With the loss of seniority in Hawaii’s congressional delegation and sequestration setting in, the visitor industry will be Hawaii’s economic lifeline for the time being. While lawmakers have singled out this or industry to bless with tax incentives, we have always known that we cannot predict what the prize industry of the future will be.
Although officials have assured local leaders that the military will continue to be focused on the Pacific theater, everyone is well aware that the overall size of the nation’s defense forces will be downsized in an effort to contain spending and reduce the nation’s overall deficit. There will be fewer civilian positions supporting the defense effort, so federal payrolls in Hawaii will probably shrink. This will affect businesses that are dependent on defense workers and military personnel. Nondefense-related federal workers may also be affected by the sequestration orders, but likely not on the same scale as the military downsizing — defense spending was targeted to take the greatest hit.
No longer will Hawaii be able to depend on the federal spending security blanket for its economic well-being and local policymakers will be faced with the same challenges that other states on the mainland have had to address for years: how to foster economic prosperity. Hawaii’s track record has not been business friendly. At every twist and turn, public policy has taken its due out of the entrepreneurial environment so important to economic well-being. And there are numerous examples from which to choose.
Lawmakers have thwarted industries left and right, beginning with sugar and pineapple, which had been the economic foundation of the territory and later the state. When federal support for the price of sugar disappeared, the industry struggled, reaching out to the state legislature for support of its research arm. While help did come, it came with all kinds of strings attached.
Then there was the dream of making Hawaii energy independent by building Hawaii’s own refinery. The dream became a reality but not without all sorts of regulatory mandates. When the cost of the product started to go through the roof, lawmakers attempted to slap a cap on the price of the product believing that constituents were being “ripped off” without really understanding the forces of the market and supplies of the raw materials which were totally out of the local refinery’s control.
Now that the refinery may close down or be sold, local officials, including union leaders, have even suggested the state take over its operation. If it is taken over by government, everyone acknowledges that it will be a disaster — doomed for failure — given government’s track record starting with the Kohala Task Force of the early 1970s.
Last week, investors in Hawaii’s visitor plant bemoaned the fact that it takes so long to get government approval for new construction or renovation of facilities. While some larger developments and projects have taken as long as 20 or 25 years to get off the drawing board, it is not unusual to hear stories of the approval taking anywhere from three to five years for a small cluster of single-family homes.
It is rather disingenuous to hear lawmakers lamenting the lack of affordable housing when it is the state and local government bureaucracy that has strangled the process to bring those affordable units on line. There has been great interest in developing new housing and commercial projects, but the horrendous maze of government is a major reason why entrepreneurs become disenchanted and invest elsewhere.
If Hawaii is to prosper in the future, it needs to support business. And before some public official says it isn’t his or her fault, lawmakers should look again at the rules and laws enacted to make investment in Hawaii so difficult and costly. The key to economic prosperity is creating a nurturing business climate, and that includes mitigating the regulatory stranglehold created by excessive laws that make absolutely no sense. If lawmakers persist in layering more bureaucracy, they should also shoulder the blame for a poor economic outlook.
Lowell L. Kalapa is the president of the Tax Foundation of Hawaii.
