 Aloha and welcome to Ehana Kako. We're here every week on the Think Tech Kauai Broadcast Network. I'm Keely Ikeena, president of the Grassroot Institute. One of the things I love about going to work is that I learn something every day because the people at the Grassroot Institute are all smarter than me. They're young, they're energetic, they've got great education, and they care deeply about the problems facing society. Everything from homelessness to the cost of living to freedom and justice. And it's always exciting to be working with young researchers, especially when they have a passion for seeing a better economy, a better government, a better society. Today I have the privilege of being with Andy Slavin and Iram Ruiz, two researchers at the Grassroot Institute here in Honolulu, and they're going to share a little bit about their work, particularly some of the things they've discovered about the state and county budgets. These are government-issued budgets for the determination of how monies of the people are spent. And you might be surprised at some of the things. In fact, starting this legislative session that just ended, we presented our own budget report. It's a lot thicker than this, but when we did go to the legislature to weigh in on numerous issues that were being discussed by our legislators, we did so after having conducted a thorough analysis of our state's budget. In other words, what the state is spending on and planning to spend on and where those monies are coming from then, where those monies are going. Throughout the year, we update that budget, and these two gentlemen with me today have been doing research in that area. So please welcome to the program, and I think you're going to enjoy this very much, Andy Slavin. Aloha, Andy. Glad you're with us today. Thanks for having me. And Iram Ruiz, I'm glad you're with us. Let me start. Let me start here. Fantastic. Let me start with Iram. Iram, originally you hail from what part of the world? Puerto Rico. Alright. In fact, coming from Puerto Rico is one of the reasons you decided to come to the Grassroot Institute in Hawaii. What does Hawaii have in common with Puerto Rico? Well, of course, there's the subject of island economics. You know, as islands we have a special position. That's right. We have competitiveness issues that we have to deal with. Well, that's interesting because oftentimes we're comparing the economy and practices for legislation and the economy here in Hawaii to the other 49 states, which are on what we call the mainland. But we have territories such as Puerto Rico that share a lot in common with us. What's one thing that's in common between Hawaii and Puerto Rico in terms of the economy? Well, one of the biggest joint causes, I believe, is the Jones Act. Okay, now the Jones Act. Tell some of our newer listeners, viewers, what exactly that Jones Act is. Well, it's a law that, it's a protectionist law which prohibits the transportation of goods between two American ports if it's not done on an American cruise ship. Okay. Own ship. What else? Very important, built in the US. Built in the US. That's what makes it so expensive. And flying the US flag. And I know you know all of this because you've read the law and so forth. Well, you know, this program is not on the Jones Act. We've had many on them. But from your point of view in Puerto Rico, what does the Jones Act do for island economies? Well, of course, it raises the cost of living on the islands because as you, the transport costs for the American marine fleet is one of the most high in the world. This is well known. It's not a very efficient marine fleet. So right now Puerto Rico is undergoing one of the biggest crises. And something that could really be of help to us would be some leeway through the Jones Act. If we eliminate the Jones Act, that would free up some income of Puerto Rican's pockets and, in theory, that would help at this point. In fact, hasn't a lot of the shipping, if not all of it, gone to Jamaica in terms of being a shipping hub of the Caribbean there. And Puerto Rico has been left out of that new economy. Yeah, yeah. And with shipping, labor costs are obviously the crew. It's a big part of it. So you can arbitrage very well with relatively poor countries can do well in it because the sailors will only get paid wages relative to their country. We're going to get back with you in a moment and talk about the Hawaii state budget, which you've analyzed very carefully. But just one last question. To what extent has the Jones Act impacted the economic plight of Puerto Rico now? Well, it's a big impact. It's nothing, it's not a lot of people hail it as a panacea. Like you fix the Jones Act and everything else will be fixed. But in reality, the Puerto Rico has a lot more problems that are more than the Jones Act. All right. Andy, you've been working on several pieces of research with us. And one in particular has to do with a project that has been near and dear to our heart at the Gratuit Institute, and that is promoting the shifting of business out of failed government business models to the private sector, particularly on the island of Maui in terms of its hospital system, public hospital system. In fact, there's some legislation you've been looking at. Yes, Senate Bill 2077, which essentially would allocate money to the union employees who are being shifted to the private sector. Now, isn't there a problem here, however, because the legislature passed the law, the governor signed it into effect, and as a result, a failing bankrupt hospital system on Maui was now able to contract with Kaiser after several organizations competed for running the hospital in an efficient way. And the good news is that over 95% of the union workers were hired back at the same or higher wages with benefits. And now this bill you're talking about, what's the number of the bill 2077 is coming from union leaders asking for a $40 to $60 million severance package for people who aren't losing their jobs and aren't losing their benefits. What's going on here? Well, not only did 95% of the employees get hired back into Kaiser, 100% of them were offered their jobs back. Oh my goodness. So some took an early retirement. Yes, correct. But this, if I understand this correctly, they're not in need of severance packages because their benefits have not been impacted, their salaries have not been negatively impacted. So what's going on with this bill? Well, the bill is in retaliation to Act 103, which allowed the privatization. And within that act, they basically stated that, you know, like what you just said, they have to be hired back in, they'll retain their pay and their severance package. And I guess the union leaders are trying to portray it as if they're losing their jobs. Well, we're going to be monitoring this more. In fact, any moment now, we have a news release on the latest going out to the public. So I hope you'll monitor that. And to keep up to date with what's going on, go to the Grassroot Institute website, grassrootinstitute.org. Now, before we move on to the budget matters, Andy, you've also had an interest in the Clean Water Act as well as fisheries and so forth. There's a particular aspect of the fishing industry that in Hawaii you've been researching. Yeah, right now Hawaii has a catch limit, which allows one type of fish to be fished so many times. And it's first come first served. So if one boat gets a bunch of it, then another boat gets less of it. It doesn't matter no matter what the limit's at. That's when everyone has to stop fishing. Okay. And so what is the situation with that? Does it create a problem? Yes. So at the beginning of each catch limit year, everyone will rush out and try to catch as many fish as possible. Not only is that dangerous, but it can affect the ecosystem by overfishing rapidly. So we have a law here designed presumably to protect the environment. But in the way that it gets administered and the way fishermen compete for fish, it ends up being counterproductive. Correct. And with a, I think Alaska has implemented a catch share program. Okay, catch share. Let's define that for a moment. What does that mean? A catch share program? Each fishery or fish company gets a certain amount of fish they can catch. And it's allocated depending on the size of the company. And they also allocate some for native, native Americans and native citizens of the area. And so they can trade their catch shares and trade portions of it and it lasts all year. So they don't have to rush out all at once to get there. Is that a good model? Is that a good solution? It's not applicable everywhere, but I think it is in Hawaii. Well, I look forward to seeing more of your research on that. Thank you. Now to the issue at hand today, we've got these two gentlemen who've been pouring over statistics, documents, things that we in the public don't like to see and don't get to see very often. And they happen to be numbers and figures that deal with the state and the county budgets. Iran, let's start by talking a little bit about the state budget. But exactly what is this document so very important that gets voted on, gets debated over at the legislature, the governor puts his input into it. What exactly is the state of Hawaii budget? Well, usually when people refer to the budget, they refer to the executive budget, which is the largest of the three of the judicial and legislative also. All right. But what you have to keep in mind is this the state budget is not all financed by Hawaii taxes. All right. What are some of the sources of revenue other than taxes? I think everybody knows and feels the fact that our taxes go to the state budget. What else goes into it to provide the income? Well, there is there is federal transfers. Okay, our big part of it. They were 18% in 2015. Okay, the fiscal year. And you also have special funds, which are predetermined by law to some special need group or special function and they cannot be readily allocated to something different. About how big is the state of Hawaii budget? Well, in 2017, it was 13.7. Like the next year's budget will be $13.7 billion. Okay, $13.7 billion. We have about how many people who are in the state of Hawaii? About 1.3 million. So per capita, per person, we're spending about how much or collecting about how much in our budget? I mean, if you just divide by a million, you'll get $130,000 per person. We'll let you check that during 13,000 per person. Much, much more than that. It's a big amount. But you're tracking over time, whether we're spending more or less per person, and you've got some figures with respect to that. But before we go any further, what are some of the things that the budget actually covers? What areas? I mean, what exactly are we spending on through the state of Hawaii budget? Well, the biggest categories are K through 12 education. Okay, education. You have also the University of Hawaii. You have Medicaid. It's a big part of it. You have the human services, which is another department. So there's many departments. A lot of them are small. Some of them are very big. So health and human services are really at the top. Yeah, that's one of the biggest. Do we also spend upon paying interest and servicing and the loans that the state has taken, the debt that the state carries? Well, it depends on the type of because there's capital budgets and usually the big debt, the big transfers of debt, which are like to be able to for capital renovation or those are usually included in a separate budget. Well, this is a good introduction. When we come back from a short break, I'm going to ask you to share some of the surprising things that you've discovered in the state budget that people may not realize. I'm here with Iram Ruiz and Andy Slavin, researchers at the Grassroot Institute. We'll be right back to talk about the state budget as well as the county budgets and particularly the budgets on Maui for the police department. Don't go away. We'll be right back after this short message. 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I want to welcome you back to A Hana Kako here every week on the think tech Hawaii broadcast network. First, I want to say mahalam to J. Phi Dow and the great crew and staff who are here every week pumping out about 35 hours of original content from here in downtown Honolulu that goes across the world. At the Grassroot Institute, we love to say A Hana Kako, which means let's work together. Let's work together for a better government, a better society, a better economy. It's not about pitting various views against one another that may be partisan politically or that may be religious or that may have to do with various ideologies. It's really about the bottom line. We need a better economy here in Hawaii. I think we all agree about that. And we need to do things to make housing affordable. We need to do things to make living affordable and to end homelessness. We also need to make sure that government is held accountable. That's what we stand for when we work together with everyone. And today I'm delighted that we're working with some young people, many young researchers at the Grassroot Institute who are getting their start in public policy. Today we're talking with Andy Slavin and Iram Ruiz about the budget. Iram, back to you about the state budget. As you analyzed our state budget and we forced you to pour over everything, go into every department and get all the data in there. Was there anything in particular that really surprised you and that would surprise the people to know about our state budget? Well, the thing that surprised me the most was that spending on education and both high and both high school education and higher education both have fallen in real terms since 2005. Now, when you say fallen in real terms, you're saying that there may be an unreal way of looking at the data that we're in terms of spending. Real terms just means that it's inflation adjusted. So after adjusting for inflation, inflation of course makes money less valuable as time passes. So let me see if we understand what you're saying. You're saying that when it comes to real money, that we're actually spending less per student in our public schools and our university, our state university, than we were in the past. Okay, give us a little bit of data about that. Not too much data, but enough to show us that you're telling the truth. Well, I mean, the K through 12 was about 250 million dollars in 2005 in real terms. And today it stands at $2,000 million, so $2 billion. So it went down by half a billion dollars over 10 years and in real terms, of course, and the student population in Hawaii has actually grown. So. Okay, so that's another thing then the amount of spending or the amount of value of dollar has gone down, but the population of students being serviced has grown up. Is this why we see, for example, a shortage of air conditioners in the school system, a lack of certain programs in the school system and so forth, because we actually are trying to service a larger population than our schools have the capacity to service? That's a great question. And it might well be, you know, if you delve deep enough into the budgets, you can break it down by every single expenditure and that would be required to determine that. But in terms of dollar amounts, I thought we were spending more and more year after year, but you're saying the actual dollar value is less and less. Yeah, because of inflation. Okay, how about something else? What else did you find that was surprising in the state budget? Well, in the we were talking about the budget earlier and with the biggest part of the budget is a general fund. It's 51% of the budget of 2017 and that one is funded primarily 87% through state taxes. So when we're talking about a Hawaii tax burden, we should really be looking at the general fund. All right. And most of the tax revenue in Puerto Rican Hawaii comes comes through the general excise tax. Okay, let's explain that for a moment because the public hears the term GE or GET, the general excise tax, every time we go to a cash register at the point of sale, we have a certain amount that is added onto that. But we sometimes don't understand that this is a combination of two kinds of taxes that are sometimes different, a sales tax and a general excise tax. So what exactly is this tax that's put onto the transaction of goods at every point of sale? So the general excise tax is a very broad tax because it covers a lot of transactions in Hawaii's economy when when it covers services, good. So it's like you could think of it as a sales tax, but that applies to a lot more things. Now, every time someone goes to the store, they're charged, but every time a business buys something to work on it from someone else, another business, they're charged. So this tax is pretty pervasive. It goes on and on and on. And about what percentage of the general fund is raised through this GET? Well, I know the general excise tax was about 50% of all I'm going to stop you there about 50% of tax revenue of tax revenue. So the tax revenues are from the 86% of the general funds are around 45, 46, 43. You're telling us that half of our tax revenues that go to the general fund, which ultimately are about 46% of the general fund come through this thing called the GET. Yeah. Wow. This is a lot of money that people don't think about. People think generally one stop. Well, I've got to pay about four and a half percent more if I'm going to buy this bag of popcorn or chips or whatever it may be. See what I like to know. Well, it adds up quickly. But the important thing is the irregressivity of it, because it's good in the sense that it's broad. It covers a lot of transactions, so you have a big tax base, but it hits everyone the same. Now, you said regressivity. That's a technical term that we may use in the world of wonks. So this is a regressive tax, which means what in terms of those who are at the lower end of the economy, those who make the least amount of money. Someone with a very high income in Hawaii will spend a much lower fraction of its of their income paying the GET than a person who has a lower income, because as we know, since everyone pays the same rate, people with lower incomes go to stores, the more their income is used in consumption. So this consumption tax that is on every purchase actually has an inordinate impact upon the lower economic category of people. Do you have an idea as to how much that is? Not exactly, but the state of Hawaii is already the most expensive state to live in the Union. There are studies that say that in Hawaii, we are paying between those people at the lowest end of the economic ladder in terms of income are paying 13 to 15 percent of their income on GE tax alone. Well, the top are paying like two or three percent. So this is clearly something that harms those who at that level are not able to afford. Well, you know, one of the things we understand at the Grassroot Institute is that the idea of raising the GE tax, which is always done for things like public projects such as the rail and so forth, is very tempting because it generates so much money and it also is something illusory that looks like it's not raising a lot of taxes when it really is. That is actually counter productive to society because we are taking money out of the front end of the system, meaning consumers spend less, businesses spend less, less productivity happens, less prosperity takes place, and the government in the end collects less income tax. Really an idea. Why don't we just lower the GET and let people have more money and businesses have more money and in the end government collects more? Yeah, I would agree. Sound good? We're going to switch over to Andy over here. You've taken a look at the county budgets and let's look at one in particular. Grassroot does a lot of work on the island of Maui. Tell us something about the Maui budget. Well, in particular the police budget since 2005 it's grown I think 23% in real terms. Okay. Now 17% of that comes from salary and what we found is they're not actually increasing their police force, they're decreasing in size relative to population. Okay, so if I were to ask you simply about the increase and you said about how much over this period of time? 23% budget, 17% of that is salary. Okay, so 23% increase with 17% budget being salaries and so forth. Correct. On the surface it would seem to make sense if we're getting more police services, if we're getting a larger population protected, if crime is on the rise and if you actually need to be spending more or if we had not been spending enough. Correct. Was that going on? Is that the rationale for this increase? No, crime has actually been dropping since the 1990s and there are less police officers per person than there were in the 1990s. So you... Well, now those are two interesting things. Number one, you're saying the need is less so you're not so convinced that the spending of money is the right thing to do. Correct. But secondly, you talked about the bang for the buck. What was that second figure you gave us? That the number of police officers has decreased. The number of police officers is decreased per person. So we see the cost going up in a period of time by 25% but we also see the actual number of police on the ground going down. Yes. Now is that because we're using better methods like better intelligence, 9-1-1 routing and all of that better than actually having... Certainly some of it, yes. But seeing as how 17% of that increase is going towards salary. You looked into it a little deeper. Yeah, it's alarming in some aspects. Let me play devil's advocate here. What's wrong with paying our police officers? They're not making huge salaries or making good salaries. Is this merely compensation that they deserve? Well they're not... What did you find? They're not earning high salaries per se but they're generating enough overtime to sometimes increase their income by 90%. 90% in just overtime, yeah. In other words, we're paying a police officer to have a full-time job but on top of that full-time job, this officer might be getting 90% more. And overtime costs. Now could that be because we have the shortage of police officers and need to pay the existing group more? Well in some cases they were making close to $80,000 in overtime. I think that that's quite a bit of overtime to be making someone. Well that would probably surprise the public to learn that. It would, yes. I assume so. And what did you conclude as you looked at not only the statistical data here but you kind of tried to evaluate what was going on in terms of... I think that it needs some further studying but it's definitely raising some questions on who's gaining this overtime because it's not consistent per job title. So sometimes you'll have a sergeant making no overtime and a police officer making $60,000 in overtime. So it's not consistent with the title which means that there needs to be further questions on who can make this overtime and how they're making it. Well at the very least there need to be clear principles that our government understands, that the public understands, so that we're able to tell whether a good thing is taking place or a bad thing is taking place. Correct. At least you've dug up something that shows it's worth looking at a little bit more. In closing, Iram, let me ask you what have you gained by spending this time of your life while you're still learning, still at the beginning of your profession, focusing on researching public policy at grassroots? Well I have learned that things aren't as simple as we sometimes see. When you delve into the data it often becomes much more complex and you know the real world is is sometimes hard to understand. We have to accept that as researchers. But I've learned a lot about how why, how it operates and it will be very helpful on my way back to Puerto Rico. All right. Andy, how about you? Yeah, similar. I didn't realize sometimes in the public eye how simple things can seem, like when you see it, a statistic on the news, but working with money and putting things in real terms kind of opened my eyes to how much you actually have to look into something before you can fully even start to understand it. Well both of you are doing great work and I appreciate your research as well as the problems that we can help solve with your research. Thank you for being on the program and thank you for being here. Thanks for having us. Well it's been a delight today to talk with our two visiting researchers, Iram Ruiz and Andy Slavin, who are working very hard with the whole team at the Grassroot Institute. If you're watching and you're thinking, hey, I would like to spend a year or a summer involved in high-level policy research, finding solutions to problems that society faces, contact us at the Grassroot Institute. We'd love to hear from you. Until next week on Ehana Kako, I'm Kili'i Akina, president of the Grassroot Institute, saying mahalo to the ThinkTakawahi Broadcast Network. Until next week everybody, aloha.