JAMM AQUINO / JAQUINO@STARBULLETIN.COM Nine-year-old Keenan Bustamonte, right, showed his enthusiasm with the help of his sister Meagan, middle, as Gov. Linda Lingle chatted with the children prior to a dedication ceremony yesterday at Onelauena homeless shelter in Kalaeloa.

Vibrant economy not all Lingle’s doing

Experts say the turnaround began in Cayetano's years

Hawaii's vibrant economy -- and a budget deficit turned into a surplus -- are cornerstones of Gov. Linda Lingle's re-election campaign.

But, are the impressive numbers due to her stewardship?

Economists says all the credit doesn't go to Lingle, and there is some disagreement whether the revived economy started with former Gov. Ben Cayetano and even if Hawaii's current boom can last.

Lingle, however, looks at the state economy and sees only success.

She claims personal income grew 8 percent; the gross state product expanded 4.8 percent; 60,000 new jobs were created; nearly 7.5 million tourists came here last year; and Hawaii's bond ratings are all up.

Her administration, Lingle says, cut fees and assessment, saving business $21 million in three years while new employment programs helped welfare recipients get jobs.

Other observers are not impressed.

Lowell Kalapa, the president of the business-funded Hawaii Tax Foundation, calls Lingle's work "a disappointment."

"I don't think we are any better off than we were four years ago," Kalapa said.

Hawaii's economy was already getting better when Lingle took office, thanks to the federal spending for new military housing, Kalapa says.

Also, tourism improved as travelers decided to take safe Hawaiian vacations after the Sept. 11 terror attacks in the U.S. and bombings in Europe, Kalapa speculates.

Mark Babin, the chief financial officer for MMI Realty Services Inc., which manages the Pearlridge Mall, Kahala Mall and Aloha Tower Marketplace, confesses he can't think of any changes in state programs that stand out as assistance for new businesses.

"I look at Hawaii's economy with tourism going strong, construction going strong and the military going strong and I don't see any of that as a direct result of anything the government has done," Babin said.

The biggest change government could do for business, Babin said, would be a change in taxes.

"Two of the biggest costs are real property and general excise taxes," Babin notes.

"We pay the taxes, but we pass the costs on to our tenants, so it becomes a significant expense for them. I think a significant increase or decrease in those taxes can have a significant impact on business," Babin says.

Carl Bonham, executive director of the University of Hawaii Economic Research Organization and a UH economics professor, says that Hawaii's economy reflects national and international decisions, not local government.

Neither Lingle nor Cayetano before her can take credit for the Hawaii economy, Bonham says.

"The external factors -- such as strength of the U.S. economy, declining interest rates, offshore investment in Hawaii real estate and of course, tourism and military -- are simply too large and move in their own direction," Bonham said.

"Lingle-Aiona cannot be totally justified in claiming credit for the robust economy. What exactly has government done that spurred construction of residential housing, primarily on the neighbor islands, the surge in U.S. visitors and the growing military presence?" Bonham asks.

Lingle says her administration forced an "attitudinal change" in state government and that is helping the business climate.

"There is a new respect and admiration for business," she said. "We have created an open-door policy and the Department of Labor has created a more collaborative policy.

"For instance, you see that workers' comp insurance rates are coming down. That is because, instead of OSHA being punitive, businesses are coming in to be prepared for their safety plans," Lingle said.

Paul Brewbaker, senior vice president and chief economist with Bank of Hawaii, agrees, saying, "a small, open economy is swamped by global macroeconomics forces the way Tuvalu may lose to global warming."

Hawaii, according to Brewbaker, began an economic expansion in 1997, not when Lingle took office in 2003.

"Real Hawaii total personal income began growing in 1997 ... the current expansion is about10 years old, not four years.

"Just because the first part of it was a stealth expansion that couldn't get any respect for Gov. Ben (Cayetano) doesn't mean it didn't happen," Brewbaker said.

Lingle and Hawaii, Brewbaker argues, were helped by the "lagged effect of improved economic conditions it inherited."

Brewbaker and others are now warning that Hawaii's economy is slowing.

Brewbaker says residential construction is about to start dropping unless construction can switch from high-end luxury building to middle income and affordable projects in the next six months.

Ronald Taketa, Hawaii Carpenters Union financial secretary, agrees, noting the coming changes in a recent opinion piece in his union's monthly magazine.

"We know that the economic boom that we are enjoying would not and could not last forever," Taketa said.

To rebuild construction, Taketa says the Legislature and the Lingle administration "are committed to rebuilding schools and other public facilities.

He points to pending plans for a mass transit system and the West Oahu campus for the UH as ways to keep the construction industry and economy moving.