — Hawaii has so far borrowed more than $734 million from the U.S. Treasury to cover unemployment claims.
Come mid-March, the state owes $20.8 million in interest payments, and another $39 million in 2023. Failure to pay up could result in local businesses losing a valuable payroll-related federal tax credit that, in turn, could further impede business recovery. The state must cover this interest bill by the deadlines. With so many businesses struggling, they need to be spared yet another financial burden.
Ige’s proposals to date fall far short of significantly patching the deficit, and state officials have hinted at the possibility of tax increases and unspecified “revenue enhancements.” However, during the Friday webcast, Ige said tax hikes during an economic downturn would be a last resort. Agreed. That’s too harsh a fix at a time when many residents have lost jobs or income.
He also nodded optimistically toward the Council on Revenues forecast, along with Biden’s inauguration and Democrats taking control of the U.S. Senate.
In regard to future COVID-19 relief funds, Ige said: “We know that at least direct aid to states will be on the table, will be up for discussion. … All of us have seen significant reductions in the revenues we’re getting. And without any additional federal assistance, we clearly would be looking at adding to the unemployed rolls with state and county public servants.”
Ige and lawmakers must make some hard decisions in regard to budget cuts and restructuring state government. Any infusion of federal money will help, of course, but don’t expect it to come close to filling our deep money hole.