Hawaii: Paradise at a Loss
Washington Post Staff Writer
Tuesday, June 23, 1998; Page A03
HONOLULUWhile other states enjoy a boom and argue about how to spend billion-dollar budget surpluses, Hawaii has moved in the opposite direction, buffeted by an Asian financial crisis compounding seven straight years of economic stagnation.
Outwardly, the state that everybody calls paradise looks much the same as it did during the go-go years that followed its 1959 admission to the union. Tourists skim the azure Pacific Ocean breakers in outrigger canoes and sip mai tais while hula dancers entertain them poolside. But beneath the sunny exterior is a state troubled by serious economic problems and weariness with the government's inability to reverse a downward slide that is prompting some natives and longtime island residents to pack up and move to the mainland.
"We are at a crossroads in the state. People want change, and they just don't see it coming," said state Sen. Sam Slom (R), minority floor leader.
Economic indicators here are indeed disturbing:
The 4 percent to 5 percent average annual growth Hawaii enjoyed for three decades after gaining statehood has plummeted since 1991 to 0.4 percent. Leading economists predict it will shrink to zero this year and possibly even turn negative.
The sugar and pineapple industries, once the backbone of Hawaii's economy, have shrunk with a succession of plantation closings, and military spending has tightened with the end of the Cold War. As a result, the state has lost 30,000 jobs in the past five years.
Tourism, which generates a quarter of the state's income and a third of its jobs, has slumped along with the Japanese yen. Hawaii's tourist economy has long been tied to Japan's. Of the 6.9 million tourists last year, 2.1 million were from Japan. But their spending is way out of proportion to their numbers $286 per day compared with $137 for mainland U.S. tourists and last week's Japanese currency plunge has further slowed sales in the designer-label shops along Waikiki Beach.
Hawaii's unemployment rate has nearly doubled since 1990 and is hovering at 5.6 percent well above the national average. Bankruptcies have increased fivefold in the same period.
A small but growing number of dissatisfied Hawaiians has moved to the mainland. Nearly 15,000 people out of a population of 1.2 million left from July 1996 to July 1997, according to the U.S. Census Bureau. The net outward migration continues to grow, economists said.
The Democratic Party of Gov. Benjamin J. Cayetano, unable to shift the blame, has begun to pay a political price for the stumbling economy in the run-up to November's election. Polls show that after four decades of uninterrupted control of the state house, the Democrats could lose the governorship.
"I can understand why people are predicting that I will lose," Cayetano said in an interview. "But I've always been in tough fights and I've never lost an election."
With Hawaii's habitually high cost of living and its per capita tax burden standing at fifth among states $3,185 per person compared with $2,404 in California, for instance it is little wonder that public opinion polls show voter dissatisfaction with the governor and the 76-member legislature, which has only 14 Republicans.
A poll conducted earlier this month for the Honolulu Star-Bulletin and a local television station showed that, since September, Cayetano's favorable rating has fallen from 43 percent to 27 percent. Only 28 percent of the voters said they think Cayetano has been doing a good or excellent job during the state's economic decline, while 71 percent rated his performance as fair to poor.
But sitting in his office in the modern Capitol here last week, Cayetano seemed unfazed by the poll figures. He confidently predicted that Hawaii and his political career will weather the storm despite attempts by the leading Republican hopeful, Linda Lingle, to use the downslide as a chute to victory.
"Most objective people understand that our economy is impacted by outside forces that I can't control," Cayetano said. "No governor is going to influence the yen-dollar ratio, no matter how much the opposition engages in blame politics."
While resigned to slow growth for the near future, the governor said he is determined to diversify Hawaii's economy into "niche" sectors such as high technology, telecommunications and specialized health care, which, while not replacing tourism, would help reduce dependency on it.
In predicting victory in November, Cayetano recalled that in 1994 he was 30 points behind his GOP challenger, former representative Patricia F. Saiki, before getting elected to his first term. However, his critics point out that he won that race with just 36 percent of the total vote and is even more vulnerable this year because of the economy.
"You can't be too concerned with what other people think of you. You can only be governor for eight years anyway, and if I'm not elected I'll walk away feeling pretty good about what I've done," Cayetano said.
What he has done, the governor said, is "make life better for people" by maintaining and improving the social services safety net for which traditionally liberal Hawaii long has been known and which has led conservative critics to brand the state the "People's Republic of Hawaii."
Hawaii ranks third in the nation, behind Alaska and New York, in per capita government spending. Of state and local governments with more than $1 billion in general revenue, it has more public employees per capita than any except Washington, D.C., and New York City.
Cayetano said he is unwilling to abandon social services and protections for Ha waii's environment just to improve the business climate. "People who are accustomed to state governments that will do anything to attract business, even at the expense of compassion, don't understand," the governor said.
However, to Oscar Peralda, a 44-year-old father of three children who works back-to-back shifts cleaning offices in Honolulu's Bishop Street financial district, the balance between governmental compassion and fiscal restraint seems abstract.
"I don't know why it costs so much to live here. We go to swap meets for our clothes, because the stores are so expensive. It's hard," said Peralda, as he rested briefly on a shopping plaza bench between jobs.
With his wife's full-time job, Peralda said he has a family income of $42,000 and a monthly apartment mortgage of nearly $1,200. With Hawaii's top personal income tax rate of 10 percent punishingly applied beginning with incomes of $41,000 a year the third toughest scale in the nation Peralda said he has been unable to keep up with his bills.
Russell Yamada, a certified public accountant lunching at a downtown noodle shop, said he thinks "people are looking for places to put the blame, and to an extent I blame the government. They shape the policies that lead the economy where it's headed."
Amid this apparent voter unease, Lingle, the 45-year-old mayor of Maui who made her mark by streamlining that island's budget and creating jobs, is preparing to put Cayetano and Hawaii's entrenched Democratic Party to the test as the presumptive Republican candidate.
"The people don't hold anything against him personally," Lingle said of Cayetano, the first Filipino American elected governor. "But he's going to have to accept responsibility for what hasn't been done to turn things around, just like if the economy was good he would take the credit."
The question of what hasn't been done has focused on an ill-fated economic stimulus package hammered out last fall by a 27-member task force of business, labor, government an d education leaders, which at the time was heralded by the governor as a "historic agenda for change."
Essentially a supply-side stimulus plan, the package originally included proposals to slash corporate taxes, reduce the top marginal rate of personal income tax by 40 percent and offset those revenue losses with a countervailing rise in the state's general excise tax that would shift some of the burden to tourists.
But what came out of the legislature was far less than the task force envisioned. The top income tax rate was reduced gradually over four years, diluting its stimulus effect; the proposed countervailing excise tax increase fell victim to a heated "no new taxes" campaign by opponents; and many recommendations for deregulation, streamlining government and privatizing public services were either watered down or abandoned.
Leroy O. Laney, an economics professor at Hawaii Pacific University and vice chairman of the state Council on Revenues, said the problem is that Hawaii's economic downturn has been so long and gradual that people have become accustomed to it. Until the state experiences the kind of wrenching crisis that demands bold action, meaningful economic reforms are unlikely to be made by a party as deeply entrenched and dependent on organized labor's support as is the Democratic Party, he said.
The Republicans, meanwhile, would like the shock to come in November, when Cayetano will be seeking a second term under the most unfavorable conditions faced by any governor here.
"If it's ever going to happen, it's going to happen now. The economy makes people get involved in a system that maybe they've ignored for a long time," said Donna Alcantara, chairwoman of the state Republican Party.
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