Depth Of Hawaii’s Economic Pain Hinges On Length Of Virus Outbreak

Mar 5, 2020

How long it takes to get the coronavirus to run its course will make the difference between a short-term hiccup and serious economic woes, says a University of Hawaii economist.

Carl Bonham, executive director of the University of Hawaii Economic Research Organization, says the most important variable in assessing the potential economic damage from COVID-19 is something we still can’t foresee: how long the global outbreak will last.

Bonham and other economists initially generated a prediction based on Hawaii’s experience with the 2003 SARS outbreak. SARS had a major negative impact on foreign travel to Hawaii, but the situation resolved in just a few months.

“Because it was so short-lived, within the whole year, you only see small impacts on job growth and real income. So it’s really important how long this thing lasts,” Bonham said.

There are already some encouraging signs from China. The number of new COVID-19 cases now reported there is declining quickly.

But globally, cases are on the rise. The virus is now present throughout the continental United States, by far Hawaii’s most important tourism market.

SARS only impacted international tourism to Hawaii, and that bottomed out six months after the first reported case. The relatively short duration of the event averted major layoffs and resulted in only modest loss of real income to workers.

COVID-19 is already depressing foreign arrivals to Hawaii, and now has the potential to do the same to the domestic market.

If the virus creates a long-term drag on the local economy, Bonham says not only will workers and businesses feel the pain, the state government could start to see a drop in tax revenue.

State Sen. J. Kalani English, the Senate majority leader, says lawmakers are focused on mitigating the health impacts of COVID-19, but they’re also looking at ways to soften the economic effects.

 

He says the best way to do that is ensuring that money and supplies continue circulating in the local economy.

The Maui senator suggests that two of the best things lawmakers can do are ensure that government services continue uninterrupted and that public workers get paid without disruption.

“We want to make sure that in the midst of a medical emergency that will be a great disruption to society, that we don’t make it worse,” English said from the state Capitol.

He has also advocated for remote-working options for state employees as a way to maintain services in the face of a virus-related disruption.

Across the rotunda, the state House of Representatives is also looking at ways to lessen the blow. Members recently approved the creation of a special committee to explore economic and financial preparation for the arrival of COVID-19 in Hawaii.

Speaker of the House Scott Saiki recalls the Great Recession and the financial blow it dealt to the government.

“The state lost $2.1 billion in tax revenue over three years and instituted furlough Fridays, that affected all of the public school students,” Saiki recalled.

Economist Bonham cautions against comparisons to the 2008 downturn. He says there is no reason to think the fiscal impact from COVID-19 will be anywhere near the severity of the Great Recession.

Bonham, who sits on the Council on Revenues that predicts tax inflows, also adds that prior to the outbreak, state tax revenue was showing healthy growth and that any impact to state coffers likely will not be felt until the next fiscal year.

It appears that lawmakers are not letting that specter derail their plans for the 2020 legislative session.

Speaker Saiki says legislators are still keeping to their agenda for 2020, including passing a much-touted package of bills aimed at reducing Hawaii’s cost of living.

“We’re still proceeding with the package, it is a priority for the legislature. Not all of the components of the package require funding,” Saiki said.

Lawmakers are considering a $10 million emergency funding request by Gov. David Ige for coronavirus-related spending.

Hawaii is also expected to get at least $4.5 million from the federal government under a similar legislative package that Congress is expected to approve this week.

This is the second in a two-part look at potential economic impacts related to the quickly spreading coronavirus. Part one covered signs that the virus is already having ripple effects in the state.