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The Money Train

How public projects shape our economic future.

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Stung by the bursting of the Japanese bubble and a slow U.S. economy, Hawaii’s economy went into a decade-long slump in the 1990s. Unemployment in the state was at more than 5 percent from 1994 to 1999, with construction one of the hardest hit industries. During that time, the only major construction projects were the First Hawaiian Center, completed in 1996, and the H-3 freeway, a $1.3 billion project completed in 1997.

“When that was completed, there was nothing on the books, nothing at all,” says University of Hawaii West Oahu labor economist Lawrence Boyd.

It is no small footnote that in 1992, Honolulu’s City Council voted against raising the general excise tax to fund a mass transit system, effectively killing the project. “Had the rail program been instituted, it would have kicked in when the other construction was bottoming out,” Boyd says. “Given the relative size of it back then, it would have knocked a percentage point off the unemployment rate.”

Public projects are often framed by heated political debate, and sometimes overlook the more abstract, but far-reaching economic impacts. In any large project, construction jobs are created and money is dispersed among subcontractors, suppliers and other construction-related services. Then, new, much-needed infrastructure often spurs private developers to invest in the area. In other words, public projects soften the landing in cyclical industries like construction, an industry that trails only tourism and military in importance to the Islands’ economy.

Without any substantial public projects in the 1990s, the construction industry and the economy didn’t bounce back until the recession following Sept. 11. After that, though, the construction industry experienced unprecedented growth. According to the University of Hawaii Economic Research Organization (UHERO), construction-industry income grew steadily from $1.8 billion in 2002 to $3.2 billion in 2007. But that boom is again cooling.

“When you’re in those kinds of periods, you’re going to see a little bit of a slowdown after a period of time, and that’s where we’re at right now,” says Gerry Majkut, 2008 president of the General Contractors Association of Hawaii.

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Hawaii Business,September