State Budgets

Trouble in Paradise: Hawaii Governor Ige Acknowledges Livability Concerns

Governor fails to recognize the role government has played in creating the affordable housing shortage.

Hawaii Governor David Ige opened his State of the State Address with a blistering condemnation of the Trump Administration. But he quickly pivoted towards his vision of Hawaii “as a place and a people where we still believe in the promise of Hawaii and limitless opportunities.” The governor took note of several pressing concerns—energy, affordable housing, education, and income growth. However, many of his solutions threaten to aggravate the underlying problems.

The governor complained that “so many of us are living paycheck to paycheck, relying heavily on our extended family to make ends meet.” However, he failed to mention that Hawaii families endure the 9th highest personal income tax in the nation along with the highest property taxes (as a percentage of personal income). “The challenge is not just creating jobs, it’s about creating QUALITY jobs and the training to go with them.” Rather than attempt to predict the needs of the marketplace, the focus could be on making the climate more business-friendly. Hawaii defies the trend by refusing to embrace right-to-work. The minimum wage is 13th highest in the nation, pricing some low-skill potential employees the opportunity to gain on the job training. Waste, fraud, and abuse result in workers’ compensation costs—17th highest in the nation—diverting valuable capital away from business expansion.

“Owning a home is out of reach for many families, with housing costs rising faster than wages,” bemoaned the governor. “For those who want to live in Hawai‘i, probably no issue is more challenging than finding a decent, affordable place to live,” he continued. The governor touted “the largest annual increase in production of affordable housing with thousands of new units. We’re on track to meet our goal of 10,000 new housing units by 2020, with at least 40 percent affordable.” He requested an additional $100 million to continue these efforts. But $100 million doesn’t go far when the typical house in Honolulu costs nearly $695,000; and artificially suppressing the costs on a portion of new construction through mandates forces up the costs on the remaining units.

Everyone recognizes the severity of the inflated home prices in Hawaii. But the governor’s solution fails to recognize the role government has played in creating the affordable housing shortage. Although construction materials costs are certainly higher in Hawaii than on the mainland, government mandates are the primary culprit. The Honolulu city government sparked their long-term crises in the 1980s with “down-zoning” regulations. This included severe vertical limit restrictions. A three decades long moratorium artificially imposed by politicians opposed to growth. As recently explained by Dr. Keli’i Akina, to truly solve the affordable housing crises, government must “eliminate the artificial scarcity of land [and] strengthen private property rights.”

Energy costs also hamper affordability for consumers and businesses in the Aloha State. Residential electricity costs in Hawaii are nearly 250 percent higher than the U.S. as a whole. Industrial costs are a whopping 377 percent higher. Much of this discrepancy is due to the fact that 82.6 percent of Hawaii electricity is produced from petroleum and coal—quite expensive to ship by tanker thousands of miles away! As a result of this isolation, Hawaii also has failed to miss out on the cheap, abundant, clean energy from the natural gas boom.

The governor recognized the affordability issue, saying “it is important to our economy and our wallets as we work to reduce our reliance on imported fossil fuels.” Yet, the governor applauded the decision by the state “to abide by the Paris Climate Accord” in addition to now “requiring 100% of Hawai‘i’s electricity to come from renewable sources by 2045.” Of course, the cost premium for fossil fuels also means renewables are far more cost-competitive in Hawaii than elsewhere. But if “economy and our wallets” are the primary impetus behind the move away from fossil fuel energy production, why is the governor refusing to consider nuclear power as well? Even when accounting for the cost of capital, nuclear energy is cost-competitive with coal and far less expensive to produce than solar energy or petroleum.  Adopting a true “all of the above” regulatory framework for Hawaii’s future electricity needs would spur economic growth and enhance affordability.

The governor also touched on the pension reform without mentioning it by name. “We also worked to make sure those who have served our state get to retire with the dignity they were promised and deserve. With the Legislature’s support, we took aggressive steps that will save us $1.6 billion over the next 20 years,” he boasted. In actuality, these “aggressive steps” consisted of mostly modest changes such as slightly increasing the retirement age, lowering benefits for new workers, and revising purchase of service credits. According to Unaccountable and Unaffordable, Hawaii still suffers from the 6th highest unfunded pension liabilities per capita in the nation at $28,063. Using a risk-free rate of return, the funding ratio of 27.3 percent is 7th lowest.  Total liabilities eclipse $40 billion using this risk-free rate. Failure to achieve real reform threatens the retirement security of public workers and saddles future taxpayers with a combination of higher taxes and diminished services to make up the shortfall.

The governor certainly identified some of Hawaii’s leading causes for concern: family financial security, jobs opportunities, housing affordability, and energy affordability amongst them. Sadly, the public pension crises was left unacknowledged. Economic outlook, according to Rich States, Poor States, is now 45th in the nation. Unfortunately, the governor failed to identify the role of public policy in creating these livability issues. As a result, the solutions proposed are inadequate.

 

 

 

 


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