The September 11th attack
Cayetano proposing steps to rescue Hawai'i economy

By Kevin Dayton and Robbie Dingeman
Advertiser Capitol Bureau

After almost four hours of emergency meetings with business and community leaders, a clearly worried Gov. Ben Cayetano emerged yesterday to warn that Hawai'i is confronting the most severe economic crisis in its history.

Gov. Ben Cayetano called in local business and political leaders to discuss Hawai'i's economic future. The state has already felt the economic impact of last week's terrorist attacks on the Mainland. Bruce Asato • The Honolulu Advertiser

Cayetano also said he will immediately suspend the landing fees that the state charges airlines. He said he also wants to dip into the state's cash reserves to pay for immediate tax cuts and he proposed pumping up state and county construction spending to help the building industry.

Hotels are already reporting a 40 percent drop in business after last week's terrorist attacks in New York and Washington, and the entire state will be affected as the visitor industry struggles to regain its footing, Cayetano said.

"This is the most serious challenge that we have ever faced," he said after meeting with about three dozen civic leaders. "It can only be met if we all work together."

Hawaiian Airlines Chief Executive Officer Paul Casey, who also participated in the closed-door meeting, called the situation "a crisis of statewide proportion."

"What we're seeing is a massive decline in visitors coming to Hawai'i from not only the Mainland but from Japan," Casey said. "Clearly the massive decline in the beginning will be greater than six months or nine months or 12 months time, but it's a matter of businesses having the cash reserves to sustain themselves during this really bad, very bleak period."

Cayetano is clearly expecting many layoffs, especially in the tourism sector, and said the state's first commitment will be to people who lose their jobs. About 200,000 people work in Hawai'i's $11billion visitor industry.

When the Legislature meets in special session, Cayetano said, lawmakers will consider extending the period in which laid-off workers can receive unemployment benefits.

Cayetano also said University of Hawai'i President Evan Dobelle agreed to provide tuition waivers to laid-off workers and their children.

The governor also promised to propose tax incentives to help businesses stay afloat and encourage outside investment in Hawai'i. He declined to be more specific, except to say he likely will propose a reduction in the state capital gains tax.

To help pay for the planned tax relief, Cayetano said he will propose tapping the $40 million in the state's "rainy day" cash reserve fund, and dip into $190 million in the Hawai'i Hurricane Relief Fund.

Other ideas discussed at the meeting include postponing the income tax cut scheduled for next year and pushing back next year's required increase in the minimum wage from $5.25 an hour to $5.75, said Senate Ways and Means Committee Chairman Brian Taniguchi, D-11th (McCully, Mo'ili'ili, Manoa).

Taniguchi said postponing the state income tax cut would save the state up to $80 million.

"If we're talking about all these expenditures ... basically we're going to have to find a balance," he said. "We can't just have all this spending and not do other kinds of things."

Cayetano said he has asked executives with the Bank of Hawaii and First Hawaiian Bank to work with other banks to develop plans to offer extensions to businesses struggling with loans.

Work on revamping the state's tourism marketing plan has already begun, and Cayetano said a committee will be formed to oversee the effort.

That committee will be headed by First Hawaiian Bank's chairman and chief executive officer, Walter Dods; Hilton Hawaiian Village's senior vice president and regional manager, Peter Schall; and the Hawai'i Visitors & Convention Bureau's chief executive, Tony Vericella.

Tourism executives, hesitating to specify an amount that could be needed for accelerated marketing efforts, said it's too early to tell when additional campaigns should be rolled out.

"We want to let the plan that's needed drive the amount, and not go with a set amount and say that's what it is," said Keith Vieira, senior vice president of Starwood Hotels in Hawai'i. He noted, however, that he expects the Legislature to be asked to release the roughly $10 million uncommitted in the tourism special fund.

A plan for approaching the new market situation should be in place by early next week, Vieira said.

But navigating the new market will require sensitivity to people's fears and their sense of national grief. Marketing too soon could be not only insensitive, but pointless, Vieira said.

"This week it's a waste of money," Vieira said. "The minute New York has their campaign out, I'd like to be out the next day. You've got to be sensitive to people's feelings. And you don't want to be doing something too early because you just waste money."

Tourism executives said they will ask state officials to release about $10 million in the tourism special fund that is uncommitted, and they expect Cayetano to support that request.

Cayetano also said he is planning to travel to Japan and the West Coast with former Govs. George Ariyoshi and John Waihe'e and the county mayors to promote Hawai'i as a safe and attractive destination. He said no date has been set.

Cayetano also suggested that the state may defer planned airport construction and tap some of the $390 million in the airport special fund to pay for additional tourism marketing.

That money is earmarked for airport construction and operation, but Cayetano said he believes the state can use that money for tourism promotion.

Honolulu Mayor Jeremy Harris said the city will also be able to help, and plans to push out $204 million in city construction projects in the next three to four months.

Cayetano said he will ask lawmakers to accelerate $500 million in pending state construction projects.

Harris said he will talk with the City Council about a proposed city ordinance to extend the seven-year property tax holiday for business construction, and expand it to residential properties as well.

Harris said he has also talked with businesses in Waikiki about the possibility of putting together packages for local residents "so you would have a night in a hotel, tickets to brunch on the beach and a performance of top-name musicians so that local families would come back into Waikiki."

Aloha Airlines President Glenn Zander said he was impressed that Cayetano acted quickly to call together business and community leaders.

"I was very, very encouraged," Zander said. "The key to minimizing impact is to take action quickly."

Advertiser staff writers Lynda Arakawa and Michelle Kayal contributed to this report.

Reach Kevin Dayton at kdayton@honoluluadvertiser.com or 525-8070.