Hawaiʻi’s missed opportunity to invest in working families

In March of 2021, the federal government passed the $1.9 trillion American Rescue Plan Act (ARPA), which funded an array of programs designed to help the country cope with economic and public health impacts of the COVID-19 pandemic. 

Of those funds, $350 billion were given directly to states, localities and tribal governments under the State and Local Fiscal Recovery Fund (SLFRF), which states can use to reduce the impact of revenue loss, provide premium pay to frontline workers, help families and businesses recover from the pandemic, or to make capital improvements to water, sewer and broadband infrastructure.

The State of Hawaiʻi was awarded $1.6 billion in SLFRF, and has already appropriated and spent the vast majority of funds (80 percent). Working families, immigrants, people of color and housing insecure communities have been struggling to keep up with Hawaiʻi’s high cost of living for decades, only to have the pandemic worsen their health and economic outcomes. However, the state largely missed an opportunity to devote the lion’s share of those funds to addressing these long-standing economic and racial inequities.

While states have a large degree of flexibility in how to spend these relief funds, the U.S. Department of Treasury has issued guidance encouraging states to make spending choices that advance economic equity for populations most impacted by the pandemic. Many states have made critical investments in housing, food, and in health assistance to help vulnerable populations cope with and recover from the economic and health impacts of the pandemic.  

Hawaiʻi, by contrast, has used the majority of its SLFRF funds to repay a loan from the federal government to cover unemployment insurance payments that are normally the responsibility of businesses. Over $700 million—or 44 percent of the state’s total allocation—was dedicated to this single use. To put this in perspective, the state spent a modest $14 million on homeless services and only $5.4 million on general assistance payments to low-income households.  

How Hawaiʻi Has Spent its Recovery Funds

While the state did experience record high unemployment rates in the first year of the pandemic, prioritizing the UI system may not have been the best use of federal relief dollars—especially given the Treasury’s guidance to focus on racial and economic equity. If the loan were to remain unpaid by November 2022, it would trigger an increase in taxes on employers. However, the state could have used other means to repay the loan, such as revenue bonds or the state general fund. 

Given the state’s economic rebound over the course of 2021, using the state general fund may have been a better option. The Hawaiʻi Tax Fairness coalition also proposed a suite of revenue-raising tax proposals to the legislature in 2021 that would have helped expand state funds while shifting the tax burden onto the wealthy, whom the pandemic largely did not affect economically or, for some extremely wealthy Hawaiʻi residents, created a windfall.

Ultimately, the legislature did not adopt a single tax proposal from the coalition. And the state chose to prioritize protecting businesses from tax increases, rather than investing in working families, many of whom had been struggling long before the onset of the pandemic.

At the beginning of the pandemic, in March of 2020, advocates and nonprofits from across the state convened to develop a set of recommendations on how to prioritize spending of federal relief dollars offered through the CARES Act, which preceded ARPA. More than 60 nonprofits contributed to these recommendations, which prioritized preventing the spread of COVID-19, ensuring the basic needs of Hawaiʻi residents were met, and filling the gaps in the federal safety net by providing assistance to those excluded from federal relief.

Specific recommendations included expanding the state’s Medicaid program, increasing emergency appropriations for food banks while expanding SNAP benefits, as well as prioritizing spending on homelessness prevention and the development of emergency housing and affordable housing. While the state did make some modest investments in these categories, the need remains high, even as our economy begins to rebound from the pandemic.  

The large infusion of federal dollars through ARPA represented another opportunity for the state to invest in systemic changes designed to not only help our communities to respond to the pandemic, but also to thrive beyond it. 

Nationally, California dedicated $530 million of its SLFRF funds to expand mental health and substance use services, as well as $100 million to revise its youth mental health service delivery. New Jersey allocated $100 million to its Child Care Revitalization Fund to improve facilities, provide employee supports, and to boost child care workforce development. These are the kind of transformative investments that can address long standing economic disparities that pre-date the pandemic. 

While most of Hawaiʻi’s ARPA funds have already been appropriated, the state still has roughly $300 million left of what it was awarded. The state should use its remaining funds to prioritize investments in affordable housing, homeless services, childcare and increased assistance for low-income working families. Hawaiʻi shouldn’t miss another opportunity to put people first by investing in our communities, so we all have a chance to thrive.