‘Looming Financial Crisis’ Ahead for Hawai‘i as Tax Revenues Plummet

Hundreds of thousands of jobs have been lost. Thousands of businesses have shut down, some for good. Tax revenues have plummeted by hundreds of millions in just months since COVID-19 arrived in Hawai‘i.

And Gov. David Ige on Monday said the worst is yet to come.

The Council on Revenues predicts Hawai‘i will lose out on $2.3 billion in tax revenues over the next 12 to 15 months.

Hard numbers were also provided Monday. In June of 2019, Hawai‘i collected $644 million in taxes compared to $483 million this year. A total of $7 billion in taxes were collected in the fiscal year 2018-19, while that number dropped to $6.5 billion in FY 2019-20, which ended on June 30. The entire drop can be attributed to the months of April, May, and June, when COVID-19 was in full swing across the islands.

The projected $2.3 billion decline, which would represent nearly a 33% decrease in tax revenues from FY 2018-19 (the last fiscal period unaffected by COVID-19), will necessitate hard decisions at the state level as CARES Act funding begins to dry up. Hawai‘i’s coffers have been bolstered to the tune of more than $4 billion in federal funding since the pandemic began.

“Everything is on the table in order for us to balance the budget,” the governor said during a press conference Monday. “We’ll have to look at potential cuts.”

The state will implement a freeze on vacancies and hiring, meaning as people leave government work or retire, their positions will remain open in the interest of salary savings. Traditionally, between 1,000 and 2,000 government employees retire annually, Ige said.

Hawai‘i will also borrow money from the US Treasury Department through a municipal loan program. Borrowing terms are capped at three years, however, meaning whatever money is borrowed must be paid back in relatively short order — a reality that will mitigate lending options.

Ige said payroll savings would be the “last part” of the state’s initiative to balance its budget, which is required by law to be evenly balanced every year. Payroll savings could include layoffs or pay cuts to government employee salaries.

A reduction in manpower will impact state-provided services and complicate the state’s “looming financial crisis,” as the governor described it, via an increase in the need for programs like Medicaid and the distribution of food stamps on a massive scale.

Financial concerns extend beyond what the state can collect in tax revenues to the amount of money in the pockets of Hawai‘i’s residents. Also drying up are federal plus-up funds, which have supplemented each weekly unemployment check for the state’s more than 200,000 unemployed workers with an extra $600 in benefits. That program will terminate at the end of July.

Some businesses able to reopen since the state and counties began rolling back economic restrictions may also be forced to close, or at least reformat, as COVID-19 cases have surged in recent weeks.

Specifically, the governor and county mayors discussed Monday reimposing restrictions on bars and gyms, locations that have proven particularly favorable for the spread of the virus since reopening their doors.

“We know going to a stay-at-home order again would be impactful,” said Ige, adding he wants to, “avoid that at all costs.”

The Hawai‘i Department of Health (DOH) reported 78 new cases of coronavirus statewide over the 4th of July weekend. DOH Director Dr. Bruce Anderson said Monday there is more evidence of community spread in recent days, as cases not connected to clusters are popping up more frequently — though the majority of cases are still connected to clusters and/or are travel-related.

Hawai‘i COVID-19 Counts as of noon, July 6, 2020

“Right now, these higher case counts are manageable and we … anticipated them,” Ige said.

What happens when Hawai‘i makes it easier to visit the state next month will be harder to anticipate.

A pre-testing protocol that will allow trans-Pacific travelers to return to the islands and avoid quarantine restrictions remains scheduled for implementation on Aug. 1. The return of visitors to the state in large numbers is widely considered the greatest potential boon to Hawai‘i’s floundering economy under the pandemic.

However, with COVID-19 surges pushing infections in several mainland states to their highest totals yet, Ige said plans could be amended.

“We recognize it is about managing the risk to our broader community,” he said. “We are monitoring what happens. If we see unsafe conditions, we will consider extending that Aug. 1 date.”

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What conditions would prompt such a decision were not included in the governor’s statement.

He added that he believes Hawai‘i is currently prepared to welcome in more visitors, citing hospital capacity and a more robust contact tracing program.

Lt. Gov. Josh Green called the bump in local cases “concerning,” but said the surge has not produced significant consequences at the hospital-level as of yet.

Only three intensive care unit (ICU) beds are currently occupied by COVID-19 patients, while just two ventilators are being used to treat COVID-19 patients hospitalized with the disease, Green said.

“I can reassure you that, for now, we have a lot of capacity,” he added.

Advanced treatments for COVID-19, such as the use of plasma containing antibodies and the utilization of the drug Remdesivir, which has shown to reduce recovery time, are being employed in the state.  Another medicine that reduces mortality rate is also being administered to patients in Hawai‘i.

Green said personal protective equipment (PPE), aside from gloves, which run out quickly, is not the state’s primary concern. CARES Act funding has provided around $100 million to replenish PPE stores and supplies are being pursued.

Ventilators are also not a pressing concern as of Monday, Green said. Officials have not spent time over the last several weeks attempting to stockpile ventilators in the likelihood of increased need because “numbers are very low.”

The number one concern, Green explained, is the number of cases spiking on the mainland and what can be done to keep as many infected people as possible out of Hawai‘i while still throwing the economy a lifeline.

Planned guidelines for the pre-testing quarantine exemption would allow travelers to procure a COVID-19 test within 72 hours of boarding their planes. If a test comes back negative, that traveler is free to move about the islands immediately upon arrival.

The possibility of shortening the testing window to 48 hours was suggested Monday, but the governor said three days is necessary logistically for the return of test results and to make sufficient plans to travel. Those who do not receive their test results within 72 hours will be made to quarantine until the results become available.

Expanded mask guidelines statewide are also a possibility, the governor said. Honolulu County implemented stricter face-covering protocols last week, requiring masks to be worn in all indoor settings as well as outdoor circumstances where social distancing proves difficult.

A quarantine hotel to help keep incoming travelers who are ill from passing COVID-19 on to whomever they’re staying with is a possibility. However, Anderson said current case numbers don’t yet justify the move.

A Kailua-Kona woman recently contracted the virus, which is believed to have originated with her mother, who was visiting the mainland. As a result, the establishment at which she worked has closed for two weeks.