Budget cuts may be amplifying recession in Hawaii
By Mary Vorsino
Advertiser Urban Honolulu Writer
State spending cuts significantly have worsened the effects of the global economic downturn in the Islands, according to several Hawai'i economists who spoke to more than 150 advocates, lawmakers and others at the state Capitol yesterday.
The economists warned attendees that the spending cutbacks — from reductions in mental health services to public school furlough days — also have a slew of long-term impacts and urged lawmakers to consider temporary tax increases and tapping into special funds as alternatives to deeper program cuts this legislative session.
"The way the budget crisis has been handled feeds back into the economy and amplifies the recession," said University of Hawai'i-West O'ahu economist Lawrence Boyd.
He said that spending cuts also produce something of a vicious cycle, and "will actually lead to other cuts because those (first) cuts affect the economy and then affect tax revenues."
The critique follows hundreds of millions of dollars in state spending cuts and comes as legislators and the governor — facing a $1.2 billion budget shortfall through June 2011 — are looking to reduce spending even more.
This week, the state House approved a $10 billion state budget for the fiscal year starting July 1 that proposed about $60 million in new spending reductions to a variety of programs.
The budget is now before the Senate for consideration.
State Rep. Marcus Oshiro, D-39th (Wahiawā), chairman of the House Finance Committee, said he understands the concerns raised at the forum and agrees that state spending cuts have big negative effects on the state's economy. But he added that lawmakers have tried to limit cuts by increasing taxes and by tapping into special funds.
Tax increases are again being eyed this legislative session.
The governor and state officials also have said state spending cuts are painful but necessary to balance the budget. They also argue that the cuts are being carefully targeted.
$1 BILLION IMPACT
The forum with economists yesterday at the state Capitol auditorium was put together by PHOCUSED (Protecting Hawaii's Ohana, Children, Under Served, Elderly and Disabled), a consortium of social service providers that has long raised concerns about how state spending reductions are affecting the state's most vulnerable.
Alex Santiago, the group's executive director, said the "combined message" of the event was "it's going to take increased revenue, through some form of tax increase ... to maintain essential services. Otherwise, we risk destroying" the state's social safety net.
Meanwhile, Boyd estimated the state has cut spending by about $644 million this fiscal year. Because the ripple effect of any state spending cut affects the overall economy by a factor of two, the total economic impact of those spending reductions is about $1 billion, he said.
Boyd added that the state took a further hit in declines in tax revenues.
He said that Hawai'i's economy is somewhat unique, compared with other states, because it didn't see a significant economic downturn when the global recession started.
But the state did see declines in tax revenues, which spurred the spending cuts.
Economists Paul Brewbaker and Byron Gangnes also spoke at yesterday's forum. Gangnes, an economics professor at UH-Mānoa, said cuts to state programs have "significant negative effects" on the economy, and said "appropriate tax increases are likely to have smaller adverse effects on the economy" in Hawai'i.
He said to balance out concerns that tax increases will decrease spending, the Legislature should only implement temporary hikes — of one to two years.
"People don't respond as negatively to tax increases if they know they're only going to bear it for a short time," he said, adding that the state should also be using its special funds.
"It's foolish to be holding onto special funds," he said.
Brewbaker, director of TZ Economics, agreed with advocates that the long-term impacts of the state spending cuts remain to be seen.
"In terms of social services, there's a lot of things if you cut now you end up paying later," Brewbaker told forum attendees.
Gerard Russo, a UH-Mānoa health economist and professor, told those attending the forum that recent cuts will increase the number of uninsured adults in the Islands.
In addition to the economists, several social service providers, advocates and state employees spoke at the forum, raising concerns about state spending cuts on everything from child protective service and food safety inspections at eateries to public education.
Petrice Bell, a child protective services specialist on the Big Island, said cuts have "crippled" her office and doubled caseloads. "It should be illegal what has happened to our program," she said during an emotional address at the forum. "We actually had a supervisor resign because he did not want to be responsible for a child getting hurt."
Bell said that his position hasn't been filled.