The September 11th attack
Saving jobs will cost state
By Johnny Brannon
Advertiser Staff Writer
Thousands of state contracts and leases and many millions of dollars could be called into question under emergency powers granted by the Legislature Friday that allow Gov. Ben Cayetano to alter such agreements and prop up businesses left hurting after the Sept. 11 terrorist attacks.
But every break meant to save jobs and boost the economy will mean less money in state coffers at a time when government expenses are increasing and earlier revenue projections are doubtful.
Cayetano's challenge will be to make sure assistance is meted out fairly and has the desired effect while not crippling the state's ability to provide needed services, analysts say.
"It should be applicable across the board, and he should have good reason for amending those contracts," Tax Foundation of Hawai'i president Lowell Kalapa said. "But someone better make sure there's enough revenue to cover airport debt and keep the airport running."
Just how many businesses will ultimately seek rent waivers or contract changes is anyone's guess, and not all who do will qualify.
A firm seeking to amend an agreement with the state will have to submit documents proving at least a 15 percent reduction in business volume covered by the contract. The losses must have occurred during at least 30 days following the attacks.
But the administration is still working out exactly how relief would be granted: whether payments due would be deferred, waived completely or in part, and for how long.
Also unclear is how much revenue the state can afford to lose before budget cuts are necessary. That will depend largely on how quickly the economy picks up, and the projections that a panel of state economists called the Council on Revenues presents on Nov. 14.
The state's 15 airports have 92 concession contracts and nearly 1,000 leases, which pumped more than $200 million into the airport special fund last year.
Airport concessionaires, such as duty-free retailer DFS Hawaii, Travelex currency exchange, and HMS Host Corp., want Cayetano to waive contract provisions that require them to pay the state set amounts, called minimum annual guarantees.
The agreements generate a minimum of $7.3 million per month for the airports, but the firms want to instead pay a percentage of their revenues, which have fallen dramatically since the attacks.
The Department of Transportation, which runs the airports, wants to make sure its tenants stay in business so that at least some level of income is preserved and to minimize disruptions that replacing them would cause.
"Introducing some type of relief when they're not making any money makes good sense," department spokeswoman Marilyn Kali said. "We don't want to see them go belly up, and then we have nothing."
The department's Harbors Division took in more than $20 million from leases last year, and that figure could shrink as well if tenants qualify for breaks.
The Department of Land and Natural Resources has more than 1,400 long- and short-term leases, which provided nearly $10 million in state general fund revenue. Only a few companies or individuals inquired about adjusting leases through Cayetano's emergency powers before they were granted, the department said.
Among them was the Sand Island Business Association, which leases and manages a 73-acre industrial park with 110 tenants, a couple of which were hit hard by the tourism slump that followed the attacks.
The businesses pay about $3 million in annual rent altogether, and the association wanted to make sure those who need help know what options are available, executive director Rodney Kim said.
"We just wanted to be on top of it," he said. "Businesses in the tourist transportation trade really felt the impact immediately and had to furlough many employees."
Cayetano must report any use of the emergency powers to a legislative advisory committee and provide detailed monthly reports that include the names of all businesses and contractors involved. The reports must also include the reason the action was taken, the fiscal impact, and the source of money for any expenditure.
Government watchdogs said there must be maximum transparency to prevent any fraud or profiteering that could taint the effort.
"Who knows what people will try?" said Larry Meacham, director of Hawai'i Common Cause. "I think the governor will do the right thing, and I think informing the public will be the best way of keeping everyone's confidence."
Kalapa said the experience could also provide ideas for reforming and streamlining government once the emergency powers end.
"Perhaps it will underscore how bureaucratic government is, and how that slows everything down," he said.
The emergency powers also allow Cayetano to suspend any rules applying to food programs that serve the needy and those that aid welfare recipients who lose their benefits after exceeding the five-year limit.
The governor may also establish a temporary health insurance program for the unemployed and a benefits program to extend unemployment insurance.
Spending for such social programs could also become a significant expense for the state if unemployment lines continue to grow. Hawai'i jobless claims surged to more than five times their normal levels in the second half of September as tourism-related businesses laid off or slashed work hours for thousands of employees.
Security spending also has skyrocketed.
The Department of Transportation expects to spend $27.3 million on security for Hawai'i's airports this fiscal year, up from $15.9 million last year. Harbor and highway security could cost another $22 million.
Reach Johnny Brannon at firstname.lastname@example.org or 525-8070.