There’s been no economic calamity quite the same as the coronavirus pandemic recession, but there have been lessons from history — recent, Hawaii history — that its leaders must consider.
Last week Gov. David Ige tried to steel the population for what’s coming: deep budgetary pain for the foreseeable future. The figures are now well-known, and dismal: The shutdowns ordered in the interest of public health stifled economic activity, so much so that the tax-revenue shortfall is estimated at $1.4 billion annually, for the next four years.
Not much is foreseeable, either, due to the uncertainty hovering over federal assistance. But the mere prospect of relief to cover certain pandemic-related costs prompted the governor on Thursday to delay the anticipated furloughs for state employees, which remains an alternative cost-cutting strategy.
But, he acknowledged the “fluid” nature of the financial picture for the states due to mixed signals from Washington, D.C.
Congress last week passed legislation providing $600 stimulus checks to each individual, part of a $900 billion relief package of federal assistance programs that states could tap.
By contrast, President Donald Trump has been unenthusiastic, correctly assessing the $600 figure as unequal to the magnitude of the need. The GOP caucuses on Capitol Hill, however, want any bailout to be lean.
Further, the incoming administration of President-elect Joe Biden has favored following up this “down payment” with a new outlay of less-targeted funds that state and local governments could use to fill budgetary gaps.
Regardless of when and how much money reaches the federal pipelines, this much is clear: Responsible fiscal planning compels state government to take a frugal approach at this stage, loosening the spending valves when relief is in hand. Money can’t be counted until it arrives.
This is a risky process, though, and some reductions may prove to be costly in the long run. That is one lesson learned from the 2009-2010 furloughs and budget cuts that the Great Recession forced on the administration of then-Gov. Linda Lingle.
Economists looking in the rear-view mirror see furloughs as potentially damaging to an economic recovery, because the families affected will curb spending just as business starts to pick up.
In addition, deep cuts to state land, agriculture, social services and health care caused these government functions to wither, and some have never snapped back fully.
That is why Ige, joined by state lawmakers, must take a scalpel to the budget rather than the cleaver of across-the-board cuts that treat state programs as equivalent.
The governor pledges that he is, instead, prioritizing what’s most essential in the spending plan. Ige said an estimated $276.4 million will have to be carved from the 2021 operating budget.
This will be tough: Of the estimated $600 million in savings needed from the biennium operating budget, Ige said his team was able to find only about $350 million so far. For the first time, he said, the state is floating bonds —
$750 million — to cover operating expenses.
More details are needed on his spending priorities and revenue-
boosting ideas as the budget moves from a blueprint to legislative language, but Ige has made some broad brush strokes:
>> COVID-19 — Top of the list, Ige rightly declares that managing the latter months of the pandemic, with surge hospital staffing and vaccination implementation, and through the Safe Travels Program, is of paramount importance to the recovery. If federal funds to cover these costs don’t come through, he will need $205 million from state coffers for the fiscal year 2021 alone.
>> Unfortunately, Ige has decided to suspend the advance funding of the state’s retirement benefits obligations, shifting back to a pay-as-you-go scheme to save money in the near term. If this is allowed to persist for too long, the state’s debt could grow exponentially.
>> Reinforcing the unemployment insurance fund is essential, and paying interest on the $1 billion loan to do that will cost $36.4 million over two years.
>> Also ranked highly are increased funding for Medicaid, general assistance and rent subsidy programs.
>> Public schooling will not escape unscathed: The Department of Education is pegged to lose some 70 positions and $165.6 million. The school board and superintendent need to guide these cuts to insulate classroom services as much as possible.
>> Tax increases are on the table, Ige said, but raising income taxes for the wealthy, fees and tapping other sources are preferable to hiking the general excise tax. That would douse the embers of any budding economic revival.
The governor said, without detailing a plan, that government “must re-engineer the way we provide services.” Lawmakers must press him to fill in the blanks on how he’d do that. Navigating this fiscal crisis demands leadership and direction, not merely aspirational statements.
