By Lowell L. Kalapa
As the new legislative session approaches and the problems of the economy dominate the headlines and the minds of most readers, the pressure is beginning to build to find ways to pull Hawaii out of this economic slump.
There will be the usual proposals to grant tax exemptions and tax credits for this or that type of activity. For some lawmakers, these proposals will be submitted in all sincerity, for others submitting such proposals will be merely “for show” to make it appear that they are truly trying to do something to help the economy. But as many have come to learn, the granting of tax credits for such specialized activities or actions does not help the overall tax climate because it means shifting the tax burden to all other taxpayers. But lawmakers will throw those proposals into the legislative hopper.
Others will take the opposite tact, instead of granting tax breaks, they will try to spend their way out of the economic malaise. And perhaps if Hawaii had the same powers as the federal government, that is, to print its own money, that just might work. But Hawaii is not the federal government and it cannot just print more money as it needs. Instead, in order to spend, state and local governments in Hawaii must raise those funds by either raising taxes or borrowing those funds. With taxpayers in Hawaii already amongst the most heavily burdened, the taxing idea will not help the economy. Borrowing those funds won’t help either and sooner or later, Hawaii must repay those funds.
Lawmakers have already committed to spending millions of dollars on visitor promotion with high hopes of attracting more visitors to Hawaii. And while that effort is well and good, all the promotion in the world will not increase the number of visitors coming to Hawaii nor increase the amount those visitors spend unless Hawaii becomes more price competitive with other similar destinations. Try as it has, Hawaii is still considered a leisure destination. It is not a place people must travel to as part of their business, rather it is a choice people make for their vacations, an expenditure of discretionary dollars.
Lawmakers, as well as administration officials, already decided to spend a whole bunch of money – a billion dollars to be exact – on public facilities, believing that an infusion of more than a billion dollars of construction activity will help to spur the economy. Again, this strategy is being accomplished with dollars borrowed from the bond market and one day they will have to be repaid with interest.
So what can lawmakers do to help revitalize this sluggish economy? Well, let’s look at what it takes to create new economic activity and therefore new jobs. If readers will recall, Hawaii experienced unprecedented growth and prosperity in the late 1980’s and early 1990’s when investors plunked down cold hard cash for real estate in Hawaii and built millions of dollars of new commercial and residential properties. Construction jobs were created, new jobs in the hospitality and retail industry were also created.
What those investors saw in Hawaii was the potential to make a profit from investing in Hawaii. Many of them did not expect quick profits, but were in for the long haul. Unfortunately, many were not aware of the maze of governmental hurdles they would have to overcome and the cost of those hurdles. An example is the impact fee imposed on some developers for the construction of golf courses which in some cases were as much as $100 million.
Others found out how costly the tax bite is, especially with Hawaii’s unique general excise tax. As projects soared in costs, investors suddenly found themselves strapped financially, usually borrowing well beyond their equity holdings. Squeezed for cash to meet their obligations, many of those investors were forced to sell-off their investments at bargain basement prices.
As a result, Hawaii has earned a deserved reputation as a difficult and costly place to do business. That reputation stretches across the nation to around the world. Unless steps are undertaken to change that reputation, it is doubtful that Hawaii will be able to attract the investment dollars needed to revitalize the economy. A reduction in both the regulatory and tax burden is imperative. But that can’t happen until those in charge decide that they are willing to make some difficult political decisions. Among those decisions is the choice of maintaining the status quo in state and county government or to truly make efforts to downsize government.
If this economy is to be turned around, the difficult choices must be made. The next few months provide lawmakers with a unique opportunity to truly effect change. It is an opportunity that must not be missed.