Hawaii lawmakers face tough choices amid pandemic recession

HONOLULU — Cut spending, raise taxes or perhaps both. Hawaii lawmakers face tough choices as they convene a new legislative session this week amid a pandemic that has pummeled tourism, the state’s biggest industry, and depleted tax revenue.

Lawmakers expect to spend time addressing how to spend federal funds allocated to help Hawaii test for the coronavirus, distribute vaccines and bolster hospitals. They’ll also consider how to help Hawaii’s economy recover from the public health crisis. One possibility is to promote the expansion and improvement of broadband internet so it’s easier for people to work and study at home.

Front and center, however, will be coping with what Gov. David Ige estimates is an annual budget shortfall of $1.4 billion.

Ige has already borrowed $750 million to cover operating expenses (a first) and put off contributions to employee retirement funds. He also raided an emergency fund.

He was on the verge of imposing furloughs resulting in a 9% pay cut, but put those off until at least July after a new round of federal stimulus funds freed up money to maintain existing salaries.

Some lawmakers are considering tax increases, possibly on higher-income earners, to help plug the hole.

Sen. Kalani English, the Senate majority leader, said another possibility might be shifting away from a fuel tax that imposes a levy on the amount of gas purchased to one based on the number of miles driven.

“We’re just trying to be innovative and creative and say, OK, somebody have an idea, let’s talk about it, because we need all the help we can get,” said English, a Democrat.

In the House, Majority Leader Rep. Della Au Belatti said in addition to potential tax increases, lawmakers could divert surpluses built up in special funds with money allocated for a particular purpose. In some cases, those funds could be appropriated for other uses.

Despite “everything being on the table,” Belatti also said “we’re not going to tax our way out of this crisis.” She said leaders will have to consider streamlining and consolidating state agencies to save money and improve the way government works. The pandemic provides an opportunity to take a close look at what government does, she said.

“How should we conduct government and how can we provide services smarter and better?” said Belatti, also a Democrat.

The president of the Tax Foundation of Hawaii warned that raising taxes could backfire, squeezing a private sector already reeling from the pandemic recession.

“We’re very concerned that additional taxes, fees or other kinds of revenue enhancements are really going to kick them when they’re down,” said Tom Yamachika. He warns even more people could leave the state and more companies could go out of business, which would reduce the number of people paying taxes that support government. He said sacrifices should be shared.

The unemployment rate in Hawaii stood at 10.1% in December compared to 2.6% the same month a year earlier. The state tied Nevada for the second worst jobless rate in the nation after New Jersey.

Beth Giesting, the director of the Hawaii Budget and Policy Center, said the state should avoid draconian cuts because the economy needs government spending to keep going at a time when the private sector is struggling.

She argued that cuts to public budgets only deepen and prolong recessions.

“We want them to understand that any dollars they cut are magnified in terms of the economic impact,” she said of lawmakers. To help pay for spending, she favors tax increases on high income earners and capital gains and possibly temporarily eliminating some tax exemptions and credits.

English said one area of focus will be legislation that won’t cost money, like reinstating Hawaiian Independence Day as a state holiday.

The holiday commemorates the day in 1843 when Hawaii was formally recognized as an independent nation by Britain and France. English said Hawaii observed the holiday until the 1920s. It could replace Election Day on the holiday calendar now that Hawaii has adopted mail-in voting and people don’t need to go to the polls to cast ballots.

Some lawmakers are expected to try to reform the state’s marijuana laws with bills to outright legalize it or tweak earlier decriminalization efforts it by changing the amounts that trigger criminal penalties. Currently Hawaii allows marijuana for medical purposes.

English said the need for more tax revenue could give legalization some momentum, but he cautioned other states that expected a financial windfall from such a move failed to get one.

For the first time, lawmakers will be accepting verbal testimony from the public via video. Though adopted to keep people safe during the pandemic, the step also makes it much easier for Neighbor Island residents to tell lawmakers what they think.

“They don’t have to get on a plane, fly to Honolulu, rent a car, come to the Capitol, which is how it used to be,” said English, who represents parts of Maui, Lanai and Molokai.

Members of the public will need to register online at www.capitol.hawaii.gov for an account, submit written testimony and receive a link to a Zoom videoconference to testify. For help, contact the Capitol’s non-partisan Public Access Room at (808) 587-0478 or parcapitol.hawaii.gov.

The Capitol building will remain closed to the public because of the pandemic. No in-person testimony will be allowed.