Executive Summary

Speculation over another economic decline in the near future is increasing, as unsettling trends in employment, bankruptcies, and visitor growth continue.1 To prepare for economic downturns in our future, the Hawai‘i Budget & Policy Center (HBPC) examined how the most significant recession in recent U.S. history, from December 2007 through June 2009, affected Hawai‘i’s workers, economy and state revenues and spending.

Why is it important to revisit the “Great Recession?” We need to understand what happened so we can be prepared to make smart financial decisions when the economy, once again, faces a destabilizing contraction.

Government spending decisions have a big impact on how well we, as a community, weather a recession. In fact, these decisions are just as important to the state’s post-recession economy and the long-term well-being of residents as they are to withstanding the actual recession. The state may have to cut its budget, but not all budget cuts are equal. Some services are essential and need full support, and diminishing them through across-the-board reductions could end up making matters worse for Hawai‘i residents in the long run, or make it more difficult for people to get back on their feet once the recession ends.

For example, forcing public schools to close for 17 days during the 2009–10 school year was a particularly calamitous decision. This action hurt a greater number of people than did shuttering some other departments for three days out of each month, or 36 days, during that same period.Likewise, certain programs, such as government-supported mental health services, are more essential in the event of an economic decline, despite strained public resources. Other than increasing Medicaid support, Hawai‘i did not do well by this measure during the last recession.

The state largely met its goal of retaining its workforce. This was a generally sound principle, but it resulted in passing along bigger budget cuts to nonprofits that provide direct services under contract with the state. Hawai‘i’s Department of Health and Department of Human Services, together, cut more than $25 million in such services during the fiscal biennium 2010–11. As a result, crucial services provided with great efficiency were lost, and the nonprofit agencies that deliver these services were forced to lay off their employees.

Key Findings

1. Visitor industry down. One million fewer visitors arrived in 2009 than in 2007, and the visitors that did come spent nine million fewer days in the state. Resultant visitor spending reductions caused a loss of $3 billion to Hawai‘i’s economy.

2. Job and wage losses. The state average unemployment rate rose from 2.7 percent to 7 percent, with higher rates outside Honolulu County. The plummeting economy caused a loss of 43,850 jobs. Half of all jobs lost were in the tourism, transportation, retail and service industries. More than one in four construction jobs across the state were cut. Wages also declined and, due to changing labor market dynamics, low-wage jobs now pay less than before the recession.

3. State revenue losses. In 2009, tax revenue was $525 million less than in 2008. This half-a-billion dollar reduction was duplicated in 2010. It wasn’t until 2012 that tax revenues exceeded the 2008 total.

4. State budget cuts. Despite stimulus money from the federal government, between 2010 and 2011 the state budget declined by more than half a billion dollars—that amounted to $400 less for every person living in Hawai‘i. The resulting cuts, which included a reduction in student class time by nearly a month during the 2009–10 school year, a slashing of behavioral health services, and a shrinking of essential services provided under contract by nonprofit agencies, have created long-term consequences for the state.