Now that Hawaii no longer has senior influence in Washington, political observers have been trying to assess the impact the loss will have not only on state and county fortunes but also on the stability of Hawaii’s economic future.
Without someone who can deliver the bacon, some believe federal largesse for Hawaii will diminish quickly over the next year. Gone will be the earmarks of federal funds for this or that program, large appropriations for defense expenditures, and hundreds of millions of dollars for research grants and Native Hawaiian programs. With years of seniority, the congressional delegation could direct funding to Hawaii as support was garnered from those who also wanted handouts of federal funding in exchange for their support.
That will no longer be the case; our young congressional delegation will take years to gain seniority. Hawaii stands to lose millions, if not billions, of dollars it has come to expect flowing from the Potomac to Waikiki Beach. Without those funds, one has to wonder what our state economy will look like in a few short years.
As a result of being the beneficiary of such a generous federal bounty, Hawaii has not had to face the fact it is a poor place to do business. Public policymakers didn’t have to worry about business failures since there were always federal dollars to shore up a stumbling economic malaise. Those dollars plugged the pukas and shortcomings created by bad public policy and a plethora of government regulations that have made it costly and complex to do business in Hawaii.
Even as hotel occupancies rise and room rates recover to their prerecession levels, hoteliers decry the fact they are still not making money since the cost of doing business in Hawaii has reduced whatever profit margin they can realize to a razor-thin layer of the revenues they receive. Mirroring this wave of gross revenues is the state’s general excise tax collection. This tax on gross receipts does not reflect the costs incurred in producing goods or services sold. On the other hand, corporate income tax collections continue to muddle along, reflecting the fact that businesses are still trying to recover from losses incurred in the past three years.
Meanwhile, personal income tax collections seem to be racing ahead with a pace of 11.3 percent growth over collections of the last fiscal year. Come 2013, it is expected that personal income taxes will take a hit as taxpayers claim generous solar tax credits. Collections are expected to drop by 3 to 4 percentage points as the refundable credit is claimed.
The state will face a double whammy with the loss of seniority in Congress and a poor business climate that cannot be bailed out with further infusions of federal aid. So what are local policymakers to do? If nothing else, local elected officials need to go back to the problem that has plagued Hawaii since becoming a state: improving the business climate. That means getting government out of the way, reducing or eliminating unnecessary regulations, streamlining the permitting process, and reforming workers’ compensation laws. While it might be wishful thinking that lawmakers reduce taxes already imposed, they should pledge not to increase the tax burden by either increasing rates or finding new ways to raise money.
They must bite the bullet and reduce the number of programs and services government provides, scaling back government to only truly essential services needed to preserve the health and safety of the community. While some constituents will complain when government no longer provides a program or service, elected officials need to do a better job of juxtaposing the cost of those services against the need to raise more revenues with a tax increase.
Hawaii can no longer expect to be bailed out by an infusion of federal funds. Elected officials must face the hard reality that Hawaii must become more business friendly as it is businesses — entrepreneurs — who create the jobs. If Hawaii continues to remain hostile toward private entrepreneurship, then we call can kiss the future goodbye.
Lowell L. Kalapa is the president of the Tax Foundation of Hawaii.