University of Hawaii economic experts said Tuesday a 20-percent pay cut for state employees, including public school teachers, floated by Gov. David Ige’s administration would worsen Hawaii’s economic slump for several years.

The analysis by the University of Hawaii Economic Research Organization (UHERO) found that a 20-percent reduction in state salaries would lead to a drop of $3.3 billion in the state’s gross domestic product (GDP) between 2020 and 2022. The study found that every $1 reduction in state employees’ salaries would result in a $1.50 reduction in overall economic activity in the islands.

“Beyond the direct impacts on GDP and income, spending cuts risk prolonging what has already turned into the deepest downturn the state has ever experienced,” UHERO wrote in a blog post Tuesday.

Instead, the economists said a more favorable alternative would be for the state to borrow money from the Federal Reserves Municipal Liquidity Facility. The program is designed to bridge funding gaps for states and municipalities, allowing the state of Hawaii to borrow a maximum of $4 billion, which could be paid back once Congress acts on anticipated legislation to provide unrestricted aid to the states to help combat financial losses from the coronavirus.

U.S. Sen. Brian Schatz (D, Hawaii) said in an interview with the Honolulu Star-Advertiser if the state's problem is temporary cash flow, "then this is the solution.

"If I were in state government, I would wait if at all possible before doing anything too draconian," Schatz said, adding that he told Ige the same thing.

In announcing Tuesday’s deal on the latest federal aid package, President Donald Trump said, “We will begin discussions on the next legislative initiative with fiscal relief to state/local governments for lost revenues,” which would help bring relief to Hawaii’s tax coffers that have been hit hard by stay-at-home orders and help keep government functioning in the state and public workers on the job.

In a letter to Ige on Tuesday, Hawaii Government Employees Association Executive Director Randy Perreira said cutting pay of state workers “would become a self-fulfilling prophecy of a deeper economic trough, creating a negative spiral downward from which we may not soon recover.”

Perreira’s letter said pay cuts would have a “devastating effect on our local economy, further reducing economic confidence in our community as government employees would severely curtail spending.”

HGEA is Hawaii’s largest union, representing nearly 43,000 state and county employees, including principals, vice principals, educational assistants and cafeteria managers in public schools.

HGEA, the Hawaii State Teachers Association, and the University of Hawaii Professional Assembly have all come out strong to oppose Ige’s pay cut idea.

In addition, a bipartisan coalition of state lawmakers opposed the plan since Ige’s budget and personnel officials told union leaders April 14 about possible 20-percent salary cuts for most state employees and 10-percent cuts for first responders such as state sheriffs deputies, nurses and doctors.

In response to media questions since the story broke, Ige has appeared to backpedal from the proposal, telling a news conference Monday, “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.

HSTA President Corey Rosenlee said the state has other options to avoid cutting salaries, noting that the state’s cash surplus at the end of last fiscal year combined with the “rainy day” fund was more than $1 billion.

“Governor, it’s raining,” Rosenlee said. “Hawaii already has a shortage of over 1,000 teachers. If we cut teachers’ salaries, that will force teachers to retire and our brand-new teachers to leave.”