Opportunities for Hawaiʻi to maximize its budget investments

State spending plays a critical role in Hawaiʻi’s economic stability, one that has been particularly important in weathering the pandemic economic crisis. Maintaining government spending includes supporting public programs, the state workforce, and entities that provide contractual services for the state. This keeps money circulating throughout the economy as people pay for housing, food and other services.

So where can the state’s next legislature best invest in Hawaiʻi’s people through its budget to create a Hawaiʻi where everyone can meet their basic needs while living happy, healthy and creative lives?

• The state needs to sustain and increase access to affordable high-quality child care to support child and family wellbeing and ensure that parents can participate in the workforce.

• The historic investment in the Department of Hawaiian Home Lands for FY23 is encouraging and funds must continue to be committed until all of the department’s beneficiaries have access to homes.

• The legislature made a great improvement in the state EITC by making it refundable and should build on this success with future enhancements.

Child Care

Child care is one of the most important supports families can have to promote child wellbeing as well as enabling active participation in the workforce for parents and increasing family economic security. Hawaiʻi currently provides subsidies to income-qualified families in need of child care through two programs administered by the Department of Human Services: Child Care Connection Hawaiʻi (CCCH) and the Preschool Open Doors Program (POD). 

CCCH provides help with child care payments in a variety of settings including group child care homes and centers and is federally funded, while POD provides subsidies for children in pre-schools in their last year before kindergarten and is state funded. Qualifying families can earn up to 85% of the states’ median income depending on family size and must re-certify eligibility every 12 months.

For income-eligible families, the ability to participate in these programs is contingent upon available funds appropriated by the legislature. This year, the legislature made some encouraging investments in child care by restoring $6.9 million in general funds to support cash payments for child care. This restoration of funds should expand the reach of these programs that help support self-sufficiency for working families with low-incomes.

However, CCCH and POD only cover a portion of pre-school or child care fees and families are expected to cover the rest. Given that the average cost of center-based infant/toddler care was roughly $1,400 per month in 2019, costs for care are likely to continue to rise, putting further strain on working families. 

The legislature should continue to invest in child care subsidies to further expand the number of families served, as well as consider increasing the size of the subsidy so it is more beneficial to financially struggling families. Doing so will not only provide a critical support to working parents, but an investment in Hawaiʻi’s children who are the future citizens and workforce of our state.

Department of Hawaiian Home Lands

As the lead agency responsible for developing and managing homestead, agricultural, and pastoral lands for beneficiaries who are 50 percent or more Native Hawaiian, the Department of Hawaiian Home Lands has historically been underfunded relative to other state agencies. Given high costs for infrastructure development, as well as a limited supply of construction ready land, it currently maintains a backlog of over 28,000 beneficiaries who are awaiting a parcel. 

This year the legislature made a few long overdue and significant improvements to DHHL’s funding. Legislators approved an additional $5 million over and above the governor’s request, as well as an additional $35 million of non-recurring federal funds for planning and development. In total, DHHL’s base budget came to roughly $100 million, up from just over $53 million in FY22. Recognizing the importance of addressing the growing beneficiary waitlist, the legislature also made a one-time appropriation of $600 million to the department through HB2511.

These investments are significant and stand to be transformational for DHHL as they work to clear their beneficiary backlog. However, while the language of HB2511 gives DHHL broad discretion in spending for the $600 million, it also includes a time limit. DHHL has until December 2025 to spend this additional appropriation or risk lapsing any unspent funds back into the general fund. 

As Native Hawaiians are overrepresented in our state’s houseless population, the state must do everything in its power to ensure full and adequate funding for DHHL so it can increase housing opportunities for the Native Hawaiian community. In future years, the legislature needs to prioritize funding for the department in both its base budget, as well as one-time appropriations. 

Additionally, the legislature should consider adjusting the terms of the $600 million appropriation so that any unspent funds do not lapse in 2025, but instead remain with the agency and give DHHL more flexibility to fulfill its mission of serving the Native Hawaiian community. 

Tax Credits for Working Families

Since the mid-1970s, working families have been able to take advantage of the federal Earned Income Tax Credit (EITC), which supplements the wages of low- and moderate-income workers earning up to $57,000 a year by boosting the size of their tax refund. In 2017, Hawaiʻi created its own state Earned Income Tax Credit, which is worth 20 percent of the value of the federal credit. Hawaiʻi’s credit was non-refundable, meaning workers didn’t receive a cash boost at tax time, but were only able to reduce their tax liability. 

This year the legislature took the historic step of making Hawaiʻi’s EITC both fully refundable and permanent. With an estimated cost of $40 million annually, the state’s refundable EITC represents a relatively modest investment that will generate massive returns by keeping working families out of poverty and on a path to self-sufficiency. While this is undoubtedly a step in the right direction, the state should continue to pursue ways to improve its EITC, so that it can boost the credit’s efficacy and serve even more working families.

Several states have recently taken steps to increase the percentage of the federal credit their state version provides, so that workers get even more help at tax time. Connecticut recently approved an increase in their state’s percentage from 23.5 percent to 30 percent of the federal credit. Similarly, Maryland will now provide up to 50 percent of the federal credit through their state EITC.

Additionally, potentially thousands of tax filers are completely excluded from the EITC simply due to their immigration status. Those who file with an individual tax identification number (ITIN), many of whom are undocumented, remain completely ineligible for the federal or Hawaiʻi state EITC, despite living and working in our communities and contributing to our tax base. Several states, including California, Washington and Oregon have already expanded their state EITCs to include the ITIN population.

Future legislatures should work to expand the size of Hawaiʻi’s EITC, as well as extend eligibility to the ITIN population. Doing so would allow the state to better leverage the power of this critical income support for working families with low-incomes. The federal EITC and its various state counterparts are largely viewed as the most effective anti-poverty tools that governments have at their disposal, helping to lift 5 million people out of poverty each year, including 3 million children. Hawaiʻi should make full use of this powerful tool by expanding its impact and extending its reach to more of the state’s working families.

For more details on Hawaiʻi’s 2022–23 budget, download our primer below.