Can Gov. Linda Lingle fulfill her promises?
NOTE: This online article is an expanded version of the story which ran in Hawaii Business January print edition.
Change. It’s the premise upon which leading gubernatorial candidates ran their campaigns for last year’s election. Oddly enough, before Hawaii’s new chief of state even set foot into the office, she already delivered – by becoming Hawaii’s first Republican governor in 40 years.
Former Maui Mayor Linda Lingle won by a hefty margin of 17,000 votes, an undeniable call by Hawaii residents for some serious change. And the fact that this longtime Democratic state placed its faith, not to mention votes, in Lingle’s agenda, suggests it is not just looking for temporary solutions. Hawaii is expecting improvement.
This Legislative session, Lingle faces her first test in proving she can effect similarly dramatic change for Hawaii’s business community. Her odds could be better. When Lingle was sworn in last month, she was automatically saddled with the all-too-familiar repertoire: a daunting budget deficit, an anemic economy, an underfunded public education and so on.
On the eve of inauguration, Hawaii Business sat down with Lingle to find out her plans for addressing the issues affecting our state’s business community.
Q: I’m sure you’ve heard this criticism before: “State government doesn’t understand business.” How do you plan to change that perception?
A: What I was able to do on Maui, and what I want to do here, is to infuse in everyone the importance of a strong economy, whether they’re in human services, land and natural resources, wherever they are. The reason I put so much emphasis on a strong economy is that it’s the only way our families can have a good life: if they have good jobs. That’s the only way we can have the resources we need to carry out the art programs, human services programs, environmental programs – is to have the money. The only way to do that is to have a strong economy. So it won’t be 15 cabinet members and only one of them is focused on business. All of them will be focused on the importance of successful businesses and a strong economy. Even though that may not be their major focus, they’ll know it has to be factored into all of the decisions we make.
Q: Before we get into specifics about your plans for this upcoming Legislative session, briefly summarize what your top priorities are for businesses in Hawaii.
A: There are three major issues for us, and they all relate to business, actually – diversify the economy and expand the job base; improve public education; and restore trust in government. The issue of trust means to open the government up to make it more transparent in its decision making. Treat all people fairly, so when an investor is considering coming into the state, or a local investor is considering expanding their business, they know they’re going to be treated fairly and the laws are going to be applied to them as they would to anyone else. You won’t have to know someone to get something done. That’s very important. We will submit a package of bills that go to the issue of restoring trust. They will involve things like government contracting, how contracts are awarded, who gets chosen, open up the process. In my campaign, I proposed putting two non-government employees on the contract-selection committee.
In improving public schools, we have some major proposals throughout the campaign: local schools boards; restoring discipline; major vocational, technical high schools. And I really want to involve the business community. I want them to help us establish more business-oriented education in the schools. I know there’s already workforce development, but I want them to be a major player in helping us prepare young people for jobs when they get out of college. If they’re not college bound, I want them to have something they can succeed at right after high school.
Third will be our economic development proposals, including a reduction of taxes on medical care, reduction of a variety of regulations and just generally opening up the process. As you know, I support the tax credit at Ko Olina, the continuation of the Act 221 tax credit. Again, we need to create jobs that are higher paying, so we can live a good life in Hawaii. I know the emphasis has been on “How do you create affordable housing?” Well, how do you create better-paying jobs so we can afford the housing we already have?
Q: The state faces a daunting budget deficit. Can we afford to dole out such tax credits, including the $75 million construction tax credit for Ko Olina’s development and Act 221?
A: I think these tax credits will actually increase revenues to the state. If you think about it, the way the credit was structured over a 10-year period. So the maximum tax credit they would get in any given year would be $7.5 million. They’re going to create thousands of jobs during construction. Think of the payroll that’s created, the taxes people pay and the number of people who were on assistance who are no longer on assistance because of this tax credit.
My focus is the Leeward Coast. It was never Ko Olina or the kind of project it was. It gave us an opportunity to create jobs for a community that really has been left behind. I don’t want that to continue. It’s sort of out of sight, out of mind. Just pass Kapolei, and that’s the end of anyone’s thought process. We need to recognize that this long period of unemployment for all these people in the Leeward Coast has created some serious social problems. From my point of view, while we need to provide services, the long-term solution is to create employment, so people don’t need these types of services.
Q: Some critics argue that Act 221, which allows investors in qualified high-tech firms to receive credits worth 100 percent of their investments, has been exploited as a tax shelter. Last year, former Gov. Ben Cayetano introduced a bill that would tighten the law’s investment requirements. But you’ve said you don’t want to amend the law.
A: I think there needs to be some administrative rules as far as Act 221, so people know exactly what the rules are. The legislation already gives you the outline. We actually need to look to expand Act 221 to some other fields that aren’t covered by the legislation. One of them brought to me during the campaign involves Hawaiian music and entertainment. People want to promote local culture, Hawaiian entertainment, Hawaiian language. There may be some issues regarding the CDs they produce. I’ve had some conversations with attorneys representing entertainers here. In technology, there are completely new fields today, like biometrics. That’s a whole field that’ll become very big, in my opinion.
Q: For years now, Hawaii has been written up as a tough place to do business – we got slammed by Forbes magazine just a few months ago. How do you improve the state’s reputation on a national level?
A: I predict we will be successful in turning around the reputation Hawaii has. I think my election in itself sent out a strong message. Our state was national news because it elected the first Republican in 40 years, and that signals people wanting further change. People outside our state took that as a positive sign. We have people who were thinking of investing and put it off till the election was over, so the election, in and of itself, was a plus. I get so many e-mails from young people – and they’re my favorite – they’re from Hawaii, went to school here, had to go away for a job. Now they’re talking about how excited they are about the possibility of coming home because they see, in our administration, the commitment to expanding the economy.
Q: Back here in Hawaii, there are two universal complaints among businesses, large and small alike: They’re overregulated and overtaxed. How do you plan to address both issues?
A: For too long, business has been seen as something that had to be controlled, something the government couldn’t trust, profit wasn’t a good thing. We have a very different attitude. Profit is a great thing. It’s what businesses strive for so they can hire people, give them benefits, expand and build new stores so other people have jobs in construction. I am a great admirer of people who are in business, who risk their money, who work as hard as they do.
The “one-stop shop” has a lot to do with coordination between the county governments and state government on permitting. Because what I saw as mayor of Maui, was overlap between the two and not as much cooperation as we could have. One of my proposals was having a new “power-sharing committee” formed to identify opportunities where we could make life better for people, for businesses by this coordination. I’m the only governor who’s ever been a mayor. I think I’m in a unique position to be able to see both sides of this issue.
In my conversations with businesses, taxes are not as big an issue as overregulation is for them. And I’m going to focus my attention there in working with the business community. But there are two tax-related issues or obligations: workers comp and prepaid health insurance. I’ll be talking to businesses about both of these. These are both complicated and major issues. They involve so many different interest groups – not just the impact on business community, but the impact on workers, the insurance companies, the medical providers.
I was talking to the doctor today about the breast biopsy I had done. She’ll get a few hundred dollars for that. For the exact procedure in the Mainland – they’d get about $1,500. We have nurses about to go on strike, making $25 an hour. The exact same nurse, doing the exact same job in California is making $41 an hour. So there’s a big disparity in wages in our state. And that may be because people are willing to forgo some of these wages in order to live in Hawaii.
So when you talk about things like prepaid health plan insurance and workers comp, they’re major burdens to the business community, and we need to talk about it. But there are a lot of other aspects to it that have to be thought out. Because if we talk about reducing the prepaid health care obligation on business, what you’re really talking about is a paycut for their workers. Workers have to pay for a bigger portion of their medical insurance, so they have less money. So I don’t think it can be taken in isolation, but I think there are things like tax credits for employees who are willing to pay insurance for workers who work less than 20 hours a week. That’s one creative way. Businesses want to provide health insurance. The issue is: Can I provide it and still stay in business?
Q: You’ve strongly supported the privatization of government services. How do you reconcile that with your pledge not to lay off any government workers?
A: Privatization is a tool that has to be available to government, but it’s not a goal in itself. The goal is to provide the best service at the best price to the public. Sometimes that means government workers, sometimes nonprofit organizations, sometimes it means hiring private businesses. The way you’re able to use privatization as a tool and not lay people off, is when there are vacancies, instead of filling that job with a public worker, perhaps that job gets done by a private company or nonprofit. Or when you expand a government service, when you build a new school, instead of hiring more government workers, you hire a private company to do your landscaping, grounds maintenance. That’s how you can do both of these things. It does not mean displacing any government workers. That’s a pledge I made, and one I intend to keep.
Q: Cayetano managed to push through some of his civil service-reform bills during the last Legislative session. But they don’t seem to have gone anywhere. What’s the likelihood of advancing your plans at this time?
A: We’ll come back with some civil service-reform bills, among the most important will be giving the counties, the state hospitals, the University of Hawaii their own authority over collective-bargaining negotiations. Right now, the governor has control of those negotiations. The mayors each have a vote, but really it’s the governor that has a majority of votes in this process. I want the state-hospital system, the UH and the mayors to be able to negotiate with their employees, and there is some support of that in the Legislature. That’ll be a major reform we’ll continue to pursue.
Q: How difficult do you think it’ll be pushing your agenda through a Democrat-controlled Legislature?
A: I’m looking forward to it. At the governor’s conference I went to (in November), whatever party they were from, what they’ll tell you is that sometimes having a legacy to your own party can be more difficult. I was mayor for eight years with a nine-member council, the most Republicans we ever had was three out of nine. So I’m comfortable with this situation.
You’ve got to keep in mind that the public has made a strong statement that they expect some change. They expect some progress to come out of government, and they don’t make a distinction between the governor and the Legislature. They count on people in government to carry out their promises.
And I think the Legislature understands that I have a four-year term. The House members have two-year terms. They don’t want a sitting governor out campaigning against them in two years. I think they have a big incentive to work in a big, cooperative way because they’re up for reelection two years before I am. That perspective is one they understand.
Finally, Legislative leaders from the Democratic party have already reached out to me to schedule meetings, want me to sit down with their leadership teams and I anticipated that. I’m not surprised by it. People have made a strong statement electing the first Republican governor in 40 years. They knew the Legislature would be mainly Democrat, but they did this anyway. They expect us to achieve good things for the community.
Q: As we talked about earlier, you’re coming into office at a time when the state needs more than $200 million to balance the budget. You adamantly oppose raiding the Hurricane Relief Fund, which Cayetano favored. What’s your suggestion?
A: Actually, we think there are too many special funds. There are more than 300 special funds in government, and we want to collapse a lot of them into the general fund. Those funds lack any oversight by the Legislature or the public. What we want to do – and (state Auditor Marion) Higa has recommended this – we want to take many of those funds and put them back into the general fund. If that function is an important fund, they can come to the Legislature, request those funds and this way, you’ll have a better public accounting of that money. There are certain funds, like the Hurricane Relief Fund, the airport fund, the harbors fund, that clearly have a special purpose and should be segregated. But most of those funds don’t have a purpose of being a special fund other than to escape accountability.
Cutting waste is another important one. It’s one that I’ve had a lot of success in doing. The amount of travel government does, the amount of cars government purchases – there are lots of areas where we can realize savings. I also talked during the campaign about maximizing the federal reimbursements that we get for Medicaid, Medicare, SSI (Supplemental Security Income) and other programs. We’ve already been approached by at least two companies that do that kind of work on a commission basis, [usually between 8-12 percent], so there’s no upfront spending by the government.
Q: And you’re confident those proposals will produce the $200-plus million the state needs?
A: Absolutely, no question. I’m actually looking for a half-billion dollars this year – not just to make up the deficit, but to have the money for the programs that I feel are important. And yes, I’m confident that we’ll do that. Of course, long term, we have to expand the economy.
Q: In November, University of Hawaii President Evan Dobelle challenged the state to increase the school’s budget by 21.5 percent, or more than $99 million. What’s your response?
A: I think it’s reasonable over a period of time. I think it’s a little unrealistic in one year to do that. The university needs to gain additional support from the people of our state and our elected leaders. In the last 10 years, the percentage of the state budget going to the university has gone from 13 percent to 8 percent. And in a time when we talk about the need to create higher-paying jobs, you can’t do that without having a strong university that’s turning out graduates to fill those jobs and creating the entrepreneurs that start up these tech-based companies. So I think it’s exciting to picture the university as playing a much bigger role in the economy and the community. But again, you have to apply some realism to it. It’s always good to have big dreams and then work toward them. The university’s certainly a part of my vision of how Hawaii will create a good life for the families here.
Q: Hawaii’s visitor industry is still coping with the 20-plus percent decline in Japanese visitors it experienced after Sept. 11. That’s on top of the losses we already experienced in the late 1990s. Where does the visitor industry go from here?
A: I’m not sure Hawaii will ever gain back the level of Japanese tourists that we had, and I think the industry needs to examine that carefully. The industry needs to continue to broaden its view of where our visitors will come from. Japanese tourists have more options as far as destinations comparable to Hawaii or perhaps closer to home, so we have a real tough task ahead of us. China’s emerging as a major force. Korea’s economy is doing well. Singapore, Malaysia, Indonesia – that part of the world is generally important for us. But I’m not sure Hawaii’s ever going to get back the number of visitors or levels of spending. Europe, South America, we have lots of places we can and should be. And industry members are aware of this, but as an isolated matter – I’m just not sure.
I think Hawaii’s just got to play to its strength: climate, unique nature of atmosphere of people, people feel better when they’re in Hawaii. They leave Tokyo, Los Angeles, New York, and they feel calmer here. I think that’s why so many people have focused on health care as an important adjunct to the visitor industry. Because people feel better anyway when they’re here. Also, Asia doesn’t have the quality of medical care that we do. We have an extremely high level of medical care. Our health care industry is among the best in the world. With Asia being such a big market, it’s logical that people would want to come here, even if it’s just for testing, rather than going to the United States Mainland. We’re also interesting as a health care destination because we bring the East and West together in our approaches to medical care. So if people are traditional, western medicine is what they’re after, or a wider range of alternatives, Hawaii really has the ability to provide both of those.
Sports tourism – sure, because again our climate, our location between East and West. Hawaii’s also a reward for people in a lot of ways because they have incentive groups. People use a trip to Hawaii as a recruiting tool for college sports. There’s lots of reasons why sports tourism is a good market for us; it brings a lot of spectators with them, participants, coaches. What’s important to me is that it brings television coverage with them, as well. In isolation, a sports tourism event might be fun for residents. You add points to it, though, when you’ve got television coverage. And you also have to keep in mind whether it’s more than just one year, whether it occurs at a time of the year when we need more people to come – because there are times we’re fully booked. Part of our strategy is to try to level out the year – we applied it on Maui – to schedule events at time when it’s not so crowded in the hotels.
Agricultural tourism is one I don’t think has been used enough. The agriculture industry is a fascinating one; it includes crops most people haven’t seen before if they haven’t been to Hawaii. It’s giving people more of an opportunity to visit the farms in Hawaii, to stress the products of Hawaii is important, as well. Everything we do should have linkages to the visitor industry. It just makes sense.
Q: You’ve created a tourism minister position in your Cabinet. How will this person’s duties differ from those of the heads of DBEDT or the Hawaii Tourism Authority?
A: HTA is a marketing organization, and that’s what they should stay focused on. This position is someone knowledgeable about the government and the industry, someone who can raise issues before they become problems for the visitor industry and make sure the government’s aware of emerging issues in the industry. It’s different from (DBEDT Director) Seiji Naya’s position because he really doesn’t have any background in tourism. This is someone who will be respected by the visitor industry. We’ve asked the industry itself to come up with the names of the best people they feel would be good in that position. Again, it could be someone with a background in government, but tourism-related. It could be someone with a tourism background but has an understanding of how government works. It’s really an adviser to the governor, someone who advises the governor on these emerging issues. It’s not a gatekeeper, not a person you gotta go see if you want to talk to the governor. It’s someone who’ll open the door to make sure all of these issues are coming forward in a timely way. This is a position the industry talked to me about that they feel was missing in government.
Q: In talking about our economy, many insist that its health is rooted in our education system. So far, your biggest pitch has been to break down our current Board of Education in seven local boards. But this proposal has come up in the Legislature before, to no avail.
A: I think I can convince the Legislature to put it on the ballot for a constitutional amendment. And that’s what has to be done, let the people decide. In the last election, we asked the people if we should allow special purpose revenues bonds to be sold on construction projects for private schools. There should be more opportunities like this for the public to express themselves through these ballot measures, and this is a significant one.
And I’m confident that the public will reach a good decision. Whatever they decide, we’ll follow. But I think they should be given the opportunity. People on the Neighbor Islands and rural parts of Oahu feel very strongly about the need to decentralize the school system, to give the parents and students in that community a bigger say in how their schools are operating.
How do you get people more involved in the schools? Say a Leeward business member is asked to help with some project. Well, he knows his money goes to the central office in downtown Honolulu, and he’s not sure it’s going to come back to his district. But what if businesses out there knew you elect your own board of education and everything you do is for the Leeward district? I bet it’d lead to an outpouring of help. And I bet it’d involve parents and teachers a lot more because they’d believe they could really make a difference. Right now, I don’t think people believe that. They think the bureaucracy is just too big.
Q: Lastly, on another tax-related issue, you’d like to end the general-excise tax on medical care and reinstitute the food-tax credit. Why is this such a priority for you?
A: The reason those two are so important to me is because they hurt the poor the most. When someone’s on a fixed income and they’re paying 4 percent on a gallon of milk, and the person making a $1 million is paying 4 percent on a gallon of milk, it’s imbalanced and regressive toward the person with the low income. It’s a really unfair kind of a tax, whereas our income taxes, it’s structured so people who make more pay more, have a higher, stepped-up percentage as you earn more. This is the opposite, so the person making more pays less of their income than the person making less. Whether it’s a food tax or we do it as an earned income tax credit, there has to be relief for the people who are just earning minimum wage or something just above that. And this is the quickest way to do it, in my opinion. This will be something you’ll see in our first session with the Legislature.