ISLAND VOICES
When the wolf is not at the front door
By Rep. Brian Schatz
Rep. Brian Schatz is chairman of the state House Committee on Economic Development and Business Concerns.
Gov. Lingle's cry of a brewing financial storm points up the hazards of short-range economic forecasting.
For the governor's office, it was an unusual request: Linda Lingle was asking all four network-affiliated television stations to clear half an hour from their prime-time schedules for a live statewide broadcast.
Lingle's office underlined the urgency of the situation: "This is the first time in recent memory that a Hawai'i governor has addressed the public on prime-time television outside of an emergency or the State of the State Address."
On the night of June 25, Lingle saw a financial storm on the horizon. Just the day before, she had predicted a $200 million run of red ink for the state. She blamed legislators for an unbalanced budget. Fortunately for Hawai'i, the governor's forecast turned out to be wrong.
Gov. Lingle was right to be fiscally cautious, but the approach her administration took in sounding the alarm was misguided and sent needless fear into the community. Today, 12 weeks after the governor's statewide broadcast, Hawai'i's financial outlook is one of the best in the nation. What happened in those three short months?
Economic predictions carry serious consequences — especially when they come from the very top. Investors pull out of deals, lenders get restless, companies consider layoffs, human service agencies pull back, and students and teachers fear the next round of cuts.
Ironically, the governor warned us of the danger of basing economic forecasts on a single month's worth of data. She should have followed her own advice. Despite a growing body of evidence to the contrary, the Lingle administration became unreasonably attached to its initial position of doom and gloom.
Last May, the Council on Revenues ran a cumbersome and antiquated statistical model designed to predict the level of tax revenue. Revenues came in lower than the model predicted. The administration then subtracted actual revenues from the amount projected, and blamed the difference on tax credits, especially technology credits.
This makes little sense because (a) there was no evidence for the administration's claim, and (b) the governor's forecast used a 20-year-old economic model that had questionable validity.
The error was then compounded when the administration predicted the impact of technology incentives in Act 221 on state revenues. The governor's advisers assumed that the amount of credits claimed would double in the second year, and triple in the third. Why these assumptions? They were never justified, but they did serve another purpose. They were useful in creating political pressure to repeal Act 221.
The economic hand-wringing reached out into our schools, libraries, social service agencies, even the athletic fields. Athletic directors at a number of schools were told not to talk to the media because they would risk even further cutbacks.
To this day, the governor continues to insist she has never cut education. She makes the claim in talk-story sessions; she has even said it on national TV. But the governor did make the cuts; the legislative record shows it, the memos to her department heads show it, and to the people on the receiving end, the fear of still more cuts has been very real.
Now comes Sept. 3, the Council on Revenues meets, and the state's budget shortfall is gone. It turns out the budget was balanced after all, and the claimed negative impact of technology incentives was wrong.
So now the Lingle administration tells community colleges to ignore the budget alarm bell even as they prepared to eliminate hundreds of classes from their schedules.
But the bell sure sounded loud in Kalihi, where kids and parents in youth programs were told they might have to make other afterschool arrangements. And you could almost hear the relief in classrooms throughout the state where teachers could go back to teaching instead of preparing for yet another round of belt-tightening.
In dozens of cities and states in our nation deficits have ballooned out of control, teachers are being laid off, schools and fire stations are being shut down, and taxes are being raised by Republicans and Democrats alike. The people of Hawai'i have avoided this fate because of sound fiscal management by the Hawai'i Legislature over the last six years.
The governor is right; we should not spend money we don't have. Linda Lingle takes our budgeting seriously, but her long-term approach could use a little work. This means that we shouldn't change course on our state budget based on one month's tax collections and that we shouldn't announce a shortfall unless we are sure it exists. Abrupt changes in the tax code or steep reductions in spending will help to solve a short-term problem, but, ultimately, these actions will cause more harm than good.
The administration's tendency to publicly express and echo the nervousness that the public feels about the state budget has not served us well. It has taken numbers out of context and painted a negative picture that is not supported by the facts, and it has aggressively used these misleading predictions to call for the repeal of the state's most important economic diversification tool in Act 221.
More importantly, it has used this rationale to impose spending cuts that would have drastically reduced important social services, high school sports and school security.
To secure the quality of life we want for our communities and families, we must invest in the future. For Hawai'i, that future is in our classrooms and it will come from growing a diversified economy where our kids can find a good-paying job. The time to make that investment is now. Instead of fearing the wolf at the door, we need to recognize the sound of opportunity knocking.
