Hawaii’s budget basics
According to the National Association of State Budget Officers (NASBO), Hawaii’s total expenditures in fiscal year (FY) 2019 were $15.6 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2019 were $2.1 trillion, ranging from $4.5 billion in South Dakota to $311.3 billion in California.
Each state allocates spending and taxes differently among different levels of governments, and local governments often administer programs with state funds, so combined state and local government data show a more complete picture of individual benefits and contributions when comparing states.
Per the US Census Bureau, Hawaii’s combined state and local direct general expenditures were $14.0 billion in FY 2017 (the most recent year census data were available), or $9,834 per capita. (Census data exclude “business-like” activities such as utilities and transfers between state and local governments.) National per capita direct general expenditures were $9,446.
Hawaii’s largest spending areas per capita were public welfare ($2,167) and elementary and secondary education ($1,453). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals. Per capita spending is useful for state comparisons but is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices.
Hawaii’s combined state and local general revenues were $17.2 billion in FY 2017, or $12,099 per capita. National per capita general revenues were $9,592. Hawaii uses all major state and local taxes. Hawaii’s largest sources of per capita revenue were general sales taxes ($2,431) and federal transfers ($2,176). Hawaii collected a relatively large amount in sales tax revenue because its tax— called a general excise tax (GET)— is levied on all business activities whereas most state general sales taxes are only levied on the final transaction and mostly on goods (not services). For example, purchasing services from a lawyer or accountant are exempt from tax in nearly all states but the GET applies to these purchases (and all other services) in Hawaii.
Governor David Ige, a Democrat, was elected in 2018 with 61 percent of the vote. The next gubernatorial election is in 2022.
Democrats control both the House of Representatives (46 Democrats to 5 Republicans) and Senate (24 Democrats to 1 Republican). Control of the governor’s mansion and each house of the legislature gives Democrats a trifecta in Hawaii. All Hawaii House seats are on the ballot in 2020 because representatives serve two-year terms. Senators serve a combination of two- and four-year terms during each decade’s legislative district apportionment cycle. This 2-4-4 term system ensures all Senate seats are up for election after new legislative district boundaries are drawn. Roughly half the senators are up for election in 2020, and all senators are up for election in 2022.
Hawaii’s budget institutions, rules, and constraints
Hawaii uses a biennial budget. The legislature must pass a balanced budget, but it can carry a deficit over into the following year. Hawaii also limits spending growth with a formula tied to the state’s personal income growth. The rule is binding and requires a two-thirds legislative supermajority to override it. The state also imposes limits on total authorized debt and debt service incurred by the state.
(Note: Some states have informal budget institutions that constrain overall spending growth or a specific expenditure’s growth.)
Hawaii’s recent fiscal debates
- Education advocates in Hawaii have unsuccessfully pushed for tax increases to fund greater education spending in recent years. In 2018, the legislature (SB 2922) approved a ballot initiative that, if supported by voters, would have given the state the authority to enact a state property tax surcharge to support more education spending. (The ballot initiative was required because state law allows only local governments to levy property taxes.) However, the Hawaii Supreme Court ruled the measure was invalid before the vote because it was not specific enough about the state’s new taxing authority. In 2019, a bill (SB 1474) that would have increased the state’s GET from 4 percent to 4.5 percent (and sent most of the resulting revenue to education programs) passed in the Senate but failed in the House.
- Tourism is central to Hawaii, contributing nearly $18 billion to its economy and $2 billion to its state tax revenue. But concerns are growing that the state is missing out on tax revenue as tourists increasingly turn to online vacation rentals such as Airbnb. In fact, Airbnb estimated the state lost $64 million in tax revenue in 2018 from the company’s rentals alone (i.e., not accounting for other online booking platforms). In 2019, the legislature passed legislation (SB 1292) that would have required hosting platforms to collect both the state’s GET and its transient accommodations tax on rental transactions. Airbnb supported the legislation, but Governor Ige vetoed the bill because he wants the state to instead work with counties on regulation.
- Hawaii enacted a state earned income tax credit (EITC) in 2017. The legislation (HB 209) set the state’s credit at 20 percent of the federal EITC. Unlike the federal credit, however, Hawaii’s EITC is nonrefundable, meaning the state’s credit cannot exceed the taxpayer’s state income tax liability. Among the 28 states that offer an EITC, only five others provide a nonrefundable credit. Hawaii’s EITC is temporary and is set to expire after tax year 2022.
Hawaii’s current budget
Governor David Ige’s proposed FY 2020–21 budget included significant investments in education programs such as school construction. He also called for a universal preschool system in his 2019 state of the state address. Ige’s budget and speech also highlighted his proposed spending increases for housing programs and homelessness services as well as an increase in the state’s minimum wage.
The legislature passed its budget in March 2019. It generally aligned with the governor’s spending recommendations on education and housing but did not provide all the funding the governor requested. “Educational issues are unfortunately very expensive,” said House Speaker Scott Saiki. The legislature was also unable to pass legislation (HB 1191) to increase the state’s minimum wage.
For more on Hawaii’s budget, see
Hawaii’s economic trends
Hawaii’s per capita income (per the Bureau of Economic Analysis) was $57,450 in 2019, ranking 17th among the states. It was above the national average of $56,663, but below the Far West regional average of $64,252. The state’s median household income (five-year estimate) was $78,084 in 2018, ranking third among the states and above the national average of $60,293. Hawaii’s poverty rate was 9.9 percent in 2018 (five-year estimate), below the national rate of 14.1 percent.
Although Hawaii’s averages tell a story about the entire state, Hawaii is composed of diverse localities. For example, the city of Hawaiian Acres’s median household income was $48,235, and its poverty rate was 20.9 percent; the city of East Honolulu’s median household income was $126,608, and its poverty rate was 3.3 percent.
Hawaii’s unemployment rate has historically been below the national average, and in recent years it has been among the lowest in the country. (See how COVID-19 is affecting state employment and earnings data.)
The major industries that contributed the most to Hawaii’s gross domestic product (GDP) in 2019 were finance, government, arts and entertainment, professional services, and social services (i.e. health and education). Finance, government, and arts and entertainment contributed more to Hawaii’s GDP than they did to the nation’s and region’s GDP, while professional services was less important to Hawaii than it was to the nation and region in 2019.
Looking at more specific industries, among those that accounted for at least one percent of Hawaii’s GDP in 2018, accommodation produced far more for the state than for the nation, contributing 6.3 percent to Hawaii’s GDP and 0.9 percent to the nation’s. Other industries that overperformed in Hawaii relative to national averages in 2018 were real estate, the military, air transportation, and the federal government.