Help Wanted - Hawaii's Economic Crisis

Lessons to be Learned

California shakes
recession’s tight grip

By Rob Perez

Talk about a dismal economy.

Businesses were closing, downsizing or moving away. Thousands of jobs disappeared, bankruptcies soared, and workers compensation reform became a rallying cry.

The state wasn't helped by national media reports focusing on its lousy business climate.

What's more, the area's quality of life seemed to be on the decline: Crime was up in many areas, city traffic was worsening and schools suffered from tight budgets.

Sound familiar? A snapshot of Hawaii today?

Could be. But it isn't.

That was California several years ago. In the early 1990s, the Golden State suffered from a stubborn recession that it couldn't shake even as the rest of the country was booming. (Sound familiar?) In 1992, at the depth of the downturn, California lost more than 200,000 jobs.

From doom to boom

Today, the state is booming. Its economy is creating about 1,000 new jobs every day. More than 300 companies have expanded or relocated to California so far this year, a record-setting pace. New business incorporations are up about 15 percent.

How did California do it? And does the strategy have any relevance for Hawaii?

The answers depend on whom you ask.

Some say state measures aimed at improving the business climate helped propel the turnaround. Included in the strategy: having the public and private sectors work together to make California industries more competitive.

Critics say such initiatives had little to do with the recovery.

What do you think?

California's aerospace, construction, finance and retail industries simply stopped falling, enabling other industries -- such as entertainment, technology and tourism -- to propel the economy without a drag, said Stephen Levy, director of the Center for the Continuing Study of the California Economy.

Whatever role the initiatives played, they underscore the notion that the public and private sectors can take action to help improve the business climate -- a message that is just as valid in Hawaii, even with its unique economy, as anywhere else, experts say.

Some of the California initiatives:

Overhauled the $11 billion workers compensation system to, among other things, tighten when such insurance kicks in and change the way certain rates are set. The reforms have saved employers $4 billion in premiums while increasing benefits to injured workers, said Michael Marando, spokesman for the California Trade and Commerce Agency.

Streamlined the permit process, in some cases shaving months off the time it takes for businesses to get required approvals from multiple agencies.

Adopted tax reforms, including a 5 percent cut on corporate rates and significant increases for credits on research and development.

Increased trade missions to Asia, resulting in commitments for millions of dollars in foreign investments and new overseas ventures for California companies.

Launched a privately funded $18 million national advertising campaign dubbed "California -- The Climate's Right."

Set up "red teams" of government and business officials to address concerns of companies considering leaving California or contemplating moving into or expanding in the state. The teams helped in the retention or creation of nearly 100,000 jobs since 1992, according to the state.

Limited isle resources

Hawaii has taken similar action in some cases, like increasing trade missions to Asia, and is in the midst of streamlining the government bureaucracy. It is still grappling with workers compensation reform.

But many things that California and other big states do to attract or retain jobs often are beyond the resources of small states like Hawaii.

When Packard Bell in 1994 threatened to move an earthquake-damaged manufacturing operation in Southern California to Utah, taking 3,500 jobs with it, government and business representatives joined forces and offered the computer maker a $26 million incentive package to relocate the plant to Sacramento. Among the enticements: moving expenses, low-interest loans, reduced utility rates and property improvements.

Packard Bell accepted the deal and in 1995 moved to a former Army complex shuttered as part of military cutbacks.

Ann Blackburn, a marketing expert with Ernst & Young Kenneth Leventhal in San Francisco, said the public and private-sector initiatives made a big difference in California's recovery, stemming the flow of businesses moving away and helping change the state's anti-business image.

"We finally woke up," she said.

In the San Francisco Bay area, which Oahu officials have turned to as one model for a recovery strategy, public-private partnerships were critical for regaining economic momentum, said Sunne McPeak, chief executive of the Bay Area Council, a public policy group representing the region's major employers.

The partnerships helped bridge political and other differences among the nine-county region -- mayors of some cities weren't even talking to each other -- and focused on its strengths and what needed improvement to enable the economy to prosper, McPeak said.

Hawaii has to go through the same process, she said.

"There's no outside expert who can tell you how to do it. Everyone just has to roll up their sleeves and get to work."

Coming to town

Key benefits that attract businesses to places with high job growth:

Associated Press
New homes being constructed at Willows Village
in northwest Las Vegas.

Las Vegas: 7% annual job growth over past five years. No state corporate tax, personal income tax, inventory tax, unitary tax or inheritance tax. Computer literate work force. 7% sales tax waived or deferred if certain guidelines met. Regulatory structure very pro-growth.

Provo, Utah: 5.5% growth. Highly educated work force (anchored by Brigham Young University), low crime rate, desirable living environment. With 2% jobless rate, rarely needs to offer incentives. City funds available for start-up companies, many using technology developed at BYU. No state payroll tax. Corporate income tax among lowest in country.

Fort Worth, Texas: 2.7% growth. Innovative work force training program. Area companies surveyed on what jobs opening in next few years, which are hardest to fill, and what skills are needed for those jobs. Local schools use survey results to adjust curriculum to match needed job skills.

By Horace Hunt III, Special to the Star-Bulletin
Downtown Boise is "Alive After Five," featuring entertainment
every Wednesday night during the summer.

Boise, Idaho: 5.7% growth. Desirable living environment. Relocation assistance, investment tax credit, employee training funds available. State data gives employers snapshot of how many potential job candidates are qualified for specific jobs.

Source: Cities, economic development organizations

Workers pay the price
of high business costs

By Rob Perez

It's not a quick fix, not by any stretch of the imagination.

But if Hawaii wants to stimulate job growth over the long haul, it must cut the cost of doing business here, according to a Pennsylvania economic research firm that did an analysis of employment growth in 100 metro markets across the country.

Regional Financial Associates found that the cost of doing business over a five-year period is the primary factor for determining whether an area will have above-average job growth.

Low-cost cities tend to boom; high-cost ones grow slowly, if at all, the company concluded.

Not surprisingly, Honolulu fares poorly by such a measure.

Next to New York, it is the most expensive place in the country to do business, topping the U.S. average by 20 percent, Regional Financial determined in its 1996 survey. It also had the third-worst employment growth rate from 1991-96, losing an average of 0.6 percent of its job base each year, the research firm says.

National job growth during that same period increased 2 percent annually.

"If you want to stimulate your growth, you lower your costs," said Patrick Howie, an economist with the company.

That's easier said than done.

Oahu businesses have long complained of high costs here but say little has been done to lower them.

Honolulu ranks in the top seven most expensive markets nationally in three of the four areas Regional Financial analyzes to calculate its cost index. Honolulu is near the top for office rents, energy costs and taxes. Its labor costs rank No. 40, presumably because of lower-paying jobs in the service industries here.

While many factors affect energy, labor and office costs, government has direct control over tax rates. Honolulu's state and county taxes are the third highest in the country, according to Regional Financial.

No one disputes that lowering taxes helps existing businesses, which can lead to more jobs.

But lower taxes and a streamlined bureaucracy are not major factors in attracting companies from "clean" industries that Hawaii and most other states have targeted, said Stephen Levy, director of the Center for the Continuing Study of the California Economy.

A top education system, skilled work force, high quality of life and good infrastructure are much more important in wooing high-tech companies and their high-skilled, mobile workers, Levy said.

"These are people who can live and work anywhere in the world," he said. "If you have low taxes and a lousy place to live, you won't get a work force."

Howie acknowledged that lowering business costs would not automatically result in long-term job growth. But if costs aren't reduced, Hawaii stands little chance of topping the national average, he said.

The cities that had the highest growth rates over the past five years also had some of the lowest costs. Las Vegas, which led the nation with 7 percent annual growth, was ranked the 10th least expensive place to do business. Its costs are about 10 percent below the national average.

High costs, less job growth

How has the slump affected you?

Dan Foley, Attorney

A slow economy has meant less money to retain lawyers, said Dan Foley, a civil rights attorney whose clients include prisoners.

He said he has had fewer prisoner clients, who need help with parole or post-conviction matters, for which he charges about $5,000. Foley said prisoners often rely on relatives to scrape together money for legal assistance, adding: "Once they hear the fee, they can't afford it."

He said he hasn't changed his practice or reduced his fees, even though he has had fewer prison cases. "You have less," said Foley, whose family includes two boys ages 11 and 9.

Foley said the slowdown has affected lawyers in commercial, real estate, business and criminal areas. He said many criminal lawyers have lowered fees and some larger firms have reduced the number of staff lawyers.

Dubious Distinction

Oahu ranked as the seventh
worst county in the nation for
job losses in 1994.

Source: Commerce Department

Wanted: Your comments
What needs to be done to help Hawaii emerge from
its prolonged slump? Write to us at Letters to the
Editor/Economy, P.O. Box 3080, Honolulu, HI 96802
or e-mail us at and share
your suggestions. Please include your
daytime telephone number.

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