 Okay, it's a given Thursday. This is Jay Fidel and Sync Tech, and we have Tom Yomachika here on Talking Tax with Tom on a given Thursday. Welcome to the show, Tom. Thanks for having me here, Jay. Good to be back. Tom Yomachika is president of the Tax Foundation of Hawaii, and of course we're going to talk about tax and fiscal policy. So, since we spoke last time, the Council on Revenues issued a report. Can you talk about it? Well, the report was rather grim. It revised somewhat downward the revenue that they were anticipating for the year. So, we now have a budget hole of, I think, $2.3 billion, and lawmakers have to deal with that somehow because they are required to pass a balanced budget. $2.3 billion is a substantial percentage of the total state budget, isn't it? It's like 20% of the state budget. Yeah, the whole budget top-to-bottom is, I think, $14 billion. The GE tax gives us maybe $6 billion. All the other taxes combined give us maybe, I don't know, $4 or $5 billion. And then we rely on federal grants and other largesse from the federal government as well as to a lesser extent user fees and other charges for government services. And it all ends up to give us a balanced budget consistent with the limitation of the state constitution. But the federal government part, having the Republicans said, Mitch McConnell, that they're not going to entertain any more money either to individuals and certainly not to the states. Well, they're working with that right now. I believe the Senate just passed a, what is it, a clarification bill dealing with various pieces of PPP and the other programs that were already enacted. I think it broadens them a little bit. House and Senate have passed those. It's going to go on Trump's desk and he's expected to sign it. So there'll be something, I'm not sure what, but there's going to be something. There's not going to be $2 billion. It's not going to cover the puka here. No, not at all. And one thing you got to realize is that because the rest of the country is recovering faster than we are, and we have so much problems here, like with getting people to their unemployment checks, we are going to have people moving away. Matter of fact, a couple of days ago, the University of Hawaii Economic Research Organization's executive director, gentlemen named Carl Bonham, he told the House Select Committee that they're expecting an out migration of 30,000 people over the next two years. And if things get really bad, the pessimistic scenario is that you lose 30,000 people in one year. Yeah, and that has an echo effect. If you keep on talking about people leaving the state and other people who might not have entertained that idea, we'll start thinking also about leaving the state and then you get more than 30,000. And the worse the economy gets, the more people will do that. So then you shrink the tax base, don't you? Yeah, with fewer people and the same amount of government expenses, there's going to be a bigger burden per person left. So then the question becomes, well, what is the party in our big square building going to do about it? Well, one possibility we should not forget this is, gee, let's examine this. This is like energy efficiency. Before you generate more energy, then you think about how you can be more efficient in using it and use less. So what about cutting state expenses? I mean, people have been talking about how loaded the budget is for years. Why doesn't the legislature just cut expenses? Well, I think the primary reason is that the unions are having none of it. Corey Rosenley already came up with an op-ed in Civil Beat saying, shared sacrifices for the birds. We have UPW's Gary Rodriguez coming out and opposing any form of cuts for his members and basically saying we're not going to cooperate in anything that you guys do, specifically with reference to moving people around to, for people who otherwise aren't working and are getting paid for doing nothing and repurposing them to do something else. And then what I hear is HGEA is saying, well, not only are you going to not furlough us, but you are going to put in place the raises that were in the collective bargaining agreement. Oh, no. Oh, my goodness, Chris. Which is another $60 million. Oh, no. And my question is, with our tax base going down, with our economy in the tank, how can we afford this? What are you going to do? If there are no low-hanging fruits like, you find people who haven't paid tax for 20 years and go haul them and shake them dry, if you can't find people or companies like that, what are you going to do? Well, just to go on the track about reducing expenses for a minute, other states have reduced the retirement system payout. We really don't have the money to contribute what the rules require. In fact, we're late. We're in default. The state is in default of contributing billions to the employee's retirement system. You can't afford that. And frankly, I don't think it's efficient anyway. Those benefits are too rich. And although at one time, in a time of prosperity, it might have been appropriate to just leave Malone, we're not in prosperity. The unions can't take this position. And I guess I would ask you, what happens if we just respect the unions? And we keep on funding in and out of the state employee's retirement system. And we give them raises in a time of crisis. And we have all these people working rather being paid without working. And we don't want to repurpose them. By the way, there was a thing about Keith Connoisseur. Not that he's directly involved with the unions, but Keith Connoisseur has been home, the former prosecuting attorney, getting paid his full salary for a year now. And that's blown. Somebody should have said no. In any event, we have all these expenses going out. Unions won't tolerate any change. What's the ultimate, people leaving the state spiraling the whole fiscal enterprise down? What happens at the end of the day with that? Well, I think a better question is what's going to happen come November. Is there going to be any change? One way that the people can affect change is at the ballot box. If you think the person who is now representing you isn't doing a great job, go elect somebody else. And hopefully that person does better. We're not voting for a new governor in November. We're voting for what? City council and a bunch of legislators, am I right? And mayor. Mayor of Honolulu, a bunch of legislators, all the House members and half the Senate. Okay, you know, it's funny though, Tom, let me throw this at you. I can't remember a given candidate, maybe you can, who made it his primary plank to be more efficient. That is austerity. That is cut government spending. So we didn't have pukas the size of two billion dollars. Do you think that the people running for office are going to adopt that kind of platform now? Because if they all adopt the platform and we the voters vote for people who are advocating for austerity seriously, that might help. Well, it might or might not. I mean, it turns out that when people actually get into office and they are confronted with hard reality, you know, stuff changes. Yeah, I wouldn't argue with that. Not only does stuff change about this platform point, but any platform point, hard reality being political hard reality. It's not necessarily a good thing. So okay, so two billion dollars and no other choice and the unions hanging tough and ERS costing us a fortune. And being constitutionally protected by the way. Yeah, well, they're not going to agree to any changes. So we got a problem, Dallas, Houston, whatnot. So what that means increased taxation, because what else can the legislature do? I think they're limited from borrowing money. They're not going to get money from the Fed. What can they do but raise taxes or try? Well, I mean, there are some short term fixes like you know, trying to figure out what's all you know, these special funds that are floating around and there's lots of money floating around $2 billion probably close to it. Yeah. I mean, there are millions and millions of dollars floating around in special funds. Not all of them can be repurposed, but you know, maybe, you know, the better part of a billion dollars can. And then we really need to seriously think about what we're going to do and how we're going to do it. Then I think there does have to be some shared sacrifice on the part of the unions. I don't think it's really realistic for them to be insisting upon, you know, no damage and raises while their constituents, namely, you know, taxpayers like us, either have no income or are laid off and, you know, we and we couldn't make money if we tried. That's true. That's true. I mean, if you decided you wanted to go out into a non-economy and try to make some money, oh, it's very hard to do that. What are you going to do? Set up a website in your living room? I mean, there's nothing to do. There's no business out there. Nobody can pay your bills. The economy is flat. Oh, worse than flat. It's going in the tank. And if we don't do something about it, it's like this whirlpool. You know, we're kind of at the edges right now. And it's we're spinning around and going down. And if something doesn't stop the spinning, we're going to get sucked in. No, why is that reminiscent of a toilet? Never mind. Well, but the ledge has to do something. Give me the schedule of the ledge. Right now, it's in recess yet again. My recollection is they wanted they wanted to go into they had been in recess most of the spring because of COVID, although they were one of very few legislatures that actually did that. Now they're back, but then they left again. And they're in recess now for a week or two. I'm not sure why. And they they're going to come back and presumably do something. What is the schedule? Usually by middle of May, they're done. It's way past the middle of May. That's right. They got some obviously have some measures to finish up. The they got to polish off the budget. They have to, you know, do other things. And I think they are making allowances for taking up measures that we haven't seen before to do revenue enhancement or, you know, something similar. That means tax increases, right? It may be. What about money bills? You know, everybody always vibrates when you say money bills, and it goes to the money communities and the House and the Senate. Are they actually going to spend money? Well, they haven't yet. I mean, they've they've allocated some of the of the federal money that we did get under the CARES Act. A lot of it went to the counties. And, you know, maybe half of it got stashed into the rainy day funds so we can kind of go back and think about it and figure out what to do when the legislature comes back in the session. Yeah, let's talk about the rainy day fund because the people who are listening today might not have heard our discussion on that before. The rainy day fund has got a 150 million or something like that and it was stashed to keep it away from the governor. That's my understanding. Yeah, now it has like a 700 or 800 million because because 600 and 80 I believe came from or will come from the federal money. So that's a substantial piece of change and goes a far distance to dealing with our shortfall. But if it's in the rainy day fund, there's a question, there's a legal question, right? Whether it should have been put in there because it has to be spent by the end of the year and if it's not spent by the end of the year, it somehow evaporates. Right. One of the conditions that the feds put on the money that they gave us is that we spent it before the end of the year. So if we don't, it goes poof. They can do that. Yeah, so right now we're at risk of that because the money, I didn't realize it was that much, is still in the rainy day fund as we speak and it needs some kind of action to get it out of there out of harm's way, so to say, and start using it for, you know, dealing with the shortfall. What action does it require? The legislature has to appropriate it. So when they get back in on June 15th or whenever it is, they're going to start talking about how to spend that money so it can do the most good or at least supposedly, which may mean, you know, shoring up the public worker unions and paying them their pay increases. If they have their way. If they have their way, but boy, that would show that the unions are way too strong in the state to ignore the crisis and just take whatever they can take. They really should cooperate in some kind of combined effort to deal with the crisis. We are certainly not out of the crisis. We're not out of the crisis in terms of, you know, covid because every time we take a tourist in, we take a risk and we're certainly not out of the crisis in terms of the reopening because we're not reopened. You know, and you have to consider when you're going to reopen the economy to tourists, you got to give the tourist time to plan and you got to give our businesses time to ramp up. You know, it's not going to be like, hey, if we say, you know, tomorrow all the tourists can come back in, that we'll all be ready the next day. It doesn't happen that way. Okay. People who are taking vacations need time to plan them. They need to buy the airline tickets, they need to arrange for the time off from work, you know, at wherever they are now. They may need to arrange for visas and things like that. They have to obviously book the transportation. They have to figure what they're going to do when they're here. Hopefully a 14-day quarantine is not going to be part of that because that's going to be, you know, 14 days they pay for and they can't do anything. Yeah, and then if you have it and don't enforce it, we look silly, which is what we looked like before. We have it now and we don't enforce it. Once in a while there's an arrest report in the newspaper or a fine, but that doesn't convince me that most tourists who are theoretically subject to the quarantine are abiding by it. But the other thing though, and I really like your thoughts on this, is that, you know, this is not a bubble machine that is standing in the wings waiting to do business with tourists who would come, you know, as soon as they could because it's a wasting asset. You know, if the store stopped doing business, it might have gone off the side. It might have lost all its staff. It might have lost its inventory supply lines. It might not have been able to pay taxes or the rent. It might be out of completely out of business. So we have to have several restaurants and all that kind of stuff that have already permanently closed. Yeah, so that some entrepreneurs and some banks would have to come in and reestablish that part of the economy. And that's not overnight. And not only that, but it's not clear there are entrepreneurs and there are banks that would belly up to that task and start the stores and restaurants again because it's somewhat spectacular. And it's not just the art entrepreneurs. It's the big chains too. Yes, thank you. Yeah. This is a risky business. Why put capital into a risky business? Go somewhere else where the economy is really reopening. Yeah, absolutely. Wall Street probably has some reluctance about us. And this, by the way, Tom, on top of the fact that Hawaii has a huge reputation for being a place that's hard to do business. A huge reputation for over-regulating and taking huge delays on permitting and the like. So it's not as if Wall Street and other entrepreneurs in the mainland or other chains from the mainland are going to rush in. They may just, you know, write it off. They may write us off. And if that's the case, we have just a fraction of what we had before in terms of all those accessory businesses around tourism. That's absolutely correct. I mean, in order to show that we're ready to be open for business again, we've got to do something about the regulatory pipeline. We've got to do something about the delays in getting government services or even requiring government services in the first place. I mean, we regulate so many professions, even things that people don't normally think of as professions. We regulate them. And the result is, you know, staggering, you know, user fees, quote unquote, in governmental delays and for what purpose? Well, on taxes, regressive taxes like the gross exercise tax on everything. You know, they've been talking about relief from that. You've been observing that at least and speaking on it for years. But we haven't had any relief on the gross exercise tax. And that's a real burden on small business. It's a burden on the customer as well. So, you know, what we have here is a pretty, a pretty dreary picture of trying to reopen, trying to try to go forward on it. And I, you know, I think instead of time for a leader, time for a leader, don't you think, to stand up and say, okay, we have to be business friendly. We have to do everything in our power to restore Wall Street and mainland confidence and the confidence of prospective tourists in our business community and in our hotel industry and so forth. But we don't hear that, do we? No, we don't. I mean, I think that's, it's critical for us to concentrate on what is going to get our economic engine running again. We have to realize that if government is going to run, it needs to run because it's being fed by the economy, not the other way around. I mean, they could think they think they can take what they want to. But the grim reality is, you know, if we don't have, you know, if we don't have the money to pay them taxes, that money isn't coming in. This is serious and has serious implications. But there's really nobody speaking on it. Now, again, going back to the platforms of the people who are running for office, I wonder if their heads are in the right place. I wonder if the, what do you want to call it, the public interest groups are going to impose on them to make reopening and the detail of reopening and a new reinvention of Hawaii as a place to do business. They're going to make that an important plank for them. Even understanding that when they get into office, they may not abide by that plank. It seems to me that's our saving grace right there. That's the biggest, most important, most immediate thing that we can do. Right. I mean, we need to start, you know, thinking in the right direction if the, if our current leadership doesn't, we need to figure out what the candidates are thinking. And you look for candidates who are going to lead us, or lead us, period, but lead us in the right direction. Yeah, okay. We got to get them to adopt planks like that and understand it. I can visualize a lot of these candidates as not understanding it, not adopting planks. What about the federal delegation? Can they do anything for us at this moment of crisis? They have been trying, I'm sure. But, you know, Washington has its own problems, as you know. There's a lot of gridlock over there. There's, you know, there's not as much collegiality as there was when, you know, when I was in high school, say. And now each of the politicians, you know, openly calls the other party the enemy. You know, it's just amazing. And our president says or retweets that a good Democrat is a dead Democrat. That was really remarkable a few days ago. Well, to say nothing of the fact that the country itself is in dire straits. You know, you say we have a reopening on the mainland. I'm not so sure. This, this, you know, nationwide protests is probably getting in the way of a reopening. It's, it's creating, I'm sure, I'm sure we're going to see more of this. It's creating more disease, more infection. And that in turn will create the need to close down again. Yeah, but at least, at least the mainland, they have, they have manufacturing, they have agriculture, you know, they can, they can create their own goods. They can, they can process food. We have to import most of that stuff because we have, you know, some capability of manufacturing, which is very, very small and some, some food capability, but it's also very, very small. Yeah, we've been trying to do entrepreneurial encouragement for 20 years, actually more like 40. And we have not succeeded in that regard. Most, most of the capital, most of the new businesses are created, as you mentioned, by chains or have been created by chains from the mainland. And the mom and pops are really not active. You know, later today, we're going to have Shinoah Fonsworth from Blue Planet to come on the show. And she can talk about diversification of the economy. I mean, it's, it's an appropriate time for that, don't you think? But you know, the cost of diversification, it's not like you snap your fingers and all of a sudden you have a diversified economy. It's harder in a crisis, don't you think? A crisis makes you think you should do it, but it's harder in the crisis, don't you agree? Yeah, because a lot of times your economic diversification also requires setting up infrastructure like supply chains. You know, manufacturing businesses don't exist in a vacuum. They need you know, parts to manufacture their stuff with. If you're in a tech business, you still need parts and equipment, along with, you know, other supplies. You may know more about this than I do. In an agricultural business, you need your feed, you need your your fertilizers, you need your your gross product, you need your herbicides maybe, or some some means of, you know, controlling pests and predators, so they don't eat your food before you do. Well, you know, each one of those things requires an investment of money. You know, you want to talk about supply chains and inventory and marketing and and restaurants to buy those things or other businesses, customers to buy those things, you know, you have to, you everybody needs money. So it's very hard to spiral it up again to actually reopen. It's like question economically is where where do you start? You have to find places where starting gives you the the best leverage. And I suggest, Tom, that nobody's thinking about this. Deben's not thinking about it. The government, the state government are not thinking about it. I don't know if the legislature has thought about it, but you have to you have to put it in a certain place, get to incentivize it, you have to you have to get people off the dime. Otherwise, you know, it's going to be organic. And I don't think we want organic now, because organic will take 100 years. What's the word we do? We're out of time here today, Tom. Can we sort of assimilate all these thoughts and what's your advice? I'm making you consigliary to the entire state. What's our what do you do? Well, we have to figure out some way of getting the economy running again. We need a definite reopening plan, you know, subject to revision only in the most dire circumstances. So we need to have something that businesses can rely on that people can rely on that the prospective tourists can rely on. So they'll, you know, at least come back here and and our business people can know the, you know, that they at least have a market company. Okay, I feel certain we're going to talk about this again. In fact, let me put it another way. It's absolutely essential that we talk about this again. This is the biggest problem the state has seen in our lifetime. Anyway, thank you very much, Tom. Tommy Omachika, President, Tax Foundation of Hawaii, looking out for our fiscal future. Thanks so much. And thank you for having me on the show.