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  • Written by: Charla Teves (Intern)

The Hawaii Budget and Policy Center Releases Brief on State Budget and Economy

An update on the COVID-19 economy

As the Covid-19 pandemic has affected nearly 23 million people in the United States, and has taken the lives of roughly 380,000, this virus has injured families beyond the infection and death rates. Hawaii’s economy has taken a large hit, and as a result, left many families unemployed during a time of vulnerability. The U.S. Census Bureau’s Household Pulse Survey reported in October of 2020 that nearly 60 percent of Hawaii respondents had at least one member of their household who lost employment income since March of 2020. This survey also shared that approximately one in three people in Hawaii have found it difficult to pay for usual household expenses. Hawaii families are facing uncertain times and are looking to the government and policymakers for help. Although the federal government has had the responsibility of providing stimulus during this pandemic, Hawaii’s state government has had the power to make a significant impact on the economy and for those who live in the state. As Hawaii is living through a similar but more extreme version of the Great Recession (2007-2009), the Hawaii Budget and Policy Center published their brief – Healing Hawaii’s Economy – to showcase the knowledge that was acquired following the Great Recession and how that can be implemented in order to restore and rebuild Hawaii’s prosperous economy.

The Hawaii Budget and Policy Center analyzed data from the Great Recession and the current state of Hawaii’s economy and found that the current recession hits groups with lower average earnings harder. Hawaii already has a sizable gap between lower and higher-wage jobs, but the pandemic’s effect on the economy is making this gap more serious. Women, Filipino populations, and Native Hawaiian populations specifically are feeling the effects of the recession the hardest as they already earn less than the state’s median income. Economists estimate that for every $1 cut from the state spending, $1.50 comes out of the economy. The Hawaii Budget and Policy Center advises that it is the wrong time to cut the state budget. However, plans are being discussed to cut general fund spending from the state budget, including a proposed two-day per month furlough for state workers per Governor Ige. To combat the already declining economy and the calamity of Covid-19, the Hawaii Budget and Policy Center suggested five important lessons learned during the Great Recession that can help to stabilize the economy and balance the budget.

Lesson 1: Economic recovery depends on state spending. The Great Recession showed that cutting public spending, specifically by state and local governments, results in an extended economic turmoil. Instead, direct government intervention, such as timely spending on services and infrastructure, can make the difference between a speedy recovery and prolonged inactivity.

Lesson 2: Government services help people and support the economy. The Covid-19 pandemic has brought struggles to many families, and that is something the government does not take lightly. To support families struggling and to improve the economy, the federal government gave out $600 per week unemployment benefit plus-ups. Economists have noticed that the greatest rate of return comes from stimulus dollars placed into the hands of the people who will spend them immediately. This spending increases the circulation of money throughout the economy. During the Great Recession, some of the most effective stimulus investments by the federal government were sent to financing workshare programs and the Supplemental Nutrition Assistance Program (otherwise known as food stamps). The Hawaii Budget and Policy Center explained five state policies Hawaii should enact to help with the recession. These policies are (1) maximizing enrollment in the Supplemental Nutrition Assistance Program, (2) enrolling families who have lost employer-sponsored health insurance in Med-QUEST, (3) implementing the Short Time Compensation, or Workshare, Program, (4) enhancing tax credits that support low-income families, and (5) maintain support for rent and utility bills.

Lesson 3: Cutting public worker positions and pay hurts the economy. Recovering a declining economy begins with supporting jobs, rather than adding workers to the unemployment rolls. Instead of reducing hours or jobs for public workers, the Hawaii Budget and Policy Center advises the state to retrain and redeploy employees to ensure ongoing access to programs families rely on, such as unemployment benefits, housing, and Medicaid.

Lesson 4: State service contracts support jobs throughout Hawaii. Nearly half of the state’s operating budget is spent on goods and services from the private market. Therefore, cutting the state’s contractual costs would damage the economy even further. Maintaining state contracts with for-profit and nonprofit businesses supports jobs, secures the continuation of effective services and materials, and strengthens the economy by an estimated $863 million per year.

Lesson 5: Infrastructure spending supports the economy and builds Hawaii’s future. Infrastructure investments not only boost productivity and promote long-term economic growth, but it also creates immediate jobs in construction and supply companies. Those workers then circulate their salaries through the economy, which helps to overall stimulate the recession.

The Covid-19 pandemic has caused panic and grievance for many, especially families that were already struggling to get by beforehand. The Hawaii Budget and Policy Center hoped to shed light on the Great Recession by providing lessons learned from that period of time to better serve the people of Hawaii currently. Along with the five lessons listed, The Hawaii Budget and Policy Center provided revenue-raising strategies in their Healing Hawaii’s Economy brief. These strategies include recognizing that federal aid is the best solution to stabilizing Hawaii’s economy, the state temporarily borrowing and using reserve funds, and increasing taxes on the wealthy. While it is hopeful that the economy balances in 2021, and while the state fiscal biennium budget for 2021-2023 is being crafted, the Hawaii Budget and Policy Center stresses the importance of actions that the state could take to make a strong recovery for Hawaii’s economy and its residents.

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