LIHU‘E — This year’s state legislative session was a challenging hand for lawmakers to play. Balancing an operational budget in the middle of arguably the darkest financial crisis since the Great Depression may seem impossible, but it proved otherwise.
Three years ago, the Isles were contemplating the economic crisis on the Mainland and preparing for its delayed impact here.
As state Rep. Mina Morita, D-Kapa‘a-Hanalei, said, Hawai‘i is caught in between the East and West traffic but has historically been able to weather economic downturns.
But a nightmare unfolded when the financial crisis went worldwide.
“This is a global recession; we’re not being buffered from the impacts,” Morita said.
Tourists stopped coming, the state government laid off many employees and furloughed most of the remainder. Counties followed suit, and next month their employees will start a year of two-days-per-month furlough.
Rep. Marcus Oshiro, D-Wahiawa, seemed to work tirelessly as the chair of the Finance Committee last session, orchestrating a nearly impossible balance of the state budget.
The biggest threat to Kaua‘i County and its budget process came from Honolulu, when Gov. Linda Lingle proposed a plan to usurp the hotel-room tax revenues that counties have relied on for years.
“Basically she had put into her plan to take the counties’ share of the TAT,” Oshiro said.
Taking a different approach, the state Finance Committee looked into certain exemptions, tax credits and other ways of finding revenues. They even transferred tobacco settlement money and other special funds, Oshiro said.
“By doing that, we could come up with the same amount of money, $95 million, instead of taking the counties’ TAT,” he said.
Mayor Bernard Carvalho Jr. was a strong advocate for Kaua‘i, which turned out to be instrumental in the negotiations to let the counties keep the TAT.
State Rep. Roland Sagum, D-Koloa-Waimea, said the negotiations between the House and Senate dragged on until the last minute of the session.
Kaua‘i County Councilman Tim Bynum has said he believes the county furloughs were unnecessary, making a strong case against them and claiming they were politically driven.
Oshiro, however, said the furlough issue was never on the table in his discussion with the Senate. Morita said the same regarding the House.
“The discussions, when they happen on the state level, are more global. We don’t tell the counties what they have to do to balance their budget,” Morita said.
Recovery
Many experts have said the country has seen the worst of the recession and is now in a recovery period.
Oshiro said the recession may have ended last summer, but there will be a lag here in Hawai‘i, and it could be two or three years until recovery.
“We’re going back to normal,” Oshiro said. “But it’s going to be a new normal. That old normal is gone.”
Morita said the projections are coming in a little more optimistic at the state level, giving residents “light at the end of the tunnel.”
“Even though we had severe budget cuts, there are things that we’ve done at the Legislature that can help stimulate the economy and provide economic opportunities,” she said.
Oshiro agreed with Morita’s optimism, saying tourism and hotel-room tax revenues are up.
The general excise taxes took a downturn for now, but personal income tax went up.
“We made adjustments in the tax brackets. The higher-income people will pay more,” Morita said.
The tax changes made back in 2009, Oshiro said, affect only the top two percent of taxpayers, those who pull net incomes of $300,000 or more.
Federal aid
Morita said the federal government is looking into a second round of funding stimulus money to state governments.
“To stimulate recovery, the government has to spend money,” Morita said.
Despite facing a “huge federal deficit,” right now is the time to spend federal money, she said.
Oshiro said federal money is needed in the local economy because of the high unemployment rates. With federal stimulus, more money can circulate in the economy.
Oshiro was concerned with extra expenses in the federal government due to the oil spill in the Gulf of Mexico, which could further affect the economy.
“At the end of the day the private enterprises are not going to clean up their mess,” Oshiro said. “It’s going to be the government.”
Sustainability
Morita said it’s critical to invest in local agriculture and alternative energy sources because the state spends over $8 billion purchasing energy and food from off-island sources.
“What we’re trying to set is the reverse,” Morita said. “If we can capture 10 percent of that money that we export, that’s $800 million right there, and that money gets re-circulated within the state.”
Oshiro said the state has set up a “string of funds” for agricultural programs and renewable energy projects.
“One of the biggest things we did this year was to have all of us invest in the future, energy and food security,” he said.
Global affair
Hawai‘i and the U.S. are not alone in the crisis. After the collapse of the Greek economy, and a sudden rush of the European community to help keep Greece from sinking, it was other European nations that had to face cuts to stay afloat.
Germany is facing a budget deficit of more than $103 billion, and has already announced annual cuts of at least $12 billion until 2016. Some 15,000 government workers will face cuts.
France is also facing a deficit of over $100 billion, and announced spending cuts equivalent to $54.5 billion. The rest of the money is intended to be covered by an increase in revenues.
Spain has been taunted with an unemployment rate just shy of 20 percent.
Meanwhile, China continues to grow, dropping gasoline prices and enjoying a large growth in the real estate market, backed by a solid demand for housing from a burgeoning middle class.
• Léo Azambuja, staff writer, can be reached at 245-3681 (ext. 252) or lazambuja@kauaipubco.com.
