Hawaii Economy Scrapes Bottom as U.S. Surges
Laid off from her hotel housekeeping job, Tammy Ford stood outside the bankruptcy court here recently, nervously puffing on a cigarette and detailing how the family finances had gone down the drain.
Ford and her husband had to file for bankruptcy, she said, because of huge bills approaching $50,000 that simply couldn’t be paid on her husband’s bus-driver salary. Even pulling the kids out of private school and moving to a cheaper apartment didn’t help.
“We didn’t want to do this,” Ford said. “It was our last resort. The creditors were calling, calling, calling.”
Her lament is a familiar one in the islands these days. As most of America basks in relative prosperity, Hawaii is mired in its worst economic slump since becoming a state in 1959. Personal bankruptcies have soared, property values have dropped and the state’s business and political leadership is scrambling for ways to prop up the economy.
The financial turmoil in East Asia only spells more trouble ahead for America’s Pacific outpost. Even Japanese tourism, a bulwark of the state’s economy, stopped growing late last year and has been falling this year.
“Were Hawaii a sovereign nation, as some people assert we should be, maybe we could have asked for an [International Monetary Fund] bailout too,” said Paul Brewbaker, chief economist for the Bank of Hawaii. “The equivalent, I believe, is probably necessary for Hawaii.”
As people from Bangkok to Seoul focus on living within their means, luxury items like Hawaiian vacations may be crossed off the list. This month, a Japanese auto-parts firm canceled plans to bring 10,000 people to Hawaii’s new convention center next year, citing Japan’s economy.
Hawaii has tried to hitch onto the U.S. rebound, but it keeps landing in the dust. Its anemic economy has shed jobs every year since 1992. Growth in personal income has lagged the nation’s for several years and was second slowest in the country last year. In October, unemployment stood at 5.9% here, 4.4% nationally.
For a state whose growth has outpaced the nation for much of its young life, this scorecard has been a rude awakening. From 1960 to 1990, Hawaii averaged more than 4% annual growth. Boosted by swelling numbers of tourists from both sides of the Pacific, the Aloha State always bounced back the year after any downturn--until the 1990s.
Gulf War, Hurricane, Japan’s Woes Take Toll
Then, in quick succession, Hawaii was hammered by the Gulf War, mainland recession, Hurricane Iniki and the bursting of Japan’s economic bubble. All took a toll on tourism, which accounts for nearly one in three jobs. Japanese investment plunged from a high of $2.3 billion in 1991 to $633 million in 1992.
“Just as the Japanese had their ‘bubble economy,’ we had our own bubble economy, because we were so closely tied to them,” Gov. Ben Cayetano said in an interview. ‘I still believe the long-term prospects for Hawaii’s economy are bright, just not the kind of wild growth that we were used to.”
The economy actually has been growing since 1992, though the growth has been very modest--less than 1%. Some sectors--such as retailing, health care and new crops have shown steady growth and appear poised for further expansion. Still, Hawaii will be hard pressed to get back on track without a vibrant tourist sector.
When the U.S. economy--and later California’s--kicked back into gear, Hawaii was expected to follow. The number of tourists from the Americas and Europe, however, has remained flat, hovering around 4 million, down from 4.7 million in 1990.
The islands also have been hurt by a trend toward shorter, cheaper vacations and competition from places like Las Vegas, which has made inroads by billing itself as a family resort. The average American traveler to Hawaii has already visited four times.
“On the West Coast, there is definitely a ‘been there, done that’ mentality,” said Barbara Okamoto, director of market research for the Hawaii Visitors and Convention Bureau. “Our challenge is to portray Hawaii as a diverse destination, with six major islands and an endless variety of things to do.”
The governor, up for reelection next year, recently summoned top business, political and labor leaders to help. A plan was crafted by his Economic Revitalization Task Force and is designed to stimulate growth with the biggest tax cut in the state’s history. It would:
* Drop the top income tax rate, one of the nation’s highest, from 10% to 6%.
* Cut the top corporate income tax rate in half to 3.2%, the lowest among states with such a tax.
* Raise the general excise tax, which tourists help pay, from 4% to 5.35%, but apply it to fewer transactions.
* Kick-start tourism by doubling state marketing funds to $60 million annually.
* Cut red tape, making permit approvals automatic after specified time frames.
“The importance of the revitalization package,” economist Brewbaker said, “is in sending a decisive signal to the global capital market that Hawaii’s open for business.”
Cayetano and legislative leaders are confident the plan will pass, despite criticism that it is skewed toward big business and requires draconian cuts in government spending. “It is basically a question of being able to convince enough people that we need to make this major paradigm shift,” Cayetano said.
Even if the plan prevails and ultimately works, getting the economy moving will take time. Some folks are not willing to wait. In each of the last two years, roughly 13,000 more people left Hawaii for other U.S. states than moved here from the mainland.
Foreclosures, Bankruptcies Surge
Those who remain are filing for bankruptcy in record numbers. By mid-November, nearly 3,900 people and businesses had filed for bankruptcy, up from 3,083 last year and 2,022 the year before.
“Hawaii historically had the lowest per capita rate of filings until the past four or five years,” said Gayle Lau, assistant U.S. bankruptcy trustee in Honolulu. ‘We are gradually inching up.”
In a real estate market that once seemed to have no ceiling, foreclosures have shot up along with bankruptcies. The overheated market reversed course in 1991, leaving some homeowners mortgaged to the hilt, unable to sell their homes for what they owed. Some are just walking away. Others are struggling to meet financial obligations.
“We’ve been swamped,” said Michael Haxton, president of the nonprofit Hawaii Credit Counseling Service, which has doubled its client base every year for the last five years. “We have architects, attorneys, people who have slung a hammer for 15, 20 years.”
No industry has been hit harder than construction. As the boom of resort- and home-building went bust, nearly 10,000 workers were thrown out of construction jobs, leaving less than 22,000 employed in that sector today. The state is now priming the pump with $1 billion in public building projects, mostly schools, over two years.
The median resale price of a single-family home has come down from $371,000 seven years ago to $315,000 today. But that’s still a big chunk of change and people are being careful with their money. The overall number of properties sold dropped from 9,243 in 1990 to 3,896 last year, according to the Honolulu Board of Realtors.
“People aren’t going to go out and buy a home or a new car or major appliance if they don’t know if they’re going to be working in a year,” Haxton noted.
Eric Villani, once a top Honolulu car salesman, knows that only too well. The 45-year-old father of two recently gave up trying to sell new cars after the market took a dive. Instead, he helps get financing for people with bad credit who want to buy used cars, a growing trend.
“During this transition, I had to use up all my savings to survive,” he said. “Two months ago, I went for an advance on my paycheck to pay my mortgage. That was a real awakening call.”
He and his family looked into cheaper places to live on the mainland, but they decided to stay. ‘We love Hawaii. “Our children were born here,” he explained. “Given enough time, I believe my income will go back up.”
Indeed, there are some signs of life in Hawaii’s economy. The long-awaited Hawaii Convention Center opens next year and should attract higher-spending visitors. Tax credits and a favorable lease recently lured Continental Airlines to build a jet-maintenance facility in Hawaii rather than Guam.
Despite ill winds in Asia, two Japanese firms are boosting Hawaii’s hopes for high-tech growth. Video software maker Square USA set up shop here this year to accommodate its employees, who chose Hawaii as the place they most wanted to live. Uniden, a major wireless communications company, is opening a research and development center this month in Honolulu, attracted in part by the caliber of local engineering graduates.
The answer for Hawaii, Cayetano said, “will be found in many little niches like these, and not one big magic bullet.”
