[Return to the October 23, 1997 articles]
October 22, 1997
I. Hawaii is facing a serious economic challenge
A. "Downturn" is reaching into a seventh year, stretching any conceivable definition of a cyclical downturn.
B. Measures in economic terms
1. Jobs are down, real income is flat, and wages and salaries are declining
2. Business failures are increasing
3. Tax base is flat
C. Also, real measures in "people terms"
1. Reduced ability to fund social and charitable needs
2. Declining ability to provide for needs of citizenry including key infrastructure
3. Opportunities for our children are constrained
II. Issues are structural in nature and need to be addressed at that level
A. Globalization from technology and communications
1. Economy is no longer insular
2. Forces us to be internationally competitive; the alternative is "slow death"
3. Future actions must focus on cost of business, living and government
B. Mandates change in our approaches and structures
1. Change is difficult and will be painful; alternative is much less attractive
2. Requires us to put aside historical group differences and understand that, given our size and position, we must all work together
C. Against this backdrop, Governor, President and Speaker appointed a task force
1. Twenty-six members, drawing from across the community
2. Objective: recommend small number of major initiatives to improve our economy both near and longer term
III. Major issues or objectives identified to stimulate economy, improve performance and competitiveness
A. Reduce cost of living and doing business in Hawaii
B. Improve the regulatory climate and efficiency of government
C. Strengthen the marketing and promotion of our key industry, tourism
D. Make structural changes to improve our school system
Given the importance of the military presence in Hawaii, the continued support of the military and our national defense is an important element in strengthening our economy.
IV. Major structural initiatives
A. Strengthen the competitive position of our tourism industry
1. Provide increased funding for tourism promotion at the $60m (1997 dollars) level and restructure the accountability for these funds
a) Dedicate a fixed proportion of Transient Accommodations Tax (TAT) revenue
i) Raise TAT from 6 percent to 7 percent of hotel rentals
ii) Dedicate 3 percentage points of the 7 percent TAT for tourism marketing
iii) Broaded the TAT base to include timeshare condominiums
b) Establish an executive board to oversee tourism marketing
i) 7 to 11 private and public sector members
ii) Geographic representation to include Neighbor Islands
iii) No more than 10% of budget used for administration
c) Executive Board assumes responsibility and is accountable for the expenditures, contracting out and measurement of fund's impact
i) All tourism marketing activities will fall under purview of the board
ii) Non-research tourism functions in DBEDT would be transfered to the new board
iii) Research functions will be the responsibility of DBEDT
iv) Board will be responsible for annual report on objectives and performance to Governor/Legislature
2. Improve visitor infrastructure and activities
a) Waikiki represents 70% of our largest industry. It is the heart of this industry and has unfortunately lost its strong competitive position due in large part to a lack of investment in infrastructure and attractions.
To insure that Waikiki remains competitive with other destinations, a joint State/City analysis group should be appointed by the Governor and Mayor to address the revitalization of Waikiki. This group would consider:
i) Relationship of Waikiki to adjacent areas of Kakaako to Diamond Head
ii) Infrastructure to support improvement of competitive position
iii) Commitment to major Ala Wai improvement project
iv) Plans for private investment and actions needed to encourage investment in the near term
Specifically, the issue of State/County responsibility for this crucial state asset must be addressed
b) Establish a 10-year goal of securing a major league sports franchise
The effort would be spearheaded by a new privately-funded 501(c)(3) corporation. This organization would draw heavily from the community. The attainment of this goal (and even the pursuit) is important to our position in the Pacific and to our economy. It would also serve as an important rallying point for our community.
B. Make structural improvements in the regulatory process in Hawaii
1. Require that all permits, approvals and licenses have a maximum time frame for review and approval
a) For all licenses, permits and approvals, the issuing agency of department (either State or County) must establish a time frame
b) The license, permit or approval must be granted or denied within that time frame (no extensions permitted); otherwise approval is automatically granted
c) Administrative appeal process with specific time limits would be available at relevant level (e.g., Governor at State and Mayors at County)
Process provides certainty in the time to gain necessary approvals, permits and licenses. Disclosure also provides measures and standards to both public sector managers and private sector users.
2. Eliminate the State Land Use Commission and transfer certain responsibilities to other State units
a) BLNR responsible for conservation district boundaries
b) All other reclassifications and parcel-specific reviews will become the responsibility of the Counties
c) Development standards regarding State-specific interests (e.g. educational issues, State highway, etc.) on non-conservation lands will be established by the State; Single State agency/department (TBD) will be responsible for matching standards against project plan and providing sign-off, rather than approving or permitting
A major issue raised by businesses inside and outside the State is the length and indeterminate time required for regulatory approvals and the duplicative nature of approval processes. These two actions will not only make substantive changes in the process, but also send a strong, proactive signal of the State's intent to improve the overall regulatory climate.
A strong desire was expressed to encourage all agencies and departments - State or County - to adopt one-stop permitting processes and permitting by general rule. The Task Force concurs and will encourage the expansion of this effort (e.g., used successfully by Dept. of Health, etc.) at all levels of government.
3. Prohibit worker's compensation claims related to stress from appropriate disciplinary actions (the Mitchell decision)
C. Position the University of Hawaii as the preeminent institution in the world in key areas to help drive the local economy
1. Restructure the University of Hawaii into a quasi-public corporation with independent accountability; State support to be determined by the Legislature and Executive Branch
a) This will provide additional autonomy to the University to set priorities, own and manage lands, funds and resources, including legal counsel, and encourage a stronger entrepreneurial approach
b) In return, the University will be better able to develop "world-class" standing in key areas and increase the proportion of private funding
2. Establish an advisory Board of Visitors comprising distinguished individuals from around the world
a) Expand the horizon of the University and ability to both relate and market to the Asia-Pacific region
b) Help position the University as a major institution in the Pacific
3. UH will explore actions up to, and including, the acquisition of the East-West Center and position it as the preeminent Asia-Pacific institution in the world and a cornerstone of UH's reputation in this broad arena
a) This would be a major asset for the UH and afford not only survival, but real success for the Center in the face of ever-declining federal funding
b) UH would acquire necessary physical facilities
D. Resolve Hawaiian claims and self-determination issues
Resolution is vital and requires that native Hawaiians and representatives from labor, business, government and the community come together in discussions of this issue for the betterment of the entire community.
E. Strengthen the efficiency delivery of governmental services
1. Create a GAAP-based (Generally Accepted Accounting Principles) government accounting and budgeting system
a) Provide a clear view of the actual costs of providing government services by converting the State's accounting system from a cash to an accrual accounting system including capital charges for fixed assets to promote the efficient use of those assets
b) Change the budget system from an input-based system to an output-based system with tightly specified outputs to be purchased and outcomes sought
c) Improve the overall efficiency of the public sector by providing additional opportunities and flexibility in the delivery of services
2. Reduce duplication of government functions
A major obstacle to an effective and cost-efficient delivery system of government services is the duplication between the State and Counties. It is essential that duplication be eliminated in such areas as:
a) Highway and road maintenance
c) Health & ambulance services
d) Human services
f) Civil Defense
It is the clear recommendation of this group that significant strides be made in this area. Parity among counties should be an important objectives. To achieve this, a group of State, County, and private sector representatives should analyze this issue, determine areas and methods to consolidate, and gain agreement on implementation plans.
3. Support cost-effective government services through managed public-private competition
a) Improve the overall efficiency of the public sector by providing additional opportunities and flexibility in the delivery of services
b) Enable State and county governments to implement public-private competition for government services through a managed process that determines whether a particular service can be provided more efficiently, effectively and economically by a public agency or a private enterprise
c) The managed process shall consider all relevant costs
d) Establish protections for affected State and county employees, and ensure that civil service laws and merit principles are not violated
4. Revise the State procurement code to provide greater flexibility, while maintaining accountability
F. Make structural changes to better empower individual schools to meet their particular community, students and faculty
1. Adopt County-based school boards jointly appointed by the Governor with appropriate confirmation
a) Funding would remain at the State level
b) Four County school boards with 7 members
c) A statewide superintendent appointed and reviewed by the Governor would continue. This superintendent would appoint each county superintendent with concurrence from the County school boards
d) Basic academic standards and guidelines would be set at the State level, but how to best achieve those standards, given the various needs of the local communities, will be determined at the county level
2. Empower individual schools through the strong use of school-based budgeting through a decentralized community-based focus of the county boards, with particular consideration for schools with special needs.
Multiple goals of increased accountability and decentralization are achieved in this proposal.
3. Establish two major strategic priorities for the County Boards and individual schools:
a) Instill a world-class focus on the Pacific Rim into the curriculum of all schools
i) Establish goal of second language competency for all high school graduates by the year 2004
ii) Utilize non-certified instructors in foreign language for this purpose
b) Create a world-class technology infrastructure and education focus in all schools
i) Establish computer literacy for all 8th grade students by 2000
ii) To fund program, private sector commits to $10 million to provide computer/network technology in schools throughout the State
4. Within existing labor-management relationship, restructure principal/vice principal framework in two areas:
a) Revise compensation program to provide pay relating to identified performance measures
b) Provide significant flexibility in assignment of principals to match school needs with individual skills
All groups agreed to work toward this in arenas of management, collective bargaining, legislation, etc.
5. Focus school boards, school management, faculty, parents and community on two fundamental issues in public schools
a) Create "low tolerance" approach to discipline in public schools
b) Establish programs to encourage (strongly) parental participation in day-to-day education
The focus needs to be reflected in (1) legislation to provide support to faculty and management in discipline in schools and (2) performance measures at the school level, (3) incentive compensation.
6. Continue the Hawaii School-to-Work Opportunities program after federal funding ends in 1999 through private sector funding
The School-to-Work program represents a structural change to the present school organization and concentrates on preparing students for careers. The interaction between all levels of schooling and with the private sector has greatly improved th applicability of schools to the workplace.
As part of the public/private sector partnership the school system would encourage participation in the program and the private sector would provide funding.
G. Restructure the tax system, achieving significant reductions
1. Major shift to provide benefits to our citizens and attract new investment
a) Top marginal income tax rate reduced:
i) Initially from 10% to 7%
ii) After three years, further reduced to 6%
iii) All other rates reduced proportionately
b) Provide nonrefundable tax credit for those with low modified adjusted gross income below $20,000
Income tax burden will be reduced by 40 percent or $400 million after three years.
c) Reduce pyramiding of the GET (taxes on taxes) which is a major issue with smaller businesses (a tax saving of $158 million annually).
d) Corporate income tax and franchise tax rates cut in half (saving $40 million). Corporate income tax rates drops from a top rate of 6.4% to 3.2% (to lowest top marginal rate among states with a corporate income tax)
e) GET is raised from 4% to 5.35%
f) Exempt exported services from GET to place exported services on the same basis as exported goods
g) Impose GET on imported services to place it on the same basis as imported goods
2. Near-term stimulus of $100 million tax decrease, reaching $200 million in three years, while preserving core of essential and important governmental programs and services
The impact is a greatly reduced tax burden on Hawaii by reducing tax rates and shifting burden to outside the state AND a much enhanced ability to attract new investment which is essential to growing real income or creating opportunities today or tomorrow.
[Go to the October 23, 1997 articles]
July 22, 1997
Help Wanted: Hawaii's Economic Crisis