Economist: Hawaii recovery a 'plodding path'

HONOLULU (AP) -- A Hawaii economist is telling state lawmakers he expects the state's economic recovery to continue on a "plodding path," with federal deficit reduction dragging down growth.

Paul Brewbaker of TZ Economics said Friday in written testimony for a joint committee briefing at the Hawaii Capitol that the state needs to revive investment and rethink how it delivers public service.

"Greater efficiency, higher productivity and faster economic growth are the only ways to meet the challenges of population aging," Brewbaker said.

Brewbaker said those challenges include fulfilling commitments to pay Social Security and public employee retirement benefits for future generations. The ratio between working-age people in Hawaii and those over age 65 has been shrinking since the 1970s and is expected to shrink even more by 2040, he said.

Brewbaker's comments come as lawmakers consider a two-year budget given mixed challenges. The Council on Revenues said Thursday that general fund tax revenues will grow more than previously expected in fiscal 2013 and 2014. But it's not clear how federal spending might be reduced in Hawaii given decisions about cuts in Congress and the death of longtime U.S. Sen. Daniel Inouye.

The budget proposed by Gov. Neil Abercrombie's office includes $11.8 billion in total spending for fiscal year 2014 and $12.1 billion for fiscal 2015.

Brewbaker said public investment in Hawaii has been shrinking for a half-century, and that the state's approach to regulating tourism has held back its potential.

Richard Kahle, chairman of the state's revenues council, said general fund tax revenues are up 12.3 percent for the first five months of the 2013 fiscal year, which started last July.

Kahle said in testimony given Friday that federal spending cuts may have important effects on Hawaii's economy. Kahle said $1.2 trillion in cuts are on the table nationally, with half coming from defense — a key contributor to the state's economy given bases here and Hawaii's strategic importance in the region.

Brewbaker said Hawaii is already starting to feel the impact of reduced federal spending through earmarks. He said military reductions have happened before and give an idea of what's to come.

"It's manageable, but disruptive in the short term," he said.

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Oskar Garcia can be reached at http://twitter.com/oskargarcia .