State of the State Address – Hawaii 2021

governor david ige

By: T. Jeffersonian

On January 25, 2021, Governor David Ige delivered the annual State of the State Address to the Hawaiian Legislature.  State of the State Highlights were:

Fiscal Responsibility

  • The State’s Council on Revenues projects our economy will outperform its earlier more dire predictions and will generate nearly $6.3 billion in tax revenues for fiscal year 2021.
  • State’s Department of Education now has an additional $123 million to restore to our classrooms; shortfall reduced from $224 million to $101 million.
  • Pay interest on last fiscal year’s $700 million loan that the state Department of Labor and Industrial Relations borrowed to provide unemployment insurance for more than 580,500 island workers.
    • Repaying the interest amounts to over $165 million that our businesses would otherwise have to pay in taxes to cover the interest over the next six years.

Coronavirus Response

  • Continue to take the tough actions necessary to keep our community safe, including the Safe Travels airport screening program.
  • Implementing a comprehensive strategy for the distribution of vaccines in every county.
  • Work with the Biden administration to expedite the distribution of vaccines.
  • Secure an FCC (Federal Communications Commission) grant, to support a telehealth initiative to connect low-income patients with high medical risks to healthcare providers.
    • DHHL (Department of Hawaiian Home Lands) will receive at least $30 million in federal funds to benefit Native Hawaiian health care needs.

Economic Diversification

  • A Hawaii 2.0 pivot — that spreads broadband connectivity to rural communities in response to the COVID-19 pandemic that has strangled tourism.
    • Accelerate State Department of Transportation pilot project to connect rural communities to broadband service by focusing on most rural areas.
  • Take multi-pronged approach toward greater economic diversification even as Hawaii gets tourism back on its feet.
  • Seek economic diversification ideas from the counsel of former state governors Ariyoshi, Waihee, Cayetano, Lingle and Abercrombie for their thoughts on economic recovery.
  • Identify and secure Hawaii’s share of $7 billion in new federal funds for broadband infrastructure and digital equity programs.
  • Expecting to see investments of $1.1 billion in state capital improvement projects.
  • Federal transportation projects—such as airports, harbors and highways — will add another $1.1 billion.
  • Private sector is expected to contribute another $10 billion and thousands of jobs to help restart the state’s economy.

Affordable Housing

  • Tasked this administration to take a sweeping look at how we generate affordable housing — from financing through construction.
  • Touted the $71 million in housing assistance to about 13,700 households who would have otherwise faced eviction.
    • This program was cited by Forbes Magazine as a model for the nation in getting rent checks to landlords faster than any other state
  • Touted achieving initial goal of building 10,000 new homes by 2020.
  • Set a new goal to add 3,000 more units by the end of 2022.
  • Wants to make more lands available to build affordable leasehold homes, particularly around the rail line.
  • Wants to reduce the cost of land in order to dramatically lower the overall cost of affordable housing in Hawaii.
  • Intends to ask the State Legislature for a bill to lower the cost of land.

Analysis

It is very good news that the dire economic predictions are not as bad.  This is especially beneficial for the Department of Education who was facing a $224 million shortfall and is now facing around $101 million. 

Secondly, the state’s plans to pay the interest on the $700 million loan it took out for payroll in 2020.  Paying the interest saves Hawaii businesses $165 million over the course of the next five years. 

Third, the state intends to seek federal government grants for some of its digital health care and broadband initiatives. 

Fourth, the state intends to use $1.1 billion in federal funds for infrastructure projects.  If the private sector does come through, then there is another $10 billion to restart the state’s economy. 

The problem that Governor Ige and the State Legislature have to deal with, is that Hawaii is the least business friendly state in the Union.  Governor Ige does not speak to needing potentially another $71 million to help prevent the eviction of over 13,000 households nor does he speak to potentially needing another $700 million in 2021 to make payroll.   At some point, given vaccinations, it is reasonable to assume that the state will open. If you listen however to President Joe Biden or Dr. Anthony Fauci, there may not be a return toward normalcy for months.  The interesting fact about Hawaii, our fiscal year runs July 1 – June 30.  We are halfway through this fiscal year now.  Hawaii will need more help this year probably in the tune of $800 million.  This need was not addressed by Governor Ige in his State of the State Address.

The Broad Band Initiative is good if it can be made a reality. It is doubtful that the initiative will truly become the third leg of Hawaii’s economy because everyone is forced to try it so the available market is smaller.  In addition, potential customers due to Coronavirus, do not have disposable income to spend on less than necessity products and services.  The state should still do the broad band initiatives for all its citizens so that education and information can be evenly and equally distributed, but the state would be wiser still to pursue the next phases in computing and communications – quantum computing. 

Companies in the late 1990s benefitted from Internet Boom due to its novelty, accessibility, and convenience.   Nearly everyone has access today.  Those who do not have access are typically not connected to the capital, formal education, and global awareness necessary to create businesses.  Quantum Computing is likely to be the next Internet Boom.  Getting a jump start on it now enables Hawaii to create the niche that becomes its third leg for its economic triad (military and tourism are the other two).  Hawaii must also remember that the civilian sector is already doing some of what it proposes now.  Elon Musk’s Starlink is intended to be a low latency, broadband internet system to meet the needs of consumers across the globe.  This project could apply to Hawaii as well.  Diversifying Hawaii’s economy cannot be and should not be a solely government fiscal function long term.  A solely state and federal government effort will take too long and cost too much.  Civilian businesses that are already developing and utilizing these state-of-the-art initiatives should be brought it to give Hawaiians benefit soonest.

Hawaii would benefit from affordable housing as I have written before.  I am unsure though if the 10,000 home that Governor Ige referenced are all “affordable” or if they are merely new homes.  The majority of new homes built in Hawaii are worth $700k-$800k.  Affordable homes here, run around $400k-$500k.  Affordable homes are typically built last as contractors seek to make profits covering their aggregated overheads by selling the more expensive homes first.  

The proposed Bill to make land less expensive sounds great, but at what cost to the existing deed holders and adjacent property deed holders?  What happens to a mortgage holder who land due to legislation is now half its value?  These property holders could lose out big.  $1.1 billion of capital improvements is simply going to drive up the value of homes in Honolulu county.  On average living in Honolulu requires about $120k annually.  This figure is already $40k more than the median income in the state.  I am not suggesting not to make improvements to the capital.  Making improvements means jobs, jobs mean taxes, and taxes allows the state to provide services to citizens. 

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