What a week that was. The Standard & Poor’s decision to downgrade the nation’s top-notch credit rating preceded last week’s stock-market rollercoaster. The instability of the eurozone economies was a major driver, but newly stoked doubts about America’s capacity to get its fiscal house in order surely factored into the panicky mix.
The financial waters seemed calmer on Friday, but there’s enough nervousness about the possibility of a downturn that people watching the markets are still holding their breath.
This is the sort of storm in which distance from Wall Street matters very little. Put plainly, the population that is worried about the stock-funded foundation of retirement plans and the viability of companies where they work includes Hawaii residents.
Just as plainly, people who are dreaming of a Hawaii vacation put off those dreams when they feel worried. So while the current tourism numbers look encouraging, plans can change on a dime and visitor counts could take a hit, lowering this state’s outlook for tax revenues.
On top of the global economic weakness, Hawaii’s worries now must include the potential for fallout from the impending federal spending cuts that will be named by the 12-member congressional committee tapped to whittle the federal deficit-spending further.
Brian Schatz, the state’s lieutenant governor, said the administration is beginning to discuss the possibility of impact to the islands, especially if defense expenditures affecting Hawaii bases are reduced.
But on that front, he said, there are too many unknowns to begin serious contingency plans.
He might be right, but while the political drama continues to play out on Capitol Hill, it’s good to see that the conversation about other fiscal challenges ahead is starting this week.
On Wednesday, Gov. Neil Abercrombie plans to give a status report on the "New Day" plans outlined in the State of the State address.
He’s expected to hear proposals from Cabinet members on how to close the $50 million gap in the current budget that remains, on top of all the other cuts mandated by the Legislature last spring.
Some fairly hopeful news on visitor arrivals and spending fuels hopes that tax revenues will pick up and help with the cash flow, but state officials can’t afford to count on that.
Beyond that short-term problem, the administration needs to fulfill another pledge made at the start of the year: to restructure governmental spending in ways that will head off future state deficits, especially as baby boomers retire.
Most critical is the need to address the unfunded liabilities in the Employee Union Trust Fund, which provides health and other benefit plans to state and county employees and retirees.
The EUTF has been handling its benefit outlays on a pay-as-you-go system, which can’t be sustained any longer.
What the governor and his directors also need to discuss are ways more generally to reduce the size of government through reorganization plans that can achieve more long-term savings.
The appointment of a chief information officer, whose goal is to better network the state’s computerized databases, may help enable overlapping state agencies to merge for more efficient delivery of the state’s core services. There may be some functions that the state ultimately must leave behind, or reduce its overhead costs through more public-private partnering.
The fears of double-dip recession and further economic stagnation ultimately may prove unfounded, but fear is an effective motivator.
If the turbulence of the past week drives a focused effort toward the creation of a smarter government for Hawaii, it would have been worth all the stress.
