by Andrew Walden
The headline story on the latest UHERO report is “Japanese Quake Won't Derail Recovery” which is good news because it works against any more political manipulations of the Hawaii State Budget by the Council on Revenues. If the CoR decides to issue a projection of lower tax revenues in its next report due May 26, this could force the Legislature back into special session to reevaluate the budget. The result would be another chance for higher taxes and legalized gambling.
But unnoticed in the public summary of the report are a couple of paragraphs which point out some serious risks to the corporatist State of Hawaii. The cut-off of Earmarks and other Federal pork is having an impact and the full effect is only just beginning to be felt.
From UHERO State Forecast Update, Japanese Quake Won't Derail Recovery:
Private construction permitting has been dismal since last fall. The $53.5 million monthly average in residential permits for the past five months is a 7% drop from already low levels the previous year. Nonresidential permits for this period rose 16% on the strength of February additions and alterations data, but the fourth quarter of 2010 showed essentially no increase over the fourth quarter of 2009. Construction at the end of 2010 was helped immensely by $268.2 million in government contracts to close out the year. While total private authorizations fell 1% for all of last year, government contracts rose nearly 36% in 2010.
In other words, beyond tourism, Hawaii’s business unfriendly economy depends entirely pork barrel spending. The Abercrombie administration and Legislative Democrats know this. That is why they opted for the elimination of GE Tax exemptions. It is a means of “taxing the tax”—that is the conversion of capital expenditures into operating revenue by taxing subcontractors on rail and other government jobs. Other aspects of the GE Tax increase may illegally seek to tax sales to the federal government. Sharp-eyed bond rating agencies may recognize this for what it is and cut Hawaii’s bond ratings, thus raising Hawaii’s borrowing costs, making capital projects even more expensive.
The role of public projects deserves emphasis because the emerging budget situation at all levels of government will make a similar performance tough to repeat in 2011. Kauai County’s proposed FY 2012 budget adds less than $1 million in additional CIP projects to what was appropriated in the previous budget. Of the $177 million in the proposed Hawaii County budget, more than half is actually for a police radio system. The City and County of Honolulu is considering a 34% reduction in non-rail CIP spending. At the state level, $1.2 billion in increased capital spending in the Governor’s proposed budget for FY 2012 relies on legislative approval of $800 million worth of new general obligation bonds. Federal ARRA (stimulus) programs are beginning to phase out and, by our estimate, the suspension of congressional earmarks has prevented appropriation of at least $170 million in local projects.
And the pork is running out. The earmark ban alone has cost Inouye cronies $170M in pork. UHERO continues:
Large grants of new federal funding for infrastructure projects are unlikely to be forthcoming in the current congressional climate.
Overall construction activity will begin to turn the corner this year, but primarily on Oahu and largely on the strength of rail-related government contracts.
On one hand, large new grants are unlikely, on the other hand Rail contracting—which depends on $1.55B in federal pork--is the only thing moving in Hawaii construction. UHERO does not evaluate this rather obvious contradiction.
The Honolulu County construction job base will expand by 5% this year, and by more than 10% in 2012 and 2013. By comparison, the Neighbor Islands as a group will see a small additional net loss this year before modest expansion begins in 2012. Despite the weak housing market and approval delays to some major projects, residential building will begin to turn up over the next few years. The pace of a commercial construction recovery will be somewhat more attenuated.
Yes, even in the depression-level private sector economy, Hawaii environmentalists and OHA are still obstructing development. They are even going after Rail.
As Inouye continues to become more and more useless and Congress becomes less and less likely to fork out money, Hawaii will have to come to terms with the requirements of a real-world economy. This new reality will fracture all of the existing political and economic structures and create the possibility of a two-party democracy.