Experts discuss budget issues facing Hawaii in 2021

Balancing Hawaii’s budget will be the toughest challenge facing the state legislature in the 2021 session. The COVID-19 pandemic severely hurt a thriving economy and a once best-in-the-nation unemployment rate has ballooned.

Legislators discussed the problems the state faces, and potential solutions, at the “Impacts of COVID on the State Budget” panel at the 2021 Hawaii State of Reform conference. .

 

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Beth Giesting, the Director of the Hawaii Budget and Policy Center explained that Hawaii’s general fund is receiving less revenue than usual due to decreased spending and economic activity caused by the pandemic. 

Hawaii is constitutionally required to have a balanced budget each year. 

Recent projections are rosier than data from earlier in winter, though. The state may end up having $300 million more in general funds than previously expected in 2021, which could be crucial for the state to stay in the black. 

“These are unstable numbers, plenty of unknowns going forward, so these could shift,” said Jill Tokuda, former chair of the Senate Ways and Means Committee. “Slight shifts in percentages means hundreds of millions of dollars more or less.”

Pandemic-related programs to stabilize the economy and keep residents safe in 2020 tapped out the state’s coffers. Many challenges of 2020 have carried into 2021 and the state will still need to find funding for them in order to protect Hawaiins. 

Cuts will inevitably need to be made to balance the budget. Legislatures will be tasked with identifying where the state can trim the fat off of their budget.

“Coming out of the red so we are not deficit spending is really going to be incumbent on … potential cuts to expenditures and adjustments to make sure we are not spending more than we are bringing in,” Tokuda said.

Cutting funding from programs will have long-term effects on Hawaii and all of its residents. Finding funding later to refund programs may be tough and cuts to any program will be felt by those who depend on them. 

“Even if we are able to stabilize the economy, the immediate cuts we make to the state government will have detrimental impacts.” said Rep. Sylvia Luke, chair of the House Finance Committee. “Not just for the next few years, but for the next ten to 15 years.”

In order to avoid cuts, the state will need to generate revenue. This is another tough ask for state representatives, though. Majority of state revenue is generated through taxes. Luke is concerned about the prospect of raising taxes, fearing it could hurt working class Hawaiins who need help the most. 

Tokuda also fears that raising taxes could cause business in the state to contract, adding to another major problem the state is facing — their massively growing unemployment rate.

Hawaii had the lowest unemployment rate in the nation before the pandemic began in March 2020. The state’s large tourism industry struggled last year, though. Hawaii suffered a 16% increase in their unemployment rate, the largest any state suffered by a large margin.

The state had to borrow $700 million to pay for unemployment in 2020, though that total still has not been reflected in their overall balance.

Luke said the state has a few ways to generate revenue. An increase in the barrel tax, which is a tax applied to any fossil fuels imported into the state. Luke suggests raising the tax could generate up to five times as much revenue as it does right now. She also mentions adding a carbon tax.

Imposing a sugar tax, a tax on goods with high sugar levels like carbonated sodas, could also raise funds, Luke said.. The Department of Health may oppose funds from a  sugar tax being applied to the state’s general fund, though. 

An increased income tax for individuals who earn over $100,000 a year, or households who earn over $200,000 a year, could be an option as well.Hawaii could also generate revenue by leveraging the tourism industry that serves as their economic backbone. Luke proposes potential limits to access of state parks, charging visitors for entry and creating ancillary revenue sources like parking fees. The changes would not only generate revenue, but also help conserve the state’s natural landmarks.