 Okay, this is fiscal policy in Hawaii, part two in talking tax with Tom Yamachika. Hi, Tom. Hi, Jay. Tax Foundation of Hawaii, we think about fiscal policy here in the show, we think about tax. And today we want to talk about, you know, part two of our discussion from last week. And let me frame it a little bit, Tom. Okay, so we haven't paid, the state has not been able to pay the arrearage, the employees retirement fund, I don't know what it, 10, 12 billion dollars. People estimate that the cost of dealing with repatriating or otherwise taking care of the homeless is another 10, 15 billion dollars, and maybe that's undoable anyway, you know, we have more per capita than any other place. We also have more credit card charging. We have the highest credit card balances, you know, in the country. And we are interesting that we are a mono economy. It's all about tourism. There is nothing else. Efforts from the Burns administration on forward to Kaitano were to build a tech industry to build an alternative economy all failed, failed, okay. And now in the odd years, Linda Lingle brought the tax incentive for technology down. She brought it down. And by 2010, it was gone gone. And the tech industry has shrunk since then, I'm sorry to say. So yeah, there's a glimmer here and a glimmer there, you know, there are incubators and accelerators and whatnot. A lot of that helps people offshore, it doesn't really help developing an industry here. So then we have the risk of extreme weather in climate change. We have the risk of tsunami, our background here, yeah, right there, right there. And so the fragility of a mono economy is accentuated. And then add to that the fact that the National Tax Foundation just came out earlier this month with a report saying $100 is worth $84.39 here, worst in the country. Yeah, yeah. Worst in anywhere in the country. We have our own special inflation. Right. Yeah, it doesn't go as far. So people have to work harder at lower salaries here that work harder to buy what a dollar would buy in the main. This is not so good. This is not so good. Yeah. At the same time, you know, we're not concerned about building any alternative industry. So the only way the government can get money is through taxing the existing tax base. Am I right? Taxing and more taxing. So they, you know, they're looking at different types of taxes, escalating the taxes that are there, replacing, you know, one tax type with another. For example, Department of Transportation, they want to replace the gas tax with a road usage charge. We've already increased the estate tax that happened last year. We increased the income tax the year before. Just more and more things that help bring us down. Yeah. So the middle class gets, you know, hollowed out when I've been talking about the federal effect here. The middle class gets hollowed out. You get a greater disparity of income. You get more homeless who can't handle it, even if they're working. And you get more government services that fail because the government doesn't have enough money to carry on its mission. This is that, you know, this is kind of like the story of Puerto Rico, how it all of a sudden, you know, found itself, what, $80 billion in debt, and then the storm happened. What a combination of things. That could happen here. That could happen here. It's possible, yeah. You know, and then you, you know, you say, well, if I was a kid and I graduated high school, would I, would I go to college here? Would I go to college on the mainland? Or if I was a kid and I graduated college here, would I stay here or go to the mainland? If I was a businessman here, trying to make a business and finding it hard, a lot of bureaucracy and red tape of all kinds, you know, I'd think about going to the mainland. And this is the most interesting thing. If I was a businessman or a business on the mainland, I'd think real careful now about coming to Hawaii. We have no idea, there are no stats at all about the telescopes that might have come here, except for all this trouble on Mauna Kea. And they're not going to come here. So, you know, the consortium, you know, whether it can, whether this storm, the protesters, whether they're going to insist on, you know, the destruction of the project and other telescope projects, this is a global theater. People see what we're doing. Yeah, and the temperature isn't good. So we're on the world stage because of this telescope fiasco, the picture that's going out to the world is not so great. Yeah. So if I'm a telescope consortium involving countries and universities who control billions of dollars on projects of this nature, seems to me, and I'm reasonably well informed about what is happening here, on top of Mauna Kea with all the protests, I would not come. I wouldn't spend one farthing trying to make a project here, because Hawaii has a brand that will only lead to, you know, the destruction of my project. Have you read like the article about what the Maui mayor did when a telescope was coming up in Haleakala and he had the same, you know, protest project? I did see that, yeah. You stop it right away. I mean, you stop the protests right away. Yeah, he basically said, look, you know, we have to go by the rule of law here. Here's what the law says, you know, you're not following it, you know, off to the who's got where you go. Yeah, and the protests were stopped. He succeeded. He succeeded. We didn't, David, he didn't do that. He kind of did the reverse, and at the end of the day, between him and Josh Green, they have encouraged the protest, and then we have all these people who really don't know what's going on, who also likewise encourage, you know, people come from out of state, celebrities come and encourage, becomes the cause celeb for the moment. People don't realize the effect on the economy and on taxes. So what struck me to suggest this topic today was I went to the Made in Hawaii fair over the weekend at Blaisdell. And we filmed, you know, a lot of it and filmed people there and the, you know, the people who had the exhibits, paid plenty of money for those exhibits. And a lot of them were from the Big Island. And some of them were selling t-shirts, you know, that favorite protest at Montaguea. And there were a number of people, I asked them, you know, what about technology, don't you want to see astronomy in the state? The answer was, an answer I've heard before, the answer was, we don't want technology in the state. We don't want astronomy in the state. It can all go away as far as we're concerned. And that's what I wanted to talk to you about, because the title that I put on this is Hawaii, the Land of Extravagance and Complacency. We spend, we don't pay our bills and we are complacent about it. We're happy enough to do that. But that's not sustainable fiscal policy, is it? Yeah, the thing that I try to impress upon lawmaker at any chance I get is that, you know, every place has to have an economic engine. You don't have an engine, where is that tax revenue that you depend on coming from? Because most tax systems, including ours, depends on the ability to create income. If you don't have income, you'll be taxed. So that's especially true for us, where a lot of what we're, you know, close to half of our government is funded by general excise tax. That's a tax on business activity, and it's premised on the business getting income. And it's regressive. Sure. Whatever it is, if there's no income, there's no tax revenue. And we highly, we, our government is highly dependent on that tax revenue. So let's kind of go back to, all right, what is in our economic engine? We got tourism, drop your voice. We tried to start some other activities. We may have a little bit of manufacturing. You know, we have some diversified agriculture, not a whole lot. Yeah, they made it Hawaii fair over the weekend. It's arts and crafts. It's not serious industry, I'm sorry. Yeah, it highlights your specialty goods, your maybe a little bit of manufacturing, but it's basically a blip on the radar screen. And it's not going to make any money for the state. It's not really sustainable. It's family owned, and it doesn't last, you know, but a few years in each case. It's great fun, and it supports the, you know, a lot of the notion about, you know, having good relations, aloha and all that in Hawaii, but you can't live on that. The state cannot, they can't pay the bills that way. To pay the bills, you've got to have industries that will generate lots of income, and the income will pay the tax. Right. I mean, even, you know, for my own self, I'm a small businessman myself. I kind of got scared by the prospect of having employees, because of all the mandates, all of the compliance requirements, all of the, you know, payments you have to make, not only taxes, but health care, temporary disability, all this kind of stuff in the, you know, in the legal mandates once you have an employee. I mean, there seems to be a mentality along the lines that once you are an employer, you're a big bad fat cat. Right. You're a deep pocket. You have money that goes, you know, the unlimited supplies of money, which is not true. Which is not true. Most of all, this is a struggle. And, you know, Josh Green in the past, our lieutenant governor, has advocated for a $15 minimum wage. This is going to be problematic if this happens. It was a piece recently about what happens in restaurants if you have a $15 minimum wage. You as a patron, you still tip the same way at 20, 30 percent. Well, and there's also discussions on universal basic income, which basically means you are given a payment by the government just for being a lie. Yeah. Where do you get the money? Where do you get the money from? Yeah, that's a... From you? Right. Sure. From the guy who's struggling to keep his restaurant going. Yeah. That guy. I mean, that's what I say. The extravagance here is to believe that this can work and continue that it is sustainable. It is not sustainable. And worse yet is that any single day we could have that wave. Any single day we could have extreme weather. In fact, it's more likely now in climate change, which we as a world is not doing enough. Neither is Hawaii doing enough, honestly. And if our industry is only one thing, tourism along the beach, what are we going to do with sea level rise? What are we going to do? It's already scientifically established that it's going to inundate a good part of Oahu anyway. What are we going to do? What about all those buildings they built in Kakaako? They're going to be inundated, too. So even that related industry, it's related to tourism of building high-priced condominiums, that's going to be at risk. This is the way we earn revenue. And let me add that the tourism doesn't necessarily result in income to the state. We don't have a REIT tax that failed in the legislature yet again. We have the TAT. Is that enough? These are mostly REITs, and they're taking that money offshore and paying minimum wage here for hospital corners in all the rooms. Well, in all fairness, they are paying some hefty taxes, like the TAT at 10 and a quarter. Who imposes TAT at that kind of rate, along with a GET on top of it? I mean, that's 14, 15 percent right there. How do you compare that with other tourism? Do you think it's fair? They're the biggest single industry in the state, by far, by far, not even a plurality. So they're the biggest fat cats, and we can squeeze them, right? Well, I don't know. And that seems to be what the mentality is. I don't think we'll rely on that, because if they go down by a wave or extreme weather, or extreme weather somewhere else, you know, where people are no longer interested in traveling to Hawaii for a vacation, that would empty our beaches, too. And if that's the case, that whatever we're earning, whatever we could earn from tourism is gone immediately. What happens then? Same thing with anything that could stop tourism, but we haven't really followed through on any alternative industry at all. Yeah, and we continue to squeeze the one that's there. I mean, I have heard recent stories about the city coming to Waikiki and approaching some businesses there and saying, oh, we would like some contributions from the Waikiki hotels because you know, rail's coming here and you better play ball, otherwise bad stuff will happen. Oh, corruption. Yeah. Sorry. Yeah. There's also a piece about rail I thought was really interesting. Somebody now wants to make first class and coach in rail, you pay more if you want to sit in the good seats. Well, they do that in other countries, too, so I don't see why not. Sure. But you know, what it accentuates is the point where, you know, what do you think rail is going to cost, aside from what's the expectation, you know, 10 billion, 12 billion by the time it's all done and all the trouble is resolved, if it ever is resolved, then we got to get on the rail in the morning and come to work or whatever we're using it for. And how do you know what that's going to cost? Because if the city cannot afford to maintain the rail or pay the debt service on the cost of building the rail, it's you and me or whoever takes the rail is going to have to make up the difference. No, it's taxpayers who have to take the rail. It's the taxpayers in general, isn't it? Even if we don't take the rail, we're going to have to take the cost. I live in East Honolulu. Rail is never going to come to me, never, and yet I'm paying. Okay. Well, there's so many problems. It just doesn't stop. And you know, even now, if we stop, we have spent what, at least five, six, seven billion already, and we don't have a product that is even worth a while. Except for maybe some criminal investigations and possible indictments, you know. It's a kind of industry, and it's on the legal industry, if you will. So I mean, so this is really not sustainable. And I... But even that, they're going out of state, right? So the city council is now considering a resolution to employ California defense attorneys for the heart people at a cost of like $300,000. Send the money offshore. Send the money offshore. You've taxed the local people. And send the money offshore. And send the money offshore. I do not understand that. At the same time, you don't build anything that will generate greater industrial capacity or income that can be taxed. Instead, you take a limited population, which is actually declining, I think. A limited population. It is declining, yes. And you just increase the tax on them. And then you get surprised when you see they go homeless because they can't afford the bills. Yeah, or they, you know, vote with their feet and jump on a plane that they're out of here. So after the break time, I'd like to make you either a benign, a despot, or, I know you'd be a benign, or maybe governor or mayor and ask you what the solutions are. If we hunker down right now and we won't worry about political correctness, we'll just come up with fiscal policy, tax policy that will save the state. That'll be an exciting discussion. We'll be, are you going to hang around for this? We'll be right back with Tom Yamachika. Thanks to our ThinkTech underwriters and grand tours. The Atherton Family Foundation, Carol Mun Lee and the Friends of ThinkTech, the Center for Microbial Oceanography Research and Education, Collateral Analytics, The Cook Foundation, Dwayne Kurisu, The Hawaii Community Foundation, The Hawaii Council of Associations of Abarbon Owners, Hawaii Energy, The Hawaii Energy Policy Forum, Hawaiian Electric Company, Integrated Security Technologies, Galen Ho of BAE Systems, Kamehameha Schools, MW Group, The Shidler Family Foundation, The Sydney Stern Memorial Trust, VOLO Foundation, Yuriko J. Sugimura, thanks so much to you all. Okay, well, with Tom Yamachika, we've identified some big problems going forward, problems that can actually ruin the state as an economic engine. So let's talk about how we can improve the situation here, because we really haven't improved it over the past 20 years or so. So what about encouraging offshore investment? To invest in our companies, our local businesses, to build an industry here? You know, in order to have something to invest in, you have to have a product or an industry. If you have something that's kind of destined to fail, who would invest in it? So yes, I think the answer has to be something along the lines of getting that engine going again. So if you want to start some industries where we have natural advantages, for example, and we can produce premium coffee, there are places in the world that will buy premium coffee at premium prices. I mean, it's possible we can replicate that with other types of products or other types of vegetables, maybe not so much meats, because that requires a lot of transportation of… Agricultural products. We haven't actually been successful at that. Been a lot of talk about it, but it hasn't actually turned any significant money. So when the plantations ended, for all practical purposes, scaled up agriculture ended. Yeah, that's, I think, a possibility of getting it started again. The other possibility is the research agriculture, right? I mean, that's kind of what we have on Kauai already, although people are kind of shunning it and going like this, oh my god, GMOs, genetically modified stuff. And do we really want to do that? I mean, not necessarily, but at least we do have the luxury of being in a climate where we've got three growing seasons instead of just one, right? So if you want to experiment with the growing crops or growing animals, we've got ways to do it that are perhaps three times as efficient as any other place in the nation. Not cows though. Not dairy cows. Not dairy cows. Squashed dairies, the resurrection of dairies in Hawaii, protesters have made them go away. Nobody would start a dairy now. You know, I remember, we think tech did a program on agriculture, on the prospect of agriculture as an industry in Hawaii. We did a number of them, and there was a guy, very wealthy investor, who flew out here from the West Coast to come and see this program about developing agriculture in Hawaii. He was interested in investing, and he was interested in getting his friends to invest, also well-heeled. And he approached me in the course of this program, and he said, I want to talk to you, I want you to put me in touch with everyone who is a prospect or an investment in agriculture in Hawaii. And I did. And he spent months here looking it over very carefully. And finally we had a meeting, he took me out for a little meeting, and he said, well, I've looked at everything about agriculture in Hawaii, looked at it very carefully. I've talked to my potential co-investors, and we've decided we're going to invest in hotels. Yeah, you have to have the product before you can sell it. So, you know, that, of course, you have this whole anti-tech, anti-astronomy, anti-science kind of thing. It's very hard to invest in science and technology when, you know, you can, in the case of TMT, they've gone through 10 or 15 years of litigation and regulatory process and Supreme Court cases and arbitration and what have. And at the end of that time, and they've got the time. At the end of that time, what happened to our rule of law? Well, yeah. I mean, we're supposed to be in a society where we have laws, we have processes, we follow these, we get to a result. Now, people say, oh, I don't like the result. And they, you know, camp down on the, on monarchy access road, among other places. Yeah, and that's the complacency I'm talking about. It's complacent and it's extravagant to say, well, you know, we'll take a whack at TMT, we'll try to stop it. And it'll be our little ball game and we'll win. But I don't think that people see that in a statewide context. What it'll do to the economy, what it'll do to offshore investment. You know, if you were a consortium looking to, looking to organize another telescope, would you come to Hawaii? No, the government won't protect us. If one little thing goes wrong and some hooligans come around, if they think their cause is just and the government doesn't want to interfere, oh, we don't hurt anybody, you know, then you're toast. Yeah, so why would they want to invest in something that's going to become toast? We have no stats to know how many wouldn't come here anymore, because we don't know who they are. They decided not to. And my guess is that we won't see another telescope here. Whatever happens in TMT, we won't see another telescope. And Mama Kea is really, is going to be history soon enough. So then the question is, well, doesn't it have a secondary effect for anyone who wants to invest in science and technology? Or anything else for that matter. Or anything else. Yeah, I think, like I said, to get investment, you've got to have a product to sell. And we need to get an economic engine running. What's our product, and how do we sell it? That's what we've got to ask. So here we are in a real pickle, so to speak, because the people at Wall Street and on the West Coast look at us and they say, you guys are not worthy. We're not going to come around. You're backwoods honkeys, man. Yeah, you're backwater is what you are. And so how do we get, this is a hard one, maybe it deserves another show, another discussion, how do we get to a position where they see us differently? I mean, for example, you've got 100 million plus going to a white tourism authority to sell hotel rooms. But how much is going to show the world that we're a worthy place to invest? How much is going to show that, yes, they should bring their telescopes here. They should do their scientific development. Big farmers should come here, surround the medical school, just as Ed Cadman wanted years ago to have them. I mean, we've made advances about positioning our state as a health care state. And we are kind of ahead of the game already, because we do have very good statistics among the whole country about having healthy people. We could capitalize on that. Yeah. So that's part of a product that we can develop. But we need the leadership to get people together, make a product, then market the darn thing. OK, I'm making you the benign despot. What do you do? You have total authority. You can tell the legislature what to do. You can make laws and regulations right now today. What do you do to improve our position, improve our image, so to speak, and make offshore investment come and build industry here? Well, one thing is that we got to identify products that we have a natural advantage of. Health care, for example, premium agriculture, exotic species of animals, plants, whatever it is, microbes that can produce wonderful chemicals like the gastroesanthin. We get these industries targeted. We give them incentives to say, grow, grow, grow, and then nurture them and basically put them in the flower pot, put some water on them, and wait for them to grow. Once they grow, then we can at least hope to get our engine running again. We have to encourage them and incentivize them. So now the last question, Tom, and then we'll have to go. And that is this. This is the ghost of Christmas future. Suppose we do nothing. We have $40, $50 billion of unliquidated liability out there. We do not have a prospect of paying that down. It's the rail, it's homeless, it's the ERS fund, and anything else that might come up. I mean, if we have a storm, that's going to be a multi-million-dollar effort to get back on track, at least. Remember Puerto Rico? Remember Puerto Rico. And Puerto Rico is in terrible shape. Terrible, terrible shape now. They have three governors in the past three months or something. It's really terrible. And corruption begins to get worse in a state that has no money to pay the bills. That's the rule of thumb. So the question I put to you is, if we do nothing, if we just go on with our extravagance and our complacency, what happens to us? We become Puerto Rico, essentially. That's what I think. If you don't want it to happen, if I don't want it to happen, I do something about it. And that entails getting into the right positions, leaders who have the vision to carry this out, the people who have the desire and the passion to follow what this leader says. Because we are going to need some vision and some following in order to get ourselves out of this mess. Jack Burns, where are you now? Exactly. Well, thank you very much, Tom. Really enjoyed. I can't say I enjoyed, but I think it was a worthy discussion. I hope we can do something else on this later. Thanks for having me on the show, Jane. Hello, Tom.