Electric rates keep cost of business high

THE ISSUE Soaring electrical rates have put Hawaii business costs far above those in other states.

DESPITE a healthy economy and apparent attraction to large retailers, Hawaii not only remains the costliest state in which to do business but is widening the gap between it and other states, according to a new rating. A major cause is Hawaii's commercial electricity costs -- more than 2 1/2 times the national average. Companies understandably have begun using their own generators to reduce costs and should not have to pay a "standby" fee as proposed by Hawaiian Electric Co. earlier this year.

The Los Angeles-based Milken Institute, a centrist think tank that has ranked states according to the cost of doing business, rated Hawaii as most expensive two years ago, giving it a score of 143.1 indexed to a national average of 100. The state's score rose to 148.4 last year and now has reached 150.1 -- more than 20 points above three states -- New York, Alaska and Massachusetts -- virtually tied for the runner-up slot.

Payrolls are given 50 percent weight in the formula, and Hawaii's $38,526 average salary is actually $1,500 below the national average, according to the Milken Institute. However, the islands' commercial electricity costs of 19.8 cents per kilowatt hour, up by more than a nickel in the past two years, compares to a national average of little more than seven cents.

The institute figures that businesses' tax burden is about 50 percent above the national figures. So are office rental costs, which rose slightly as the vacancy rate dropped last year to its lowest year-end level since 1991.

Warehouse rents in Hawaii remain at nearly triple the national average. Colliers Monroe Friedlander reported at the end of last year that developers had not entered the market with "speculative construction" because of "rapidly rising land prices and the jump in construction costs."