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The Honolulu Advertiser

Posted on: Wednesday, June 8, 2005

Panel out to keep economy humming

By Sean Hao
Advertiser Staff Writer

Gov. Linda Lingle yesterday announced the creation of a commission aimed at staving off Hawai'i's next economic downturn.

Once completed in October, the report by the "Economic Momentum Commission" would share shelf space with several prior studies and plans done during the 1990s and earlier, including those with names such as the Hawai'i Economic Revitalization Task Force, Hawai'i Tomorrow, Hawai'i 2020 and Ke Ala Hoku.

Many of those plans touched on the need to improve the state's entrepreneurial climate by reducing regulation and cutting taxes. Whether Lingle will be successful pushing the commission's recommendations through the state Legislature remains to be seen. This year, lawmakers failed to pass Lingle-backed economic development initiatives such as an expanded film industry and venture capital tax credits as well as workers' compensation insurance reforms.

Among the commission's 31 members are House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo, Wilhelmina Rise) and Senate President Robert Bunda, D-22nd (North Shore, Wahiawa), in an effort to de-politicize the commission's findings, Lingle said.

"The good thing is because times are good we're not out trying to rescue a difficult economy," she said. "We're, in fact, planning our steps for the future so the economy stays good."

Hawai'i's current economic strength, in large part, reflects the general upswing in the global economy and rising tourism and defense spending, which are outweighing the negative effects on business climate from high taxes, healthcare costs and workers' compensation premiums.

It's unlikely any state policies will enable Hawai'i's economy to buck global economic trends that could affect tourism and interest rates, said Leroy Laney, Hawai'i Pacific University professor of economics and finance.

"They're to be lauded for the effort," he said. However, "I think we ought to be realistic and go in with our eyes open and realize there are things beyond our control. The business cycle is always going to be with us."

The commission, which includes leaders from a broad section of Hawai'i, is expected to hold its first meeting later this month. The cost of the effort is estimated at $60,000.

A common theme in several plans for Hawai'i's economy over the years — including the Hawai'i Economic Revitalization Task Force in 1998 — has been tax reform. That task force's recommendations resulted in a cut in individual income taxes and reforms of the general excise tax on the resale of services. However, other task force recommendations such as reductions in corporate income taxes and increasing the general excise tax were never enacted.

Another theme in past reports has been the need to diversify the state's visitor-based economy. That's been discussed for decades, but long-standing hurdles include Hawai'i's geographic isolation, powerful unions, high labor costs, a tough tax and regulatory environment, a lack of available workers with high-tech skills and an emphasis on controlled economic growth.

Progress has been made in boosting areas of diversification such as agriculture, and eco-, health- and edu-tourism along with the state's fledgling high-tech sector.

In 2003 the Legislature passed a bill asking the Department of Business, Economic Development and Tourism to develop a plan to diversify the state's economy. However, no money was earmarked and the agency did not develop such a plan.

"It does seem that they're coming around," said Rep. Brian Schatz, D-25th (Makiki, Tantalus), author of the bill to create a diversification plan. However, "A photo-op isn't going to diversify our economy. We need a plan, but the key is going to be implementation.

"In order to make this work, we have to sustain the effort when all the cameras have left," said Schatz, who is not a member of the commission.

Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.