With mass firings of federal workers, cancellation of federal programs and reduced federal aid to states and nonprofits underway, international tensions rising and tariffs proliferating, economic experts have projected the effects on Hawaii’s economy, and it ain’t pretty. Predictions pull short of recession, but economic activity is expected to be flat, at best. That’s going to affect every Hawaii resident in some way.
Uncertainty still holds sway in predicting clear outcomes, but forecasters with the University of Hawaii Economic Research Organization (UHERO) predict federal policies will have “adverse effects” on Hawaii’s economy for the next several years. Job growth prediction: “zero.” Economic growth rate: a measly 1.6%.
For state and local governments, businesses, nonprofits and for individual households, this is a critical time to take stock of available resources, identify priorities and determine how to achieve them.
State officials and legislators have already expressed caution in anticipating revenues. That’s appropriate — but caution and leadership are both called for, in steering spending so that it’s allocated for the most essential purposes.
Maintaining infrastructure and stewarding Hawaii’s one-of-a-kind environment and ecosystems, with their irreplaceable, endemic plants and wildlife, all vulnerable to climate change, must be among these essentials. Same with keeping parks open and usable for all, building affordable housing, and continuing progress toward zero-emissions energy production. These must be non-negotiables — and yet, it must also be anticipated that budgets won’t necessarily grow.
Creative management is called for — including redoubled efforts to find efficiencies and new revenue streams, and to partner with the private sector to support statewide goals.
This should be the year the Legislature moves to establish a self-sustaining, dedicated funding stream for disaster preparedness and climate-change resilience projects. A bump-up of the transient accommodations tax, coupled with admissions fees for out-of-staters who enjoy Hawaii’s amazing natural resources on public lands are sensible. It’s time for an “all of the above approach” that avoids placing the full burden for stewardship of Hawaii’s public treasures on any one source. Call it sustainability; call it self-sufficiency — but revenue to meet Hawaii’s needs has to be raised in Hawaii, and these strategies fill the gap.
Gov. Josh Green’s idea to eliminate long-open state job vacancies is a good one. The state has been complacent about this drag on the budget for too long. Careful auditing of agency performance is also necessary: Eliminating a tier of duplicative management or ending a service that doesn’t produce results proportionate to its cost should be done, if justified by data.
On the flip side, “caution” in spending shouldn’t always translate to cutbacks. If payroll can be cut in one area, that money should be shifted to new jobs where needed — in public lands maintenance and stewardship, health services and housing, among the most obvious. And the state and city governments’ quick action to offer open jobs to jettisoned federal employees is commendable.
Federal actions have an outsized effect on Hawaii’s economy. Federal support for and regulation of housing, agriculture, ocean fishing and even weather forecasting affects residents’ daily life. And when federal spending in Hawaii shrinks, the state’s cash flow does, too.
UHERO estimates about 2,200 Hawaii-based federal workers outside of the military sector will lose their jobs this year, with further job losses expected from cuts to federal contracts. Cuts to federal grants and programs will also hurt the state, since more than 20% of state revenue comes from the federal government.
Shrinking payrolls put more stress on the state’s economy, and if Hawaii tips into recession, Hawaii’s early-career workers and low-income families will be hit the hardest. That’s good reason to carefully weigh government policies.
High taxes and fees can shut down businesses or suppress entrepreneurship. And failure to budget for and identify revenue streams that support services such as environmental protection and providing affordable housing can impose irreparable losses: extinction, crops or coconut palms decimated by invasive species, neighbors gone to live on the mainland. The trick is in finding balance.
UHERO recognizes that construction-sector employment is a bright spot in Hawaii’s economy, with the jobs heading toward a peak next year. Continued, robust support for rebuilding efforts in Lahaina is essential to keep that forecast steady, as is keeping work on Pearl Harbor Naval Shipyard’s huge dry dock project on course.
With cooperation between Hawaii’s private and public sectors, careful planning in tandem with strategic budgeting and decision-making, Hawaii can navigate this storm.
