Gov. David Ige calls for economy to pivot to technology

Gov. David Ige wants Hawaii to develop a more robust digital economy — “a Hawaii 2.0” pivot — that would spread broadband connectivity to rural communities in response to the COVID-19 pandemic, which has strangled tourism.

COVID-19 exposed Hawaii’s tourism-based weaknesses as the state went from the lowest unemployment rate in the nation to one of the highest in 2020, Ige told lawmakers Monday in his annual State of the State address.

“Literally overnight, our expectations were crushed by the coronavirus pandemic,” Ige said.

For the long term, Ige acknowledged that diversifying Hawaii’s tourism-based economy to one with a more robust technology sector will not be easy.

“In the 1970s, agriculture by itself couldn’t relieve us of our addiction to tourism,” Ige said. “Neither will technology in the 21st century —not by itself. But it can be used to support a multipronged approach toward greater diversification, even as we move to get tourism back on its feet.”

A digital economy would allow island workers to compete globally while earning higher wages and enjoying a higher quality of life, Ige said.

“More importantly, we can keep our kamaaina here to reverse the brain drain,” he said, “because in a digital economy our children won’t have to move to the mainland to secure good jobs.

“But to do that, we will need to provide the right environment. Every government, business and nonprofit organization must embrace digital technology to thrive,” he said. “We need to develop a clear vision for a more diversified and sustainable economy that is compatible with our culture and way of life. And that vision must be based on solid economic analyses.”

In the short term, Ige said that the state plans to pay for interest payments on $700 million that the state Department of Labor and Industrial Relations borrowed to provide unemployment benefits to more than 580,500 island workers who filed unemployment claims last year.

Covering the interest payments on the loan “amounts to over $165 million that our businesses would otherwise have to make up over the next six years,” Ige said.

The state is expected to borrow another $600 million in the coming months to cover additional and ongoing claims.

Regarding the ongoing spread of COVID-19, Ige said, “We will continue to take the tough actions necessary to keep our community safe, including the Safe Travels airport screening program. Hawaii was among the first to demand pre-travel testing and quarantine procedures. That’s one of the reasons we lead the nation with the lowest COVID infection and death rates.

“We are also implementing a comprehensive strategy for the distribution of vaccines in every county. We are getting vaccine to people where they live and where they are able to receive it. And we will be working with the Biden administration to expedite the distribution of vaccines to everyone.”

Following Ige’s address, key legislators said they were disappointed by the lack of specifics and timelines.

Senate President Ron Kouchi said the Ige administration had provided little information during budget hearings earlier this month.

“I anticipated that they were trying to save the big news for the governor’s State of the State and that we would get much better detail of where to go, and clearly the speech didn’t contain very much detail,” Kouchi told reporters. “Were they considering any tax initiatives, and if we weren’t considering tax initiatives, where was the anticipation of where the revenues were going to be coming from?”

House Finance Chairwoman Sylvia Luke expressed similar frustrations.

“I think right now part of the biggest criticism of the Ige administration for the last nine months is the lack of communication,” she said. “Right now people need clarity and people need direction, and even if it is bad news, we need to figure out how to deal with it together.”

The state’s budget deficit is estimated at $1.4 billion to $1.8 billion out of an overall $15.4 billion operating budget.

A clearer picture of Ige’s policy plans is expected to be detailed in approximately 200 bills submitted to the Legislature this week. Ige, during a news conference following his speech, said that he did not expect that any broad-based tax increases would be necessary to balance the state budget. He is also looking to claw back about 150 state jobs he had slated for elimination. Ige said he didn’t know what percentage of these proposed job cuts involved current employees. Some of the positions are vacant.

State Rep. Gene Ward (R, Hawaii Kai-Kalama Valley) said in a statement, “Unfortunately specifics and creative suggestions for economic recovery were sparse, though mainstreaming Hawaii into the digital economy was positive and encouraging. However, I heard no time lines when any of our major problems with our economy, the pandemic, and our huge budget deficit would be/should be expected to be curtailed or ended.”

On his plan for a digital economy, Ige said he is working with Kouchi, House Speaker Scott Saiki and business, labor and community leaders to develop “a plan of action for Hawaii’s future.”

“I have reached out to the Hawaii Business Roundtable, the Hawaii Executive Conference, the Chamber of Commerce of Hawaii, and the Hawaii Community Foundation to convene stakeholders and communities from across the state.

“I have also sought the counsel of Govs. (George) Ariyoshi, (John) Waihee, (Ben) Cayetano, (Linda) Lingle and (Neil) Abercrombie for their thoughts on economic recovery. I have asked all of them for recommendations by April, which will be folded into specific actions by the third quarter of this year.

“The Legislature will then have an opportunity to act upon these initiatives in their 2022 session.”

Ige said he also has directed Ed Sniffen, the state Department of Transportation’s deputy director of highways, to “accelerate” Sniffen’s pilot project to connect rural communities to broadband service. The project will focus on Puna, Kau, Hana, Nanakuli, Wai-anae, Waimanalo, Kalihi and Kapaa.

“Clearly, the pandemic has highlighted the digital inequity in Hawaii,” Ige said. “Part of our task is to make sure that a student in Nanakuli can access an online lesson plan as easily as a student in Kahala, and that in a digital Hawaii everyone’s connected. Likewise, with an FCC (Federal Communications Commission) grant, we will support a telehealth initiative to connect low-income patients with high medical risks to health care providers. DHHL (Department of Hawaiian Home Lands) will receive at least $30 million in federal funds to benefit Native Hawaiians.

“In addition, my legislative package this year includes a bill to create a Broadband and Digital Equity Office to oversee these efforts. This office will also enable us to identify and secure Hawaii’s share of $7 billion in new federal funds for broadband infrastructure and digital equity programs.”

Saiki was reluctant to support Ige’s proposed Broadband and Digital Equity Office if it entails new costs. Saiki said the House is looking to streamline government, not expand it.

Ige also said, “We expect to see investments of $1.1 billion in state capital improvement projects. Federal transportation projects — such as airports, harbors and highways — will add another $1.1 billion. And the private sector is expected to contribute another $10 billion and thousands of jobs to help restart our economy.”

He said his administration is cutting the current budget by $402 million, transferring $345 million from the rainy-day fund, eliminating $350 million from state programs and borrowing $750 million for the first time in state history to help make payroll.

“Government will have to tighten its belt; our citizens will be asked to do more with less; and we will all need to help each other,” Ige said. “Unlike past years, our main budget initiative will be to find ways to cover the historic shortfalls.”

“The latest report from the state’s Council on Revenues projects our economy will outperform earlier dire predictions,” he said. “The council now expects the state to generate nearly $6.3 billion in tax revenues for this fiscal year. That’s why we were able to adjust the DOE’s (Department of Education’s) proposed reductions and now have about $123 million to restore to our classrooms. In a sea of bad news, that is good news indeed.”