Cayetano: 'We must restructure' economy

JANUARY 26, 1998


President Mizuguchi, Speaker Souki, Chief Justice Moon, Lieutenant Governor Hirono, members of the Nineteenth Legislature of the State of Hawaii, Mayors of the Counties, members of the consular corps, honored guests, ladies and gentlemen, aloha.

Ladies and gentlemen, allow me to introduce a very special person in my life First Lady Vicky Cayetano.

In 1997, I married a wonderful woman. I was also rescued by paramedics. And our state experienced a seventh year of economic problems. Otherwise, my year was no different than a lot of people's.

We're all trying to make our lives better. Do our jobs well. Pay the bills. Take care of our families, and find room for simple pleasures.

We don't have to tell the people of our state about tough economic times. They know we're in stormy waters. In my first State of the State speech, I said the state's budget problems were unprecedented. Now we know we are dealing with an even more challenging and complex set of issues.

I want to suggest that these issues, taken together, constitute the beginning of a new era. Take a look back to the economic and political turmoil that followed World War II. Then, we struggled to adjust to abrupt change and become full participants in the national economy. Now, we're struggling to become full participants in the global economy.

For all our difficulties, I suggest that something extraordinary is happening. I believe that, as a community, we have been through enough to see what it is that we must do. We can see the outline of this new era.

And if we can see where we must go, then we have reason to proceed with hope of success.

Like the ancient Hawaiians, we know we cannot control the storm but we can control our boat, and where and how we steer it.

We know that doing the right thing is seldom easy. We know we are in this together. We know that government alone cannot solve our problems.

Make no doubt about it. We are engaged in a total community effort.

What lies ahead may be the most difficult challenge our State has ever faced. But I have faith in the good judgment of Hawaii's people.

If we speak candidly, they will respond, because they know it's better to take action than to do nothing.

Before I talk about the future, I want to thank you. By working together, this administration and this legislature have already demonstrated a capacity for getting done what must be done.

We've reduced workers' compensation rates by more than 37% in two years, saving employers about $100 million.

We've reduced auto insurance rates from 25 to 35%, which will save the individual driver anywhere from a $100 to nearly a $1,000 dollars.

We've already built four new schools, five more are under construction and two are being designed. And we've cut in half the time it takes to build them.

We built the world-class Hawaii Convention Center, on time and on budget.

In the past four months, we've pushed out $335 million dollars in much-needed public works; and that's just the beginning of an effort that will create more than ten thousand jobs.

Finally, the state government has gotten slimmer. We've reduced the growth of government from eight percent a year to less than the rate of inflation, or about 1.6%. In 1994, state operating expenditures represented 17.5% of the Gross State Product. We've cut that figure down to 13.5% in 1997.

And our State workers are doing far more with less. Today, we have two remarkably dedicated state workers, who are good examples of what I'm talking about.

Fiatele Bell is the state employee of the year. Fiatele is a custodian supervisor at Dole Intermediate School, and she constantly goes that extra mile. She's created a school garden to enhance learning and involved community members in the process. John Moses is a maintenance supervisor at Hilo Harbor. John hasn't taken a day of sick leave for the past thirty years. John and Fiatele, please stand. We all join in thanking you for being such great public servants.


We know we can tackle tough problems. But problems keep coming at us.

We're entering our eighth year of a nearly flat economy. Since 1990, we've lost 12,000 construction jobs. Six plantations have closed. Too many businesses are failing. And our tax base is flat. We became accustomed to the long post-statehood economic boom. Between 1970 and 1990, we grew four to six percent annually compared to less than three percent for the mainland. On average more money was invested in Hawaii than across the United States. Outside investment in Hawaii created so many new jobs that half of them were filled by in-migration.

As the economy grew, so did government. But during the last seven years, this investment-driven growth has come to a virtual stop. We therefore must turn to becoming more productive. On the mainland our sister states worked themselves out of severe economic recessions by doing just that. And that is what we must do.

We cannot control events in Asia or on the U.S. mainland, but we can help ourselves become more productive.

Productivity means creating an environment in which businesses will succeed. Productivity means using technology so that our products and services can compete with anyone's. It means providing an education that fuels initiative and innovation.

To restructure the economy and improve productivity, the President, the Speaker and I formed the Economic Revitalization Task Force.

We propose to more than double the state's commitment to marketing Hawaii's tourist industry by earmarking three percent of the hotel room tax. That's about $60 million dollars a year to get our name out there and compete.

We also proposed major changes to our tax system. Our tax package sought to accomplish three things:

First, to provide Hawaii's residents with the biggest tax cut in the state's history.

Second, to reduce our income tax rates so that Hawaii can compete with other states for new jobs and investment.

Third, to reduce the pyramiding of our excise tax to lower costs for businesses in Hawaii.

The combined effect of these recommendations would have resulted in a 20% reduction in general fund revenues. Such a huge cut would cripple our ability to provide essential services to our people. To replace a portion of our revenues, we recommended that the gross excise tax be increased to enable us to export about 25% of our general excise tax burden to non-residents.

Under our tax package, virtually every resident who pays taxes will benefit from these reforms. Even poor people, with no income, will benefit. As a result, we believe businesses will invest in Hawaii and create jobs.

The package will shift government spending to private spending. It will put dollars directly into the hands of consumers and investors.

Hawaii Business Magazine labeled this package "dead on arrival." If that is true, then our economy is dead in the water. We can't let that happen! We must focus on getting the job done.

Economic recovery is a work in progress. We've had a lot of input. We've heard reactions. We've held town meetings. Now the discussion must come to fruition.

Let me state clearly, my administration will work with you and the public to make this a better package.

I understand the concerns about the increase in the general excise tax, but if there are fairness questions let's iron them out. If the proposed tax changes fall unfairly on any particular group, let's make adjustments. That is what the legislative process is all about.

Critics of the tax package would have us believe that this was the work of an elitist group. Far from it, 150 people from all walks of life volunteered their time and expertise to develop the Task Force package. And, whether one agrees with the recommendations or not, these citizens deserve our thanks, rather than criticism.

Moreover, respected organizations such as the Business Round Table, the Chamber of Commerce, the Retail Merchants Association, the Construction Industry Legislative Organization along with 19 labor unions came forward to support the package. Each one of these organizations represents the faces of people who have lost their jobs over the past seven years. Every one of them have concerns about the Task Force's package--but every one agrees that the package is the best starting point yet proposed for revitalizing our economy.

In his column in the Honolulu Star-Bulletin , Bud Smyser cautioned against allowing our emotions to overcome reason. And he put everything in perspective when he said that the most burdensome tax on the poor, is a poor economy.

Let me be very blunt. Things are not going to change unless we take decisive action.
This year we will be able to manage the budget, but a cloud hangs over the coming biennium. The projection now is for a shortfall of $280 million in the first year and $240 million in the second.

My friends, we must turn things around.


Up to this point, we've been trimming budgets to cope with the loss of revenue. There isn't much left to trim, so now we must restructure. We must change not only the size but the shape of government.

Members of the legislature, more than anything else under your control, the restructuring of government can contribute to revitalizing our economy.

Once again, this is a case where we know what needs to be done.

We must set a standard of evaluating government by how it serves the public, as opposed to how government serves itself. Our services need to be more accessible and require less run-around. We must consolidate departments.

I will present, for your consideration, a proposal to consolidate three departments -- Accounting and General Services, Human Resources, and Budget and Finance -- into two departments.

In addition, we have departments devoted to developing and regulating business. Counting agriculture, we have three departments involved in business. Therefore, I will propose consolidations in this area as well.

Next week, I will send you a message that will list the state agencies and programs that we propose to eliminate.

You may be surprised to learn that $450 million of our current budget is privatized. Let me assure you, we will continue to pursue privatization where appropriate.

For example, I am proposing a 2,300-bed prison to be located at Ka'u on the Big Island. This prison will be built with private funds and possibly managed by a private firm. Today, we spend about $79 per day for every prisoner. With this new program, the cost will be $50 per day. This will save us $23 million dollars a year.

Besides meeting our need for more prison beds--the new prison will create hundreds of new construction jobs to build it--and hundreds more to run it. It will be a great boost to the Big Island's lagging economy.

Our proposal to eliminate the State Land Use Commission has attracted a lot of criticism. It's evident there is a widespread community feeling that the Land Use Commission is a protection against the wrong types of decisions. But if we are not going to eliminate the Commission, we must acknowledge there are legitimate complaints of inefficiency and duplication of function with the counties. And therefore, I call on those who have opposed elimination of the Land Use Commission to join us in finding reforms that will lead to greater efficiency.

Government reform is hard work, but it pays off.

For example, in welfare reform, nearly 7,000 recipients now are working, a
figure which is double that of last year. Last week, 18 welfare recipients went to work for A T & T, in good jobs with good futures. Despite our economic problems, we have already exceeded the federal reform standard for welfare recipients returning to work.

The federal government has ranked our Department of Human Services first in the country for accuracy in paying Aid-to-Families-with-Dependent-Children, and second in managing the Food Stamp Program. And I thank the department's hardworking employees, who like all state workers are doing so much more with less.

When I became governor three years ago, I took a long look ahead and set priorities. I set my sights on three areas. The first was exploiting the potentials of telecommunications. The second was what we call, broadly, quality of life. The third is the role education must play in the future.


Hawaii's relatively isolated location in the middle of the Pacific underscores the importance of a first-rate, state of the art telecommunications system. Without it, Hawaii's ability to grow as a hub for business, culture and education would be greatly limited. Three years ago, we embraced deregulation of telecommunication. And the development of our telecommunications infrastructure and industry has been truly remarkable.

We've gone from having only one wire-based monopoly to having nine major "telecom" competitors. Moreover, more than a hundred small telecommunication vendors have been created, representing more than $1 billion in investment.

Today, Hawaii has more fiber optic cable per mile than any state in the nation. By September, Hawaii will be one of only five states with all-digital switching.

The University of Hawaii has become a national leader in distance learning. And more than ever, the dream of the Western Governors' (Virtual) University stands to become a reality.

The importance of telecommunications was highlighted two weeks ago when a timely exchange of medical information between Maui and Oahu saved the life of a prominent citizen, "Pundy" Yokouchi.

Also two weeks ago, Hawaii took a huge step when the Weinberg Foundation gave our hospitals a $10 million grant for the purchase of telemedicine equipment. This grant will establish a telemedicine network, which will link all of our hospitals and clinics. It will allow the sharing of important medical services and resources throughout the state.

And it will add greatly to our vision of establishing Hawaii as the premier healthcare center of the Pacific. When completed, this exciting network will be the first in the nation. I will submit legislation to you this session to make this happen.


Last year, two NASA astronauts visited Hawaii. From their spacecraft, they reaffirmed what we know to be true here on earth -- that Hawaii is the most beautiful place in the world.

Protecting our environment has been a top priority for my administration. Last session, I asked you to increase the budget for our ocean and marine programs. In spite of revenue shortfalls, you demonstrated your commitment by providing more funding.

Early this year, we will acquire Ka Iwi Beach, on Oahu's eastern shore, settling that issue once and for all.

Last year, I approved a five-year, conditional agreement with the federal government expanding our whale sanctuaries throughout the state.

And to protect Hawaii for future generations, we developed a Sustainability Plan, targeting the long-term management of key resources such as drinking water, open space, coral, fisheries, forests and beaches.

You've heard a lot about economic development, but let me reaffirm here and now, that we will not pursue economic growth which destroys the environment that has made Hawaii the most beautiful place in the world.


As an ocean state, Hawaii's waterfront, harbors and shoreline are important and critical resources.

We are transforming the Kakaako Makai District into a park-like environment. The Children's Museum and Performing Arts Center will be coming up soon. We're looking at plans for a Hawaiian Music and Culture Center, and we're looking at a plan for a new aquarium.

I've directed my staff to work with investors on incorporating high-tech infrastructure in all new business construction in Kakaako Makai. Our vision here is to create an atmosphere much like the Microsoft campus in Seattle. Research and development firms will work on the technologies of the 21st Century in the greatest setting in the world.

But although we've made progress, our attempts to manage, enhance and protect these resources have been hampered by the fact that those responsibilities lie in four different state agencies.

As a result, prime resources such as Keehi Lagoon, for example, suffered from overlapping jurisdictions, sometimes conflicting goals and a lack of an integrated, comprehensive strategy for our waterfront, harbors and shoreline.

To resolve this problem, I will send you legislation, which will consolidate four existing state agencies -- DOT's Harbors Division, the Hawaii Community Development Authority, the Aloha Tower Development Corporation and the state Small Boat Harbor Program -- into one quasi-public body.

This body, the Hawaii Maritime Authority, will be run by a board of directors empowered to develop and finance projects of long-term benefit to Hawaii. Such authorities have worked well on the mainland and I believe it will be a great improvement over the existing system. I ask for your support of this proposal.


Just as we have with telecommunications and the environment, we're taking the long view on the entire subject of education.

We gave the teachers a much deserved pay raise.

For a long time I've known that Hawaii students spend far less time in the classroom than their Mainland counterparts. For example, when you add up the hours, students in Iowa spend twenty more days in the classroom than our students, in the course of a school year.

As a result, by the time a child in Hawaii gets to the ninth grade, our student will be a year behind the student in Iowa. Therefore, I was delighted when the teachers agreed to teach seven more days a year. It was a step in the right direction, and I believe it will turn out to be our most significant education reform of the decade.

Many proposals of the Economic Revitalization Task Force apply directly to our schools.

We propose a private-public partnership that will enable all 8th grade students to be computer literate by the year 2000. Toward this end, the business people on the Task Force pledged to raise $10 million for a computer fund to put 10,000 more computers in our schools.

We propose to decentralize our public school system by establishing four county boards of education appointed by the governor. We want the schools to be more accountable to the surrounding community, and we want parents and communities to take more responsibility for the education of their children.

We propose to make the University of Hawaii a quasi-public institution, virtually a fourth branch of government. We want the university to become more entrepreneurial and to become a leading contributor to the growth of our economy and to have the freedom to become one of the greatest universities of the Pacific.


The slogan, "Think local, act global" has special meaning for us. Precisely because we cannot control external events in this global era, we must return again and again to what we can do for ourselves.

People already work hard. We can't say to someone working two jobs, "Work harder." But we can set strategies as a community and work smarter.


The stress and challenge of this new age falls not only on government employees but those of the private sector as well. Therefore, I want to salute the thousands of people in the private sector, who have dedicated themselves to doing a better job and becoming more productive.

For example, at the Kaanapali Beach Hotel on Maui, everyone from custodians to the activity director studies Hawaiian culture, and all contribute to the whole, with phenomenal results. Their losses to workers' compensation are 87% below the industry average, and the hotel's occupancy rate is 22% higher than the Maui average. The Kaanapali Beach Hotel just received recognition as one of the two best values among hotels in the entire world. Of course, the General Manager of this hotel is your colleague, Representative Mike White.

Over in Kalihi, the International Brotherhood of Electrical Workers Local 1186 is building on a long tradition of training programs, sponsored jointly by the electrical contractors. They not only study blueprints for wiring, but blueprints for the most efficient approaches to work, such as critical path and minimizing rework as defined by Edward Deming. These are examples of creating our future, and it's something that must happen every day.

Rather than look to one big solution, such as a new industry, we must take hope from a wide range of opportunities.

I have hope when I hear that our new high-tech firms -- Square USA, Uniden and Buzzeo Inc. -- are hiring many of their new employees from the University of Hawaii's School of Engineering.

I have hope when I'm informed we have 40 advance bookings for our new convention center.

I have hope when I see our local farmers growing quality fruits and vegetables and selling all they can grow.

I waived the airport landing fees for two years. And now I derive hope from the fact that Continental Airlines is launching new direct flights from New York and Houston to Honolulu. And United Airlines has renewed its direct flights to Kauai.


During the summer of 1998, we will observe the 100th anniversary of America's annexation of Hawaii. Nineteen ninety-eight can be a year in which we advance the education process regarding the complex issues surrounding the history of Native Hawaiians. We can develop a greater shared understanding, and we can search for approaches to resolution.

To those who are thinking, "Enough! Let's wrap this all up," I want to choose my words very carefully. I agree that resolving the status of native Hawaiians is absolutely an overriding priority. But this process cannot be rushed.

Discussion of annexing the nation of Hawaii began in the middle of the 19th Century. It was brought about in 1898 against the will of the vast majority of the Hawaiian people. Therefore, we cannot realistically hope to neatly wrap up all the issues resulting from a hundred-plus years of history, after only a few years of discussion.

Broadly based efforts are now under way within the Hawaiian community to develop a model for Hawaiian sovereignty. Today I urge the full spectrum of the Hawaiian community to join in this unique and historic undertaking.

As governor, I do not possess the answer, nor should I. But as governor, I am steadfastly committed to a process that is full, that hears all opinions and educates all people. We should allow this process to take its course.

The recovery of Hawaiian self-determination is not only an issue for Hawaii, but for America. As we pursue this process of education and dialogue, let all of us, Hawaiian and non-Hawaiian, work toward a common goal. Let us resolve that, in the future, we will all stand together, shoulder to shoulder, in Washington D.C., to advance a plan for Hawaiian sovereignty.


I want to comment briefly on Kamehameha Schools/Bishop Estate. This dispute originated from the concerns of teachers, students, and alumni. It arose from a growing determination on the part of the school family to take responsibility for the institution they love.

Recently the news media finally got into focus that the quality of education and the performance of students at Kamehameha Schools has improved significantly. I salute all who contributed.

I asked my Attorney General to conduct an investigation because of the seriousness of the allegations. This clearly is in the public interest. We will perform our work with fairness and conviction, and with a keen awareness that Hawaiians are engaged in bringing new life to their own kuleana.


Before I close, I want to say something simple and fundamental about the future. It comes from the vantage point of my privilege of serving as your governor.

And that is this: We still have a tendency to look upward to some lofty authority, creating an incessant demand that government solve all of society's ills. In terms of our history, I think we still suffer a little from the heritage of territorial and plantation times. Jack Burns referred to it as a "subtle" sense of inferiority.

And, in our family life, we sometimes fear that our children will move away when, in fact, we should be proud to equip them to compete anywhere. In the business world, we see money that is generated in Hawaii too often invested elsewhere while outsiders continue to believe in Hawaii and invest here.

My friends, we must believe in ourselves. We can do it. We have so much to offer the world, and all of us together are the answer.

In 1974, I sat in this House as a freshman representative. During my twenty-four years in public office, I've seen your predecessors rise again and again to meet the challenges of their time. In the process, past legislators and governors helped build a Hawaii which became one of the great societies on the face of this earth.

As we head into the 21st Century, how we meet the challenge we now face perhaps the most difficult since statehood -- now will be the defining moment of leadership for all of us.

We see where we must go, and what we must do. The choices are not easy, but they are clear.

Winston Churchill once said, "All my past life has been but a preparation for this hour." My friends, we are prepared. Now is the hour. Let us seize it.

Thank you.

Monday, January 26, 1998

Text Site Directory:
[News] [Business] [Features] [Sports] [Editorial] [Do It Electric!]
[Search] [Subscribe] [Info] [Letter to Editor] [Stylebook] [Feedback]

© 1998 Honolulu Star-Bulletin