Ka Wai Ola - Office of Hawaiian Affairs, Volume 15, Number 4, 1 ʻApelila 1998 — ECONOMIC REVITALIZATION: COMMUNITY-BASED ECONOMIC DEVELOPMENT ABANDONED [ARTICLE+ILLUSTRATION]

ECONOMIC REVITALIZATION: COMMUNITY-BASED ECONOMIC DEVELOPMENT ABANDONED

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The Eeonomie Revitalization Task Force (ERTF), whieh was comprised primarily of top Hawai'i corporate officers, politicians, labor leaders, and ēducators, has.recommended sevetal schemes to "kick-start" the Hawaii economy, by: 1. raising the gross excise tax from 4 to 45 percent, to 1* offset ■ with tax credits to lower ineome resident taxpayers 2. reducing ineome tax rates, proportīonately more for higher ineome brackets 3. enhancing the subsidy for the tourism industry with a $60 million budget funded by an increase in the hotel room tax from 6% to 7.5% 4. eliminating the Land Use Commission, and 5. giving greater autonomy to the University of Hawai'i and publie school systan. As to items 1-3, the F,RTF failed to address how its tax proposals and HVCB funding plan would revitalize the economy. Even if it ean be shown that people wili save taxi5 with this newstructure, tlie plan would force cuts in many key programs benefiting important programs, while promoting more tourism. It would also shift a relatively greater tax burden on middle and lower ineome taxpayers, including many Hawaiians. PROCESS. First, too m;uiy were left out of the ERTF process. The "inovers and shakers" failed to arrive at a eomnaon eeonomie vision for Hawaii shared by the larger community. No mlllion dollar ad campaign will change the ske|iticism for these top-down, corporate-dnven ideas. Remember "Thumbs Up"? Many who triggered that feeble marketing campaign have reappeared on the ERTF and are again tryiiig to market its proposals. in a new $1 million ad eampaip. Ilie process of discussion must include people who will be most harmed hy the cuts in programs - small business, non-prof-its, environmentalists. Hawaiians, rank and fiie iabor, social service providers, etc. In Mav, the state DBEDT will co-sponsor a training conference to support a community-based eeonomie development strategv. This community-based, bottom-up appmaeh is indisfiensable to true revita!ization of our current economy. ROLE OF GOVERNMENT. Government should be focused on (1) investing in Haw:iii's human capital. (2) crr.iting theconditions in wliieh private i>usine.ss ean prosper without exp!oiling ;. workens and consumers, (3) protecting our unique resources and Hawaiian-based culture; and (4) encouraging divereification of industries that reduce our need for outside capital. State goveniment should aiso realize its limits. lt ean do little to counter tlie global eeonomie forces and has too little monetary clout to m;tke mueh of a difference in attracting new visitors when eeonomie times are rough. We need to keep a perspective on the limits of our eeonomie power before we launeh new initiatives tliat have iittle ehanee of success. THE NEED FOR OBJECTIVE RESEARCH AND INFORMAnON. We appear to be heādtog into rushed deci-sion-makirig in the absence of accurate iniomiahon on the eeonomie issues invotved. We need to recog;iize limits to growth as an island a)inmunity. We need to recognize that comparing eeonomie condifioos : today agaīnst, the distorted condittons we

encountered at the height of the Japan "bubble" economy is unrealistic. Trying to replicate conditions of that time is eompletely unrealistic. TŌURISM SUBSIDIES, DrVERSIFICATION, AND REDUCI10N IN GOVERNMENT. The tourism indUstry is already a dominant eeonomie force in Hawaii accounting for 1/3 of all jd)s and 1/4 of our gross state product. The HVCB onee received less than $6 million a year a mere 10 years ago. Today we give $25 million per year because polilieai leaders feel tourism isailwehave. Tourist lobbvists even talked the 1996 legislature into a $10 million emergency appropriation to pay for another ad eampaign last vear to spend on the mainland andjapan, in addition to tiie $25 million already budgeted. The result of that puhlie expense: tourism has declined almostevery month slnce flie $10 million was spent on advertising. The HVCB is now asking for $60 niillion over the next two fiseal years to counter the flat tourism arrivals due to Asian eeonomie problems. This amount alone represents 60% of the possible cuts needed this fiscal year -cuts that tlireaten various important civil rigiits, education, and environmental programs. We have enough visitors already - almost 7 times ]»r year morethanourresidentpopulation. Ourinfrastructuretosupport the annual 6.8 million \isitors that eome now is strained. Moreover, tourism imposes costs on our aging infrastructure and shrinking resources - w;iier, land, wildlife. The legislature shou.ld fund a studv to quantīfy the costs of tourism, to determine what tourism's costs are as compared to its benefits. Reducing government speilding, one of tlie ERTF's objectives. ean start witli defunding tlie HVCB. Govemment can't afford it anvlonger. Thissubsidy distortstlieprivatemarketsystem. This private industry already has us committed to spending $350 million in a convention center no one in govemment or private industry ean afford or desires to mn. TAX EQUITY. The comprehensive general excise tax is by nature regressive. Raising regressive taxes on lower ineome people does nothing to reduce their inelastic consumption demand. It only raises their tax bill. The proposed tax credit will onlv force the working poor and middle ineome faniilies to suffer until it ean elaim the credit. ineome tax rates are already low and apply to relatively low ineome levels, leveling out at $40,000 per yeM at 1 1 percent. The ERTF would lower the top tax rate to 6%, shifting the burden of cutbacks to the poor and middle class who will be most affected by the required cutbacks. Uie more wealthy ean afford to pay more. The League of Women Voters has proposed a more progressive tax structure that reduces taxes for those making under $60,000, but raises it for those with higlier incomes. This kind of progressive tax stmcture should be the bedrock of any tax refomi and shou!d be <teigned to be revenue neutral so as not to force us to choose whieh programs to ait in order to fund it. Over the past several years, human services agend« have already suffered a $130 million cutback in programs for the needy. Finally, other states and cities impose as high as 11% on hotel rooms, without adverse effa:ts on tourist or business arrivals. We

should use an increase in this tax to keep the programs that current proposed budget cuts will reduce or defund - e.g., the 0ffice of Environmental Quality Control, Historic Sites Division of DLNR, the state Civil Rights Commission, the University of Hawaii. These programs do more than any ad cainpaign a>uld to get tourists to eome because tliey enhanee and protect the unique resources that attract people to visit these islands. ECONOMIC D[VERSIFICAFION AND INVESTMENT. The puipose of the ERTF is to attract investment and improve the business elimale in Hawaii. The extra ineome to wealthy taxpayers from the tax cut proposal will more likely end up in mutual funds and stocks on Wall Street and in higher federal taxes. PoliUeal leaders should estal)lish investment tax credits or exemptions from the GET on desirable eeonomie activitv - including research and development in elean industries, such as: (1) Solar heating (whieh would aiso decrease our dependence on oil); .» (2) Higli Technology research and development, inctuding software development (but in conjunction with a snl5tānlial publ:c investrnent in liie puiilie school aml the nni versity systems) (3) Aquaculture (4) I)iversified famiing of crops destirīed for import suhstitution and exports (5) Value added services and products liial capitaiize on the strengths and advantages of Hawai'i (6) Oeean research and product development (7) New c()iistruciion of affordabJe housing Such measures will prove far more effident in achieving fhe objective of promoting investment. The ERTF's loeal version of Reagan-era "trickle-down" cconomics simpiy wiil noi work. . a«: ROLE OF PRIVATC EMTRPR1SL. Finally, eaeh of the niajor corporations who partieipated iil the ERTF, Pacific Centnry (Bank of Hawaii), First Hawaiian 8ank, Campbell Estate, Alexander and Batdwin, and C.Brewer, should eommil to making investments to rcvii;iJiziiig the eeonoiin in Hawai'i. The\ omki . ptedge an equal match to Govenior Cayeiano s S 1 hillion CfP budget. Billions of loeal dollars teave Hawaii when coiporations and large trusts like the Bishop Estate sink their money in North Carolina golf courses, Texas oil and gas veriiures. and Minnesota shopping malls (with revenuefrom the raillions spent on fee pur- - chases :by loeal residents), Tbese are the sort of "leaks" in our economy that private eompanies need 16 plug on their own •■ . : Furthermore, thts approach will heip achieve another of the

ERTF's objectives, to reduce the size of government, with private companies pulling their load at the eeonomie oars. This is the sort of private enterprise commitment that will reduce government spending, and diversify the eeonomy. Govemment cannot do it alone. Private enterprise, if it is to weather this stonn, must do more in order to truly achieve the ERTF goals than to feather its own nest.

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