Economic freedom is key to reviving Hawaii small businesses
From Grassroot Institute, January, 2022
Government policies are having a devastating effect on Hawaii small businesses, and there is much that needs to be done to turn things around, said Keli‘i Akina during a Jan. 11, 2022, PowerPoint presentation to the Hawaii Small Business Development Center.
The event was moderated by Caroline Kim, a business consultant with the center, which was established in 1990 to provide professional business advice, research and training to business owners and new entrepreneurs.
Akina, president of the Grassroot Institute of Hawaii, referenced the institute’s May 2020 report, “Road map to prosperity,” for ideas about policies that could help Hawaii businesses flourish. Those included:
>> Reducing government spending and taxes.
>> Reducing business regulations, such as licenses for home-based businesses.
>> Reforming Hawaii’s debt-laden public employee benefits system.
>> Reforming the federal maritime law known as the Jones Act.
>> Reforming the state’s medical certificate-of-need laws.
>> Implementing licensing reciprocity to allow medical professionals from the mainland to operate in Hawaii without having to obtain a Hawaii license.
Said Kim at the conclusion of the presentation and Q&A session: “As a contract consultant with the HSBDC now, I think I’m walking away with a more general idea of why I, as a consultant, should be encouraging my clients to be involved in the policymaking with the policymakers, whether they make contributions to their campaigns or not, because it has a huge impact on them as we go.”
To view Akina’s entire presentation, click on the video above. A complete transcript is provided below….
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1-11-22 Keli’i Akina at Hawai‘i Small Business Development Center meeting
Caroline Kim: Good morning, everybody. Good to see everyone here shining bright, smiling, happy.
We’re really blessed to have Dr. Akina take some time out of his schedule and join us. You’ve already received his bio, you can see his educational background, and he is also the chief executive officer of Grassroot Institute, which is a nonprofit policy research institute. He is also one of the trustees-at-large for OHA.
Being an elected official, he looks at state policy and works with state policymakers, hoping that he can influence them with his new thoughts and ideas on what will lead to happier and more prosperous lives for all the people of Hawaii.
His “E hana kākou”/”Let’s work together” is really representative of his personal philosophy on how Hawaii should be getting along.
With that, I introduce Dr. Akina and the presentation he has for us today. Thank you, Dr. Akina.
Keli’i Akina: Caroline, thank you very much. I appreciate it greatly.
First, let me say to all of you how honored and appreciative I am to the Hawai’i Small Business Development Center for inviting me to be with you today. First of all, I love your mission, to drive the economic sustainability of Hawaii by assisting businesses to form, grow, and thrive. All my life, I have believed that mentors make a difference.
What you’re doing with your vast experience, with your years of actual hands-on practice of business in Hawaii, in terms of mentoring younger entrepreneurs or other entrepreneurs, is so important. It’s that glue that makes the difference. We have to have the right economic conditions. We have to have the right governmental infrastructure. We have to have the markets working properly.
But there is no replacement for someone who has experience and caring, and works with an entrepreneur to challenge, to inform, to advise, to be there when they weep, when they’re laughing, when they’re winning, and when they’re losing, and that’s what you do, so thank you. Thank you for what you do. I respect the role that you all play as advisors.
Now, the Grassroot Institute is here to serve you. By the way, we have a name that sounds a little strange—it’s not Grassroots, it’s Grassroot. The Grassroot Institute of Hawaii. We’re a nonprofit policy research organization and we seek to educate people and our policy leaders about the values of individual liberty, economic freedom and limited accountable government. Important principles that I know many of you hold.
I’m so grateful to see some of you whom I know, and appreciate the fact that you read our work and that you follow us. We do our best to publish accurate and timely research and commentaries, and to organize events, conferences and seminars for the purpose of informing Hawaii’s policymakers, business leaders and the public, and the news media in general. Since its founding in 2001, the Grassroot Institute has helped to provide the intellectual foundations for many of the policy debates that are taking place.
Earlier, Caroline mentioned that I love the phrase “E hana kākou.” You all know “E pule kākou” — let us pray together — and really the operative word there is kākou, to do it together, including all people. Well, we know that it’s important to pray together.
At the Grassroot Institute we also say “E hana kākou,” / “Let’s work together,” regardless of political background, regardless of cultural, social, ethnic, racial backgrounds. Whatever the differences are between us, our purpose is to find that area of common ground and build on that common ground. Doing that, we can together build a better and greater Hawaii in terms of our economy. An economy that works, a government that is accountable, that’s so very important.
Now, today’s topic is important. It’s on my heart, which is Hawaii’s economic conditions that impact small business. That’s because the overall economy and the role of the government have a massive impact upon whether an entrepreneur can flourish.
This is so important. There are always outliers and exceptions to the rule who can defy the odds, and fly even in the midst of terrible conditions. But for the majority of small businesses, and the majority of businesses, what the government does and the policies that follow its decision-making, have a massive impact on our ability to be entrepreneurs, and on our ability to build an economy.
I’m not here as an expert in running businesses. You are the experts, and I look forward to learning from you as we get to know each other over time.
Our specific role at the Grassroot Institute is to be policy experts — experts in subject matter — so that we’re at your service to provide you the information and the analysis that can help you as you carry out the practice of business and as you advise others. Please think of us as your resource.
It’s been mentioned that we do weekly newsletters. They are filled with articles, research studies, cartoons, too, and commentary. I write a weekly column as well. You’re free to take advantage of that. We have a large and growing subscription list. It’s free of charge, and you can simply get onto our website, grassrootinstitute.org, and avail yourself of that, as well as other research papers and topics.
Now, I’m going to switch to the screen. Let me know if I have done this correctly, and it should be going on now. Can you see my screen?
Akina: Very good. As I mentioned before, today’s topic is “Hawaii economic conditions that impact small business.” Now, nobody is unaware of the recent pandemic and the recent pandemic lockdowns. The recent pandemic lockdowns and emergency measures have indeed saved lives. They have fulfilled a government responsibility to act with care for the people.
Without attempting to criticize the government, I do want to point out that these measures have also damaged the economy. An important question that we need to ask is, how damaged is the Hawaii economy from the emergency measures and the lockdowns?
The fact is that Hawaii may very well be the most damaged state — more than any other of the 50 states, plus the territories.
Throughout most of 2020 and 2021, Hawaii had one of the worst unemployment rates in the nation. The unemployment rate has come down somewhat, but we’re still a long way from a healthy economy. Hawaii’s population has been impacted by this. It’s projected to decline by 20,000 more people by the year 2023. That represents a continuing and significant loss since 2016. Look at that straight line from 2016.
We’re observing the shrinking of our labor pool and the reduction of our tax base, and that’s not good for the economy. At the Grassroot Institute, we started a project called “Why we left Hawaii” to collect stories.
Here’s one, for example: Nate Hara, who moved to San Antonio, Texas. He said:
“I was born in Waimea, Kauai, and raised in Hilo. I lived in Hawaii until I was 26. The cost of living, continuous rising of taxes and fees, and the state’s need to control everything led to me and my family moving to Texas. In order for my family and I to move back, we would need to see change that betters the lives of the hard-working local people. Reward the people for their hard work.”
We see this story over and over again.
Michael Cheney, who moved to Bountiful, Utah, said:
“I was born in Kahuku and raised in Hau‘ula. I lived in Hawaii for about 26 years. It was a hard decision to move out of Hawaii because Hawaii was all I knew. If you don’t have a steady job and you’re just starting out as a family, it’ll be a struggle far beyond what people can imagine.”
What a telling statement.
Now, when we look at the data, a survey recently found that Hawaii’s high cost of living is the primary factor in people leaving. The cost of living. More job opportunities. Housing is too expensive. They want to be near children and other family. Education. Quality of life. And so forth.
There’s one item that we’re going to track in the future that we don’t have in previous studies, and that is, a good number of people are actually moving away because of the state’s COVID policies. Ultimately, we’re seeing the loss of a significant part of our skilled labor force and professionals, such as doctors and other medical personnel, and that results in significant shortages.
I’m going to talk about this later on, but I do want to point out that these shortages in medical personnel and doctors were not caused by the COVID pandemic. They were in place, they were in existence prior to COVID. When COVID hit, oh, we had a real stress test on our system. We’re also seeing a loss of high net worth individuals and business owners, as well as their money, which affects our tax revenues.
If we don’t lower Hawaii’s cost of living, more people will leave the state and further damage will be done to our economy. But lowering the cost of living is easier when the state’s finances are in order. That’s why I’m going to talk a bit about the state’s fiscal condition.
All business people need to understand that it’s not just about how we do business. It’s also about the condition of our state’s finances. Hawaii needs what I would call a fiscal course correction. Specifically, I’m talking about the impact of government spending and finances on the economy. Here is a problem that’s at the crux of the situation we’re in.
Over the past decade, Hawaii’s government has spent double the pace of the private sector economy. Just take that in for a moment. That’s staggering. The government itself has been growing and spending at a pace double that of the private sector economy.
It’s supposed to be the other way around. Government is supposed to be able to provide the infrastructure and the basic framework so that business can thrive, not business existing to feed the government.
This violates the golden rule of government finances, which is that the private sector should grow faster than the government. Otherwise, it’s unsustainable. In order to keep that spending going, we’ve taken on a massive amount of debt in our state government. Our debt for bonds has skyrocketed to $16 billion. Much of that debt was taken out to pay for salaries for government employees.
Sometimes — and this is so sad and ironic — our lawmakers refer to our high bond ratings as a sign of fiscal health. In reality, bond ratings are only a measure of how likely the bonds are to be repaid. Since governments have the power to raise taxes to pay off bond loans, those loans are considered secure by the bond financier. That’s absolutely not a measure of the fiscal health of the government or the economy.
We also have to take into consideration debt for unfunded liabilities, such as $14 billion for Hawaii’s public pension system, and $12 billion for Hawaii’s health benefits for public employees.
In total, what this means is that over $30,000 of liability in unfunded liabilities exists for every single man, woman and child in the state. Every child in Hawaii is born into $30,000 of debt for these unfunded liabilities. That amount is actually not inclusive. There are other unfunded liabilities that we’re tracking at the Grassroot Institute.
How does this impact businesses and the general public? When you put it all together, and take a look at the state budget, we see a trend that very few people are aware of, that is exceedingly unhealthy for the state, and counterproductive, and that’s basically that the state’s debts are taking over the state budget.
Fifty-four cents out of every dollar of the taxpayer spending — that’s the left side of this pie chart — 54 cents out of every dollar, more than half of that goes toward obligations, namely government employee benefits and debt service.
That leaves 46% for anything else, and that amount that’s available for services for the public and for businesses is shrinking, with this huge massive payment to government employee benefits and debt servicing. This is just staggering in and of itself.
That leaves less money for schools, for salaries, for roads, for parks, and bridges. It makes Hawaii a very bad investment climate for capital. You need to know that capital sources see all of these things that I’ve shared with you.
While this leaves less money overall, at the same time, taxes are increasing. Hawaii’s unemployment insurance tax, for example, increased by 38% last year. We’ve done several programs and papers on this, and you can get those at the Grassroot Institute website. That means that struggling businesses are paying more this year.
By next year, the tax is scheduled to increase by 200%. That’s because the unemployment trust fund is out of money. The state paid record amounts of unemployment throughout the pandemic. The law says if the fund is empty, the tax goes up. We’ve triggered that law. Unless lawmakers do something at the Legislature this year, businesses could see their payroll taxes double. That’s incredible and hard to handle for small businesses.
But that’s not the only tax that’s going up. Lawmakers have now allowed the counties to increase visitor taxes by 30%. When combined with a GET [general excise tax], we now have the highest taxes in the nation.
We, Hawaii, are one of about eight states that are not allowing the deduction of expenses for forgiven PPP [Paycheck Protection Program] loans. That’s going to affect us. That means Hawaii businesses who took PPP loans will not be able to deduct the expenses for tax purposes.
Thankfully, Hawaii doesn’t count the loan as taxable income, but Hawaii taxpayers don’t get the extra benefit of deducting the taxes, like most of the states on the mainland do.
Now let me make sure I’m aligning my slideshow here. To pull it all together, costs are rising. I don’t have to tell you that inflation is nearly 7% since last year. Our dollars simply don’t go as far as they used to go. The biggest price increases were in energy at 27%, cars and trucks at 26.3% and meats at 14.6%.
Young Brothers also got approval last year to increase its rates by 46%. That has a huge impact on the price of goods on neighbor islands, including shipping cattle.
Housing costs have risen as well, with the median price of a single family home reaching over $1 million on Oahu and Maui. That was just reiterated in this morning’s [Honolulu] Star-Advertiser as well.
Now, in addition to that, there’s something called the Jones Act that raises the cost of living in Hawaii. It’s not the only factor, of course, but it’s one of the multiple factors that gives us higher prices than our counterpart states.
The Jones Act is a 101-year-old law that requires ships that carry goods between two U.S. ports, whether it’s Honolulu and Los Angeles, or Honolulu and Hilo, to meet four criteria.
Number one is that they need to be built in the United States. That’s the most significant. They need to fly the U.S. flag. For the most part, they need to be owned by a U.S. company and, finally, operated by U.S. citizens for the most part. That’s what makes up the Jones Act.
We have described the Jones Act in detail and studied it and have for you, quantifying the cost of the Jones Act to Hawaii, a policy brief on our website. One of the estimates we’ve made is that there’s at least a $1.2 billion cost to the Jones Act every year.
Hawaii shipping companies are burdened with this law because they have to buy ships that are five times more expensive, since they’re not allowed to buy from our allies.
We have allies that produce massive numbers of ships, far more than the United States — Japan, South Korea, European countries — but we have to buy them from outdated American sources that have just really almost gone out of business, producing less than 2% of all deep-bottom cargo ships in the world. With such scarcity and such required purchases from that source, the prices have skyrocketed. As I mentioned, it’s five times more expensive than buying from an ally.
What this means in particular is that Young Brothers has to purchase tugboats that are five times more expensive, and that price gets passed on in the form of higher shipping rates. This is a subject worth looking into more, but suffice what I’ve said for today’s purposes.
Another area where we have been researching quite a bit and discovering that it puts a drag on the economy and our businesses is healthcare. We have laws that hinder our healthcare system. Hawaii’s healthcare system wasn’t prepared for the emergency of the pandemic and the magnitude of it that we now face.
When COVID hit, Hawaii already had the fewest hospital beds per capita in the nation. This was prior to COVID. This is something that our policymakers allowed to happen and actually contributed to, because of the regulatory climate in Hawaii. Hawaii had the longest emergency room wait times as well as a severe shortage of doctors on all islands.
Hawaii’s tax regime puts extra financial pressures on physicians. One doctor told us he saved over $100,000 every year after leaving the state because of the reduced taxation and the lower cost of living.
There’s another issue with regard to healthcare that few know about, and we’ve met many legislators who simply were unaware of this. It’s called the certificate-of-need law. I recently wrote a Wall Street Journal piece, “Hawaii Is No Paradise if You Need Medical Care” That was on December 3rd.
High taxes contribute to a shortage of doctors while certificate-of-need laws crimp capacity. Hawaii has perhaps some of the most burdensome certificate-of-need laws in the nation, which have prevented hospitals from opening.
Basically, to make it simple, and I know this is a little simplistic, the certificate-of-need laws work like this: If you are going to open up a hospital, a clinic, add a wing to a hospital, increase the number of beds, start a medical service of any kind, you need to go before a committee.
That committee will grant a certificate of need if it concludes that there’s a need for your service. The committee consists of the competition in the field. It’s like Burger King seeking a license to open a store, but having to go before a committee that has McDonald’s and Denny’s and Zippy’s on it, and they decide whether or not there’s a need for a new competitor in the market. For this reason, many states have rescinded their certificate-of-need laws.
Let me give you an example of how this works. On Maui the government denied the building of a much-needed Malulani hospital that could have provided 150 acute-care beds and $119 million of private healthcare investment.
Fifteen other states have no [certificate-of-need] laws at all, but even if Hawaii didn’t want to go down that route, it could at the very least loosen some of the regulations.
For example, do we really need a certificate of need to ask permission to move hospital beds from one hospital to another, or start a dialysis center or a rehab center? Simple things like this should be easier to reform and it would help provide more services for our residents.
Now, I think the important thing to focus on is getting the right ideas. I really want to conclude my presentation today, then open up to questions. On an optimistic note, what we try to generate at the Grassroot Institute are the best ideas through original research and best practice monitoring across the nation.
For example, we’ve got a report called “Road map to prosperity,” and I invite you to download that from our website. It’s a study of how Hawaii can recover and even excel after the coronavirus lockdown. With your voice as business leaders, you can help bring that change about by influencing our public policy officials, our legislators, our government officials.
In “Road map to prosperity,” we give a prescription [for] things that our government can do in order to change the economic climate in Hawaii and provide a structure that allows businesses to flourish. One would be to reduce spending and taxation. That’s very important.
For example, Hawaii could return to the 2019 budget when we had a larger population — remember that chart? — and a lower budget. Doing so would save us a billion dollars, a very simple solution. We don’t need to be spending more money when we have fewer people. That would provide a little bit of wiggle room to reduce taxes, such as the unemployment tax.
Another thing we can do is contract more with the private sector through full privatization of some services or through public-private partnerships. In many ways, private businesses can perform far more efficiently and effectively, and the government doesn’t need to be taking business away from private operators.
Hawaii has a law that disallows privatizing government services, however, and that will have to be changed. But reforming this law could help the state and counties save on costs and provide competitive service.
Another thing we can do is reform our public employee benefits system. I don’t have any criticism of our public employees. In fact, we’re calling for greater sustainability of their pension and their healthcare systems.
Hawaii’s public pension system is, as I mentioned before, $14 billion in debt, and the health benefits system is $12 billion in debt. Reforming these systems could save public workers from underfunded liabilities and losing benefits, and save taxpayer money, too.
One path to reform would be to move us further along the spectrum from a very costly defined-benefits program toward a sustainable defined-contributions program. I could talk more about that later. There are such reforms that have taken place in other states, and they can happen here. They will benefit the general public as well as union members.
Another thing we can do is reduce regulations on businesses. I don’t know if you’ve tried to open one, but did you know that you need a license to open a lemonade stand in Hawaii? Hawaii needs to reduce our regulation on businesses. One easy step would be to get rid of overburdensome requirements, like licenses and permits for lemonade stands and home-based businesses.
Hawaii should also allow occupational licensing reciprocity, so people who are licensed in other states can more easily find work in the islands. The irony is that we found ourselves with such a shortage of medical personnel that we had to suspend our rule against reciprocity of occupational licensing in order to get emergency personnel in. We say to the governor and the state: Just continue that practice. Allow telehealth and other forms of occupational licensing. That’s very important, it’ll help meet our needs.
Another thing we can do is allow more homebuilding here in the state. When you look at the zoning laws and the state land-use rules, we end up developing on only 5% of the land statewide. It may be hard to believe that, but studies have shown that — and developers have confirmed that — 95% of the land in the state of Hawaii is not developed on. About half of that is reserved for agriculture — and the irony is that most of the agricultural land is sitting fallow — and the other half of the open land is for watershed reserve.
There’s no question about it. We could move from 5% land development to 6% without harming the interior of the island. We could move to 7%, we could move to 8%. Just a shift from 5% to 8% is a 60% increase in supply. There is the possibility of increasing the supply of land and making it available for housing that people can afford. We desperately need to change our laws which create, what I have called, an artificial scarcity of land.
Lawmakers need to reduce housing regulations as well. That could provide more homes for local residents and that in itself would be such a boon to the economy.
Another item that would be important would be Jones Act reform. We should reform the shipbuilder plank of the Jones Act and allow our commercial shippers to obtain their ships from our allies. That would allow for increased competition in the market.
By the way, there’s no harm in being able to buy a vessel from an ally. There’s no national security risk. Did you know we already buy entire airplanes from our allies outside of the United States? Cars, cell phones — they can be used within United States law, so why not ships as well? We should be able to buy ships from our overseas allies. That would be a big boost to our economy.
These are just some of the items that we list in “Road map to prosperity.” It’s an agenda and pathway for legislators who want to make a difference. There may be one or two of these issues that especially resonate in your heart. We invite you to take a look at our report and use it to whatever extent you can.
The bottom line is that our economy can prosper with the right ideas. Together, we can bring our economy back if we follow the good ideas in this road map. You are very well welcome to contact us at any time, contact me directly or contact Joe [Kent]. We appreciate what you do at the Hawai‘i Small Business Development Center and hope that the material I’ve presented today, as well as the resources that we can provide you, will help you as you mentor entrepreneurs throughout our state.
If you’d like to have a copy of this PDF presentation, just go ahead and email me at email@example.com, and we’ll be sure to send you a copy of this PowerPoint slide deck. With that said, I thank you for letting me share this. I’m going to stop sharing my screen and open up to any questions that you may have. I’m back with you here. Thank you very much.
Kim: Excellent, Dr. Akina. We really appreciate the information. We have Dennis Boyd who has a question for you. Dennis, if you will unmute, then you can ask your question.
Akina: Very good. Dennis, look forward to hearing your question. Joe, would you join me?
Joe Kent: Yes, I’m here.
Dennis Boyd: How did you know that, Caroline, because I didn’t raise my hand I was just thinking that. It was really weird.
Kim: Cynthia and I were on a chat and so she said, “Dennis needs a question answered and he has to leave early, so can we get you?” I said, “Yes, absolutely first.”
Cynthia: Sorry, it’s Bernard. Bernard has a question as well.
Boyd: It wasn’t me, but OK. I have a question anyway. I’m particularly interested in the licensure reciprocity particularly for the healthcare industry.
As you may know, there is a national compact for both nurses and physicians that allows cross-jurisdiction licensure. Hawaii is in the minority of the states that don’t allow that and won’t accept that. Part of the barrier has been the very professional organizations, the Hawaii Medical Association and the Hawaii Nurses Association.
It’s like you were talking about with McDonald’s about their certificate of need with the competitors judging that. Is there anything your organization — other than reports and your general educational activities — is there anything you guys are doing about reciprocity in terms of putting together any legislation or anything like that?
Akina: Great question and thanks for caring about that issue. Licensing reciprocity has been an issue we’ve been researching for quite a while and we need help in order to advocate for it. We do have the model legislation and we are in communication with numerous legislators about this very issue.
In fact, we have stepped up our efforts and are in some very strategic communications with some high-level legislators at this time in the hopes that in this upcoming session in a few weeks, that there will be some legislation introduced to loosen up Hawaii’s laws.
One of the things that is very important is to stress that the emergency lifting of reciprocity laws was a good thing and that our government should keep them lifted. If we can stress this, that’s the opening gambit, so to speak, in terms of trying to get politicians to respond.
Another thing, and this will apply to many other issues, Hawaii has had a redistricting for this coming legislative elections cycle.
As a result, that means that not only all state representatives, but also all state senators, are going to have to go for election again. All those seats are open, along with governor and some congressional seats, and this is remarkable.
It is a rare opportunity for activists, and when I use that word, I use it broadly, I’m thinking that it includes business leaders, to get involved in politics, to support politicians who have the right perspective to go and see their political counterparts and reach out to them.
In answer to your question, is there anything we can do, beyond the research and defining of the problem and proposing legislative solutions, we have to influence legislators. That’s the key thing. That’s something we have to do as a coalition together with people in business. That’s very important.
That’s why I’m so glad for today because I just want to emphasize to all of you how important your role is. At the lowest level, just writing to and talking to legislators is important.
You could also get involved in the political process. We can’t, as an organization. We’re a 501(c)(3), so we can’t as an organization financially back legislators who have the right idea. But as individuals, any of you, especially as businesses, can make a difference. You’d be surprised a $500 contribution from a business, or attending a fundraiser, could make a huge difference in terms of the way a politician votes. As Will Rogers said, “America has the best politicians money can buy.” (laughter)
Boyd: Are you able to share that model legislation?
Boyd: Okay, I’ll send you an email.
Akina: You mean with you?
Akina: Joe, we have some legislative planks. Specifically, what are a couple of areas, Joe, where we have some model legislation related to healthcare?
Kent: We are in talks on lowering the general excise tax for private practice medical docs [doctors]. Hospitals in Hawaii are mostly nonprofits, don’t have to pay that tax, whereas private practice medical docs do, and that cuts into their thin profit margin. That’s one reason that the doctor who left told us he saved $100,000 just by leaving the state. So that’s one. Reciprocity of licensure, telehealth and certificate of need.
Akina: Certificate of need. I’ll let Joe and you connect on that. That ought to be great. Thank you, Dennis.
Kim: Dr. Akina, we have another question from Bernard. Bernard.
Bernard Balsis: Yes. While I understand the high unemployment and I also see that businesses are crying for employees, it seems to be a bit of a contradiction. I’ve heard many explanations about this contradiction and I’m curious to know yours.
Akina: Well, this is a multivariant situation. There are many factors that contribute to this. We have identified the economic factors that have resulted in the unemployment problem in Hawaii. I could repeat those to you but there are also disincentives that the government has created. That’s one factor.
In terms of the high level of COVID aid that was given out, the supplements to the unemployment insurance and so forth, I don’t have to tell you as business people how that affected the service industry, and how many businesses found that it was difficult to hire back people who could be making more money by not working.
Another factor is the psychological factor. There really is fatigue and fear, both of these, that are at play. For some people, a kind of malaise about work has set in. We’re struggling with these factors on top of the economy.
I don’t have a crystal ball, but I’m hopeful that if we can get certain policy changes made, we can continue moving forward in the economy and giving incentives for people to get back to work.
Balsis: I bet you do have a crystal ball, but I imagine it has a lot of cracks like mine.
Balsis: I have another question. I recall Steve Yamashiro, our past mayor here on the Big Island, really had a strong initiative to privatize a lot of county services. He had to backtrack on a lot of his initiatives because of the strength of the unions. So it’s more of a union issue as compared to a government regulation issue, at least that’s the way I see it.
How can the state and county then privatize, which is one of your recommendations, which would not only lower the cost to government, but also probably improve the quality of services provided to us constituents?
Akina: You correctly have identified that there are both legal and political considerations that must be looked at. There are legal considerations. The law actually prohibits the widespread privatization of certain businesses and practices. That does have a political implication because that is supported by those who think and believe that that protects and serves the unions, and so forth.
We’re always dealing with both sides of the issue. We do need to have a change in law, but in order to motivate a change in law, we need to help government officials be less dependent upon the belief that they will be upsetting the unions and losing their support if they move toward privatization of anything. How do you bring about change is the real question within this political climate.
Let me give you an example of change that in a sense could hopefully be a template for future change. Maui Memorial Hospital a few years ago was having to shut down clinics and lay off workers, and they were predominantly state union workers. That’s because Maui Memorial Hospital was being run badly.
We researched the causes and to make it short, basically, the hospitals were losing money because of the huge costs of union work rules and the compensation that needed to be paid. It was unsustainable except through the infusion of tax dollars every year.
The ones who were hurt in addition to the public, in addition to those who were not getting services in Maui, were the actual union members who were losing their jobs. Being able to home in on that psychologically helped to create some voicing of this from union members who realized that a transition of the Maui Memorial Hospital from public sector union to a private bidder could actually help union members.
That brought many union members on board with what ultimately, as Grassroot and others advocated, took place and that was the hospital for its management and labor was put out to bid and ultimately, as you all know, Kaiser [Permanente] won the contract.
The nice part about the story is that while the labor of the public sector unions was terminated there, 95% of the hospital staff were hired back at comparable or higher benefits and salary. Several years after this took place, now, the hospital is on a track to financial sustainability.
If we could get union members to understand that the huge unfunded liabilities on their pension plan, as well as on their health, ultimately could hurt them, we will have more of them realize reforms are needed for sustainability and they can speak and voice this to their union leadership.
A lot of this has to do with getting the right way to think out there, to helping people understand cause and effect. That the kinds of reforms that we’re advocating are not against unions. When that can be understood, the political system will shift, and that’s important.
Now, let me just say one last thing. Why doesn’t it happen in Hawaii more quickly? Why don’t we pay attention to this kind of thinking?
It’s not about whether Hawaii’s Republican or Democrat, it’s more about the fact that we are in a predominantly single-party state. Whether it’s Republican or Democrat, all it means is that there is less competition of ideas. It’s going to take the business sector and, in fact, all sectors, but you as business people are going to need to play a growing role in influencing our public policymakers.
Balsis: Thank you.
Kim: Thank you, Dr. Akina. Joe, you have a question.
Joe: Yes. Thank you, Dr. Akina. I really appreciate your speaking with us today. You mentioned public benefits reform, and we’ve been talking about that today under some of the ideas and the horrendous unemployment taxes that we’re going to be facing, and the unemployment trust fund essentially being broken.
I remember, I think it was last year, you published some information about an idea of having individual employment accounts that are portable between companies, where those contributions would be shared by employees and employers. I wonder if you would explain that to us a little bit in the remaining time.
Then, the second part of that question is, what are the chances for making a massive change like that in our state? Thank you.
Akina: Great question. Let me put that question in perspective. Individual retirement accounts are not the be-all and end-all in terms of solving our problems, but it’s one proposal. It’s one of many possibilities that are being implemented around the country. You see, what we’re looking for are best practices that are being used by other states to help them move away from a defined benefits program to a defined contribution program.
Now, these individual retirement accounts have worked very well in university systems, and university systems within state systems. They seem to be far more amenable to the kind of employee we have today going into the workforce.
Back in the day, if you lived in Hawaii and aspired to go into state government work and be in the union, you were on a pathway for your lifetime. Today, as you all know, young people may have had 10 jobs by the time they’re 30 years old and do not plan to stay put in one corporation, not even the government.
One of the things we’ve tried to encourage government leaders to recognize is that unions themselves and government service itself needs to evolve. As it evolves to take into consideration the nature of the emerging workforce, it has to recognize, not only for the sake of the sustainability of the ERS, but it has to recognize for the sustainability of its workforce, that you’ve got to allow younger people to come in and work for three to five years, or however long it is, and then move on.
That’s going to be a beneficial way of restructuring the way we think about tenure, the way we think about the portability of retirement, and so forth. That’s the perspective that we come from. I know Joe Kent has done a lot of research in this area. Joe, would you like to add anything to what I’ve said in response to this?
Kent: Yes, sure. The unemployment fund tanked last year. It was in the red, about $700 million, which is a record amount of debt for the fund. The law says, “If the unemployment fund is empty, then the unemployment taxes, your payroll taxes go up,” and the schedule was to go up 230%.
Lawmakers took the federal aid money and dumped it into the unemployment fund, which is probably a good idea. That saved us from having to hike the taxes to an insane amount. But the problem is the fund’s still empty. It still only has $100 million in it and there needs to be $1 billion in it.
Again, next year, the tax is scheduled to go up 200%. Lawmakers again may have to put another billion dollars into the fund. Now, where did the money go? It went to a lot of people in need.
The problem, though, with the government system of handing out the money is that it’s hard to decide who really needs the money. If the unemployment insurance was like a savings account individually per person, then if you work, you would contribute to your own unemployment insurance account, the theory goes, so if you become unemployed, you could draw from your own account.
Then the incentive to get back to work as soon as possible is a lot higher. It changes the incentives. That has never been done in any state that I know of. There may have been some small government agencies that do that, but no state does that. Chile does it. Austria and Colombia have plans like that. It would be a long shot to implement that here, but it is fun to talk about.
Joe: Thank you.
Kim: Are there any other questions from any of you for Dr. Akina? I’m not seeing any hands raised or questions in the chat box. Anybody? OK. I really appreciate your coming, Dr. Akina. We are honored to have you present information for us.
As a contract consultant with the HSBDC now, I think I’m walking away with a more general idea of why I, as a consultant, should be encouraging my clients to be involved in the policymaking with the policymakers, whether they make contributions to their campaigns or not, because it has a huge impact on them as we go.
I don’t think all of them understand the intricacies of how this all interacts with their business. They just know they have to pay this unemployment insurance. Having them advocate for themselves is where I think I need to encourage them to go. Now, all you other consultants, tell me if this is not a correct place for me to be when I’m advising or what, but I think we’re not asking them to make contributions. We’re asking them to get involved in the areas in which policy-making impacts them. OK.
Akina: I want to thank all of you for letting us be with you today. Grassroot Institute stands to be of service to you in any way we can. To reflect what Caroline said, you can have tremendous influence as business people as you communicate with our policymakers. Thank you very much for all you do. Aloha.
Kim: Thank you. Aloha.