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Case For Need Of Better Understanding Of Economy

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By Lowell L. Kalapa

(Released on 4/27/08)

It came as a surprise to learn in the immediate wake of the closing of Aloha Airlines and the shut down of ATA Airlines, along with the closing of Molokai Ranch, that the state economist observed that the two local closings were company specific issues.

The economist didn’t think the closings were related to the economy. That made many readers stop to scratch their heads. Was this astute observer of the state’s economy confused or seeing something we don’t? She didn’t believe the layoff of nearly 2,000 Aloha Airline employees would produce a big jump in the state’s unemployment rate. Again, a very narrow view of the impact that the laying off of that many people will have on the state’s economy. What this observer failed to take into account were all of the other workers whose jobs depend on the continued flow of traffic and cargo by Aloha Airlines.

Perhaps not quite as apparent as the day when traffic came to a grinding halt in Honolulu as a result of a piece of a highway overpass being knocked off by a tractor trailer, one must realize that transportation, unlike many other industries, is vital to the commerce and industry that gets people and things from one place to another, especially where the points of the state are separated by bodies of water. Even more so when Hawaii is the most isolated populated place on earth and is cut off or its options are severely reduced to move people and things between the state and other areas of the north and south Pacific or from east to west.

The economist’s belief that the impact of the closing of Aloha Airlines will be minimal is the farthest thing from reality. Actually its closing is symptomatic of a larger problem than competition and predatory pricing. The astronomic rise in the price of energy coupled with a weak dollar took its toll on Aloha and is beginning to have an impact on its fellow airline colleagues on the mainland beginning with ATA. As fuel prices rise, so will airfares and it will have an impact on Hawaii’s largest industry, visitors.

And aside from rising airfares, the prospect of being stranded somewhere very far away from home will be added to the considerations of potential visitors to Hawaii. Dependability in the skies will become a key concern for visitors who will view Hawaii as a discretionary expenditure. And for Hawaii residents, similar concerns will pervade, rising airfare costs and the uncertainty of knowing that there will be a flight home will factor into a decision to travel.

The Hawaii Tourism Authority believes with the loss of Aloha and ATA, Hawaii will lose as much as a million passenger seats per year. Although some observers believe others will step in, how soon that will happen and whether or not it will be feasible to adopt the Hawaii route in these uncertain times is anyone’s guess.

Although there seems to be a glimmer of hope for the cargo side of the Aloha operation, there still is concern over the loss of capacity for cargo that was sometimes assumed by passenger flights. Given the fact that so much of what is consumed here in Hawaii must be brought in either by surface or by air because of the lack of sufficient capacity, it may become more and more expensive to bring in goods by air. Thus, the cost of living will rise by the cost of that air transportation.

Was this a company specific incident? No. It is symptomatic of what is happening across the country with the credit crunch drying up the available capital that is necessary to tide businesses over these harshest of economic times. This, combined with the soaring cost of energy is putting not only Hawaii and the nation, but also the world to a real test as to how to grope with its impact on the cost of food, housing, transportation, and just basic needs of the community.

Some have been critical of a possible bail out by the state or at least the guarantee of loans by the state as the state is helping just one company. And what do these critics think of the $75 million in tax credits for an aquarium, or the millions of dollars of special tax credits which have been given to a specific class of taxpayers in the interest of increasing jobs in Hawaii? At least with Aloha, we knew that the jobs already existed.

The near term outlook is growing dark, and this is not the time for government to heap yet more taxes and fees on the struggling taxpayer. If nothing else, now is the time for lawmakers to think about reducing the tax burden on Hawaii’s families and businesses in an effort to keep the state from going into an even steeper tailspin. This will mean that lawmakers will need to curtail spending and live within the means of taxpayers to support government in Hawaii.

Lowell L. Kalapa is the president of the Tax Foundation of Hawaii. Mr. Kalapa’s commentary is printed each week in the Maui NewsWest Hawaii TodayGarden Isle News, and the HawaiiReporter.com.

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