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Hawaii business leaders caution against cutting government employees’ pay

'I don’t think now is the time to have pay cuts,' said one well-known developer

Successful Hawaii developer and well-known business leader Stanford Carr spoke out Wednesday against state worker pay cuts floated earlier this month by the administration of Gov. David Ige.

“We all need fiscal responsibility, however, I don’t think now is the time to have pay cuts. What we need is money supply circulating through our economy,” said Carr, the founder and president of Stanford Carr Development, which has built more than 20 projects on Oahu, Maui, and Hawaii Island with several others under construction on Maui and Oahu.

Carr appeared on a panel of business leaders interviewed during the special TV program “Coronavirus Pandemic: Hawaii’s Response” broadcast Wednesday on Hawaii News Now.

“Many families are going to be impacted by this (state government pay cuts) in that there will be some family members in the household who will be out of a job. So more importantly, those incomes are critical today,” Carr added.

“What the state needs to do as well as the counties is to look at what can they do without and make those sacrifices first. But foremost, keep the workforce working,” Carr said.

Former Honolulu Mayor Mufi Hannemann, who is now chief operating officer of the Hawaii Lodging and Tourism Association, also had cautious advice about government employee pay reductions.

“Many of them are deemed critical and essential positions. Educators, no one would argue the valuable role that they play,” Hannemann said. “So I think you have to exhaust every possible option. See exactly what the federal government can give you in that regard.”

Dr. Mark Mugiishi is president and CEO of HMSA, the state’s largest health insurance company. 

Mugiishi said dealing with falling tax revenue is “a very difficult problem to solve. Running a business of my own, I know you’re trying to balance the revenues coming in with what you have to spend going out.”

“Obviously, it’s not ideal if you have to cut people’s pay. It hurts economic and consumer confidence and spending. It takes away investments into our future,” Mugiishi said.  

“My hope is that the federal government will continue to support states and support industries until the point where we’re able to get back to our pre-COVID levels,” he added.

To avoid pay and service cuts, governors, mayors ask for $500 billion in federal relief

Facing an urgent financial crisis, cities and states nationwide are eyeing the possibility of pay cuts and reductions to their workforces, threatening critical public-sector employees and first responders at a time when many Americans may need their local governments’ help the most.

Even as President Donald Trump and top Republicans contend that only big-spending, liberal-leaning states are to blame for mounting budget woes, a Washington Post review found the economic havoc wrought by the novel coronavirus is far more widespread — saddling Democratic and Republican mayors and governors alike with souring finances and major revenue gaps.

For governors, mayors and other top local officials, their economic troubles stem from the precipitous drops in revenue that have come as a result of closed businesses and sharp decreases in shopping and travel. The extent of the disruptions is poised to reach a level not seen since the Great Recession more than a decade ago, a reality that has prompted many city and state leaders to plead with Washington for help.

The recalcitrance by some Republicans on Capitol Hill and at the White House who are skeptical of giving states and counties aid has sparked a lobbying blitz on the part of local governments, which have had no choice but to make painful cuts as they await action in Washington.

For many cities and states, their public push for federal aid reflects the urgency of their need: Many have argued that Washington’s intransigence threatens to exacerbate the pandemic, which has killed more than 60,000 Americans nationwide. That’s because tax revenue typically helps fund first responders, and there’s only so much governments can do amid the downturn to shield public safety from withering cuts.

Many mayors and governors have argued that they are economic engines in their own right, employing more than 19 million municipal employees, or about one-tenth of the country’s workforce, according to federal data from March. Local leaders say they are just as deserving of federal support as major businesses, which have captured the lion’s share of coronavirus aid dollars authorized by Congress in March and April.

“They understand and know this would be a disaster if they didn’t get the kind of aid from the federal government they need,” said Lee Saunders, the president of the American Federation of State, County and Municipal Employees, AFL-CIO, whose union represents public-sector employees. “They need to be a priority just as the corporations and small businesses were.”

Last month, Congress extended $150 billion to cities and states as part of the $2 trillion coronavirus aid package signed by Trump. Quickly, though, local leaders discovered the funds came with significant caveats. Only large cities, for example, received direct payments under the legislation, known as the Cares Act. The money also was limited to coronavirus-related expenses that governments did not anticipate in their most recent budgets, according to the Treasury Department, narrowing its use considerably.

In practice, cities and states could not tap their federal allotments to close revenue gaps, even though some of their shortfalls are the result of the coronavirus pandemic. The limitations greatly frustrated officials in states such as New Jersey, where Gov. Phil Murphy (D) on Thursday wagered that he might have no choice but to return some of the money.

Democratic and Republican governors say they realistically need $500 billion to help close the enormous budget holes they face — or else they risk debilitating cuts.

Some officials have found a receptive ear among Democratic leaders on Capitol Hill, who joined union leaders on a call Tuesday pledging they would work aggressively to secure such federal aid.

“Congress should not abandon any workers, especially public service workers,” Senate Minority Leader Charles E. Schumer (D, New York) said.

HSTA calls on governor to consider numerous options before cutting educators' pay

“The decisions you make in the next few days will have long-term and potentially permanent impacts for Hawaii's teachers, our keiki, and our economy. “ HSTA President Corey Rosenlee wrote in a letter to Ige last week about the governor’s potential plans to reduce the pay of educators and most other state employees by 20 percent because of the coronavirus. 

Rosenlee cited the University of Hawaii Economic Research Organization (UHERO), which recently said, “We cannot overstate the tremendous adverse impact that a sharp contraction in government spending will have on the Hawaii economy, and the corresponding positive effects that sustaining public spending will confer.” UHERO economists found that cutting salaries by 20-percent would have a multiplier effect that would “lead to a drop in GDP of $3.3 billion over the 2020-2022 period.”

Rosenlee urged the governor to consider the following options:

  • Follow UHERO's recommendations to borrow up to $3 billion from the Federal Reserve’s Municipal Liquidity Facility;
  • Wait for the federal government's next stimulus funding supported by President Trump and Democratic congressional leaders, which will support lost revenue for state and local governments;
  • Tap into some of the $1.1 billion in cash surplus and rainy day fund for the interim period;
  • Use part of $53 million allocated to Hawaii schools and colleges under the CARES Act;
  • Take advantage of the significant savings from school buildings being closed in the spring semester.

“HSTA asks, on behalf of Hawaii’s teachers and the keiki that we serve, that you take the right actions, and not rush immediately to the wrong ones, during this crisis,” Rosenlee concluded.

Rosenlee along with other Hawaii and national labor leaders have provided Ige and state lawmakers with more than 15 alternatives to cutting state employees' pay.

Ige delays initial cuts date, claims pay reductions are 'last resort'

While Ige's budget and personnel officials have floated the pay cuts in private meetings with Hawaii union leaders, the governor's public statements appeared to backpedal from the original threat.

First, state officials told union leaders the potential effective date had been delayed by one month from May 1 to June 1.

Second, at a news conference April 20, Ige said, “I just really want to assure everyone that salary reductions would be the last resort.

“We’d be looking at all available options of funds, rainy day funds, support from the federal government in different ways before we look at salary reductions,” Ige told reporters. 

“We certainly are working with our congressional delegation about funds to support the state and recover lost revenues, and those funds and those grants would be important because they would allow us to maintain employment and not have to look at reductions in salaries,” Ige added.

Featured photo: Hawaii News Now.

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Author: Keoki Kerr
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