House Standing Committee on Finance

Aloha. Welcome to the House Finance Committee. We are here the morning of January 8, 2026 and we're going to open up with an economic outlook. We're going to have Dr. Joseph Roos, an economist from our, he's our chief of the Economic Research Branch and also Jennifer Chun, acting administrator for the Director of Tourism Research. Yeah, solid. Okay, come on up.

Thank you, chair, Vice Chair and Members of the Committee. Aloha and thank you for the opportunity to speak with you today. First, I would like to acknowledge my colleagues that helped prepare this presentation. It was definitely a team effort. Jennifer Chun, Director of Tourism Research.

Dr. Rin Kamita, Jacob Bielman and Dr. Seth Colby that's here with us today. I'd like to start the presentation with a global outlook. Yeah, I'd like to start the presentation with the global outlook. This data comes from Economic Indicators, which is a survey of 15 economists regarding their each respective economic outlook.

The US for 2025 and 2026 is expected to have firm growth. Even though we're done with 2025, the data still is not out. And so this is an estimate. Asia will be mixed. Japan will come in a little bit softer, 1.2% and decline to 0.7% in 2026, similar to Japan.

Asia represented by the Euro Area will have similar tepid growth with 1.3% in 2025 and that's expected to decline to 1.1% in 2026. On the other side of the coin, we have South Korea, Hong Kong, Taiwan and China that all will all have fairly high growth.

China traditionally has been higher growth country and 2025 will be 4.9 and 4.3. Taiwan for 2025 is expected to be 6.3 and then declining to 2.7. Hong Kong will be 3.1 and 2.1. And then South Korea is expected to have 1% growth in 2025, but that will increase to 2% in 2026.

In looking at the US economy, the blue chip economic indicators had a quote that I thought was very good in looking forward for the US economy. They have the opinion of an optimistic tilt for 2026. So what's driving the US economy?

First, as we all heard, AI capital expenditures have exploded with data center construction, strong consumption in the high income households. Now we'll go over this a little bit in the next slide. But yeah, definitely high income households have had strong consumer spending. Real spending by the top income quartile is up 6.7% since 2018.

And this is a sharp contrast to 7.9%. That was the lower income households. There's been strong asset appreciation and this creates a wealth effect. Household net worth reached 167.3 trillion in the second quarter of 2025. And that's 6.3% up year over year from the same period of the previous year.

And The S&P 500 was up approximately 15% year over year. And that was as of December 22, 2025. And again, this creates a wealth effect that drives consumer spending. On the other side of the coin, we've had some growth inhibitors. Definitely tariff and trade policy have created uncertainty.

It's expected that this could inhibit or constrain GDP by 0.5 percentage points in 2025 and possibly 0.4 GDP percentage points for growth in 2026. This could translate into approximately $1,300 in real estate household income loss. US labor demand has been cooling as of March 2024, job openings were 8.1 million.

And this actually the most recent data that I found was November. This has declined to 7.15 to the million. And this next slide, thank you. Illustrates what I mentioned earlier, that household spending has really been driven by the upper income brackets. This divides income brackets into quintile.

And from January 2018 to May 2025, spending in the upper income groups increased 9.3% and the lowest income group increased by 11.9%. Okay, this is our economic forecast. It's available on our website. We forecast real GDP growth for 2025 at 1.6%. We forecast this to soften slightly. It'll still be growing in 2026 from 1.6% to 1.5%.

One of the issues that Hawaii has been facing, and this will be linked to our next slide, is that U.S. hawaii's income relative to the U.S. has declined over the past 14 year years. As of 2024, Hawaii's income is now 5% below the overall U.S. figure. And this is related to GDP growth.

As you can see, the red line is the US and the blue line below it is Hawaii. This relates to the previous slide of incomes. Hawaii has actually been behind for real GDP growth rates. And this is part of the reason why incomes in the previous slide have not kept up with the US.

In looking at the forecast for inflation, inflationary pressures are the highest at the end of 2025. And we expect the first half of 2026 to decline or third half of 26 as tariffs make their way through the economy.

And so inflationary pressures we expect to be higher in 2025 in the first half of 2026 and then easing as we go into 2027 and 2028. All right, this is a general excise tax collections and they are improving in fiscal year 2026 compared to 2025.

Fiscal year 2026 is represented by the dotted line and you can see how those are above. And the next slide is tax collections. Tax collections when adjusted for the individual income tax cuts. And there was an anomaly of a September 24th estate tax payment in considering these. The General Fund collections as of November 25th was up 3%.

The GE collections was up 7.3% and individual income tax was up 2.2%. And this is what you would expect in a relatively healthy period year to date through November 25 for tax collections. All right, now we have some further good news.

As of September, Hawaiian unemployment was 2.2% and that's versus 4.6% for the overall U.S.. As of November, inflation was 0.3% percentage points lower than the overall U.S. it was lower in Hawaii 2.4% for Hawaii and 2.7% for the overall U.S.

Okay and in looking at construction, government contracts awarded increased significantly in 2022 and 2023 and then they moderated in 2024 and in 2025. As of the first half of the year it looks like government contracts awarded were down a little bit further.

On the other side, as of the first half of 2025, on the private building side, private building authorizations were up 31.5%. All right, in looking at the impacts of on Hawaii of the One Big Beautiful Bill act was signed into July 4, 2025.

And this keeps the tax cut and job act provisions that were provided previously enacted. This is going to have stimulative provisions as well as contractionary provisions. On the stimulus side raises the standard deduction, expands the child tax credit, no tax on tips or overtime for 2025 through 2028.

It raises the state and local tax deduction, the SALT, from $10,000 to $40,000 and that's from 2025 to 2029. And it allows full expensing of investment deductions. However, on the other side there's going to be some contractionary provisions. One is Medicaid, it will increase work requirement, work requirement and reduced federal match from January 1, 2027.

And the SNAP benefits will have tighter eligibility requirements and funding cuts late 2026 and 2027. In looking at a timeline as these make their way into the economy for 2025 and 2026, it will actually have a slight improvement on GDP growth. However, from 2027 through 2029, it'll actually have a negative slight impact on GDP growth.

Okay, in summary, slower but positive growth in 2026 GDP real GDP growth with growth gradual rebound in 2027 and 2028. That's for real GDP growth. And that comes from our forecast. The US economy is proving to be more resilient than expected.

Last week, real GDP figures for the overall US came in and they were actually higher than was forecast in the blue chip economic indicators. And that's for the third quarter of 2025. Higher inflation expected in 2026 due to tariffs. However, we expect these to recede.

Flat visitor arrivals but stronger visitor spending from high income consumers will assist the economy. Construction and other non tourism sectors are driving growth. AI productivity boom is expected in 2028 and could add substantial growth to our GDP figure. And Hawaii is growing less than the rest of the economy for real GDP.

Fiscal transfers having a small negative drag in 2027 and 2028. Again, this was due to the revisions that are coming in from the Big Beautiful Bill. And on the horizon, there's always potential risks to the economy. Economies sometimes decline due to shocks that cannot be forecast.

One is high inflation combined with low growth rates, otherwise known as stagflation. Another is assets could decline. Housing, stock market bonds, if those decline, if there's a sudden decline, that would have negative effect on consumer spending, which is a majority of the US economy. And as we move forward, policy uncertainty is always a risk and tariffs.

Tariffs could cause more economic pain than expected. And consumer consumer sentiment and business sentiment, especially consumer sentiment for 2025, as we approach the end of the year, was much lower than 2024. And if consumers continue to be nervous, they do not spend. So yeah, I'd like to now turn it over to my boss, Director, Tourism Director Jennifer.

So I wanted to add a few slides that highlight tourism because tourism is driver of our economy here in Hawaii. And this historical slide is just showing you as far as visitor arrivals and visitor spending, what the long term trend has been.

And for the past few years we have been comparing or benchmarking our tourism arrivals and spending to 2019. However, that's kind of a convenient benchmark because that was right before the pandemic. That was the last kind of normal year of growth. However, visitor arrivals in 2019, we all remember, it was kind of painful.

I'm not saying that we want to get there, we're just using it as a benchmark. So if you look at that line, that's visitor expenditures and we far surpassed visitor expenditures of 2019 in recent years. And if you look at our darker lines, that is our forecast for the excuse me, columns for visitor arrivals.

And you see that we are not forecasting getting near the 2019 levels and we are showing really slow growth in visitor arrivals for a number of reasons. So I wanted to highlight the visitor mix.

So again, 2019 as a benchmark, you can see that we had about two thirds of all our arrivals came from the U.S. market, U.S. West and the U.S. East. Now, going through year to date, 2025, we've increased that to 78.5%, almost 80%. So we have a huge reliance on that U.S. market.

And so when Joe was talking about the state of the US economy and everything that's going to translate to our visitor arrivals, so we did see that we had an increase month over month in recent months for those Japanese visitors.

However, that percentage that the Japanese market represents for year to date, 2025 compared to 2027, excuse me, 2019, excuse me, it's far smaller. And we also had issues with the Canadian visitor arrivals. We know that from a sentiment and economic standpoint, the Canadians were really impacted by the announcements that were made earlier this year.

So we want to just look at the recovery rate and again, using 2019 as a benchmark. So if we look at the total expenditures, as I said, it's far exceeded what we saw in 2019. And for US arrivals and expenditures, they have exceeded 2019 levels.

However, Japan is at 45.8% of what they had in 2019 for visitor arrivals and the recovery rate for their spending was 47.9%. So. So there's still quite a ways to go for those international arrivals. Looking at the cruise ships, you know, cruise ships did pretty well in 2025 at 116.1% of recovery from 2019.

However, you all know there's a lot of headwinds for that cruise ship industry and we need to see what 2026 brings us for us. And the last slide I'd like to share with you is looking at that real GDP recovery. So when we look at that red line, that's the aggregate of all the non tourism sectors.

And they have been recovering since going back to 2019, again at a faster rate than tourism. And there was a small point where tourism looked like it was recovered, but if you look at the last couple of quarters, you know it's coming back down. So tourism is not as Strong as we would like it to be.

And so with that, that ends our presentation.

Thank you very much for that insight. I'm going to open up with a couple small clarifying questions and then turn it over to the Committee just because it may be helpful on that last second to last slide, slide 19, so that's showing real GDP.

But on slide 18, can you clarify whether the expenditures or inflation are inflation adjusted?

No, they are not inflation adjusted. We do inflation adjusted expenditures once a year when we finalize the number. So 2024 would be finalized real GDP. And we're going to finalize that number sometime in the summer. But I do know that Carl has some great slides about real gdp.

Okay, maybe we can get. I think that was just helpful for our sake. And then slide 17 shows visitor counts for 2019, but expenditures for 2025. Oh my goodness. It's okay. But when adjusting and maybe doing a more apples to apples comparison, is the data largely showing the same trend for visitor share? Yes, it is.

I'm so sorry, that's embarrassing. And then. Okay, Members, any questions?

There you go. Thank you and thank you for clarifying. I was had the same concerns about slide 17. Dr. Roos. Yes, in one of your earlier slides. Let me see if I can find the number. Okay, slide number three.

So pretty early in the deck, you mentioned that under growth accelerators that the S&P is up 15.1% year over year. And I'm just trying to understand how is that an accelerator for our economy. That is.

When people feel wealthy, they spend more. And so as assets increase, people feel wealthy.

And on the other side, when assets decline, people people get concerned and nervous, especially people in the higher income brackets or people on a retirement income that may want to take a cruise or travel, however the stock market is down this year and so they feel concerned and don't travel.

Okay.

All right, Members, additional questions.

So I have a quick question about. You know, your historical analysis shows that Hawaii used to have a higher capita per capita income than the continent. And that has changed.

And then also if you look at the GPI indicator report from 2022, it shows that over the past 20 years, if you're looking at measurement of economic wellness and social wellness, then you know, the way has also stayed pretty flat even when we do have experience growth in GDP.

And I'm wondering why you folks are not incorporating that kind of analysis into this kind of policy discussion.

Because if it seems to me that especially when you talked about most of our consumption improvement or increase being driven by the higher Income folks, I think for us as policymakers, we're really concerned about the impact of this economy on working families.

And if you look at the GPI indicator report, they use an analysis on defensive and regrettable expenditures that I think is really powerful. That kind of looks at the negative impacts of increased costs in housing, for example, so that it aligns more closely to how our working families actually experience this economy.

So I'm just curious as to why DVET is no longer using that kind of analysis this year. Report was published in 2022. It's on the website.

Yeah, that's an excellent point. And thank you for the question. So the report was published and we do update those figures. And I'm happy to send you the latest updates that we did. It's on a website, so it went from kind of a PDF form to. But I'm happy to.

I'd like to see that

Get those to Representative. Yeah.

And so why is it that you don't incorporate that kind of analysis into this kind of conversation?

That's an excellent suggestion. And after hearing that, I definitely will. The latest updates. Yeah, that's an excellent suggestion. Thank you so much.

Thank you. Rev Deloy.

Thanks, Chair. Thank you for being here. I just had a question on slide 12, which was our government contracts. Sure. We saw significant spend there. But if. I heard you correctly, in 2025, it's anticipated to go down a little bit is what I heard you say.

So as of the first half of 2025, Dr. Bonham will also have a slide on this. But yeah, as of the first half of 2025, our figures showed that they were down. But Dr. Bonham had mentioned that there were contracts awarded that weren't officially in the data yet. And so, yeah, Dr. Bonham has an excellent slide.

Yeah, I'll wait for him to fill that up.

Yeah. Thank you. Great question.

Thank you, Chair.

Okay, before I move on to the next question, for the report referenced by Reprousso, if you could get that to our budget chief, John, and then we'll distribute to Members. Sure. Thank you.

Members, additional questions? I've got a couple. I'll start with tourism. And thank you for being here again and kind of sharing your expertise. So for Director Chun, we've seen a pretty substantial uptick for East Coast travelers, and that's not a trend I've heard discussed as often as the West Coast. Do we have any insight into why that's happening?

I think that part of the reason why the East Coast, we became more accessible, there were more connections, although that Boston direct flight has been dropped. There are still a lot of connections for the East Coast.

And one of the things that the Alaska Hawaiian merger, that has added connectivity for people to come more to the west coast and then onto Hawaii. So I think it's just easier for people. Of course Hawaii Tourism Authority is doing marketing there, so I have to give them props for that.

I appreciate the plug and I'm sure they do too. So somewhat related to that.

You know, I think over the last, I don't know, 10 plus years there's been a lot of conversation around trying to attract kind of wealthier visitors, maybe staying flat or actually having a decline in total visitor count but having them spend more so that there's lower impact but without economic impact.

And it seems to be we're actually kind of trending in that direction. Do we know if that's purposeful, like it's a policy that's driving that or is it just kind of tracking with wealthy people having more disposable income, just in General.

I'd also like to give credit to HTA and their marketing for that because I do know that they look at the different segments and they do have segmentation data. So I provide them with these reports and they've identified certain market segments.

Some of them are identified by income and other things that I know they are targeting their marketing towards that. But another thing about spending that I have to note is that we all live here. Everything's gotten more expensive.

So one of the things that we see is that, you know, people have to eat right and they're spending more on their restaurant meals and other things like that. One of the things that we've seen is increase in Inter Island travel which is something that Hawaii Tourism Authority is promoting for multi island trips.

So part of it is more activity, but part of it is also more cost and they are looking to attract those higher spending visitors.

Thank you. Rep Holt.

Thank you. In the same, you know, line of questioning, when we raised the tat a few years ago, they said that tourists would stop coming and but I think the numbers kind of prove that the increases, you know, save Covid the numbers have going up and we've kind of got to a place where we're intending to get where the spend is higher.

Than the visitor count. So would you maybe think that the TAT has more room to increase and maybe we could get to a.

I'm going to decline to answer because people are going to hate

Just pleading the fifth.

You want the full truth. That's a good question. I have one kind of narrow tourism question and then I'll turn over to Members again. Are there any kind of emerging non US Markets that you think we're leaving substantial dollars on the right now?

Unfortunately, we don't have enough data on some of those. Like for example, we, even though we track like for example, the Latin American visitor, there's not enough of them to really make that statement that they're growing because also their visitation and their spending month to month has been inconsistent.

It's actually when I look at the data, I was like, oh, okay, that's interesting. That went up and then went down. And so I can't say that yes, there is an emerging market that is consistently growing. We do know that there are efforts to attract some of those other visitors.

However, marketing dollars by HTA are not being put towards those other markets.

Okay, thank you Members. Additional questions Rep Templo and then Rep Morikawa.

Thank you Chair. Thank you for being here today. My question is on the federal level. Is there any conversations with our federal delegation on what might happen in the future?

There's a lot of things happening with, you know, cryptocurrency and Venezuela and a lot of changes, you know, the bank rates and all that maybe printing more money. Do you guys have any projections on that kind of deal and how that would affect us?

We do incorporate. Excellent question. We do incorporate those into our forecast and we're, we're really following. Dr. Bonham will have a slide on tariffs where really try and follow tariffs as much as we can. We really try and follow global developments as they happen and we do try and incorporate them into our forecast.

So though as Dr. Bonham's slide will illustrate, for example, tariffs are all over the board and it's really hard to forecast into the future federal policy. But thank you for the question. We do as much as possible try and incorporate, okay, if you print more money, what's inflation going to be?

If there's tariffs, how's that going to impact GDP growth? But it's extremely difficult to understand what the future policy will be.

I wanted to add the situation with Venezuela and the Caribbean.

You know, from a tourism perspective, we don't want to necessarily be so strong to say it's an opportunity, but we do know that, you know, the, our East Coast market that Chair brought up, you know, they are very heavy visitors to that Caribbean area and people are now very cautious about going there.

Hawaii has always been seen as a safe and secure destination that could be an opportunity for us, especially possibly in group markets that have booked and Short term movement to Hawaii.

Can I do a quick follow up? Zero, yeah, sure, go ahead. So do you guys have that relationship with our federal delegation and do you guys have like, you know, maybe updates monthly? Because a lot of things are always changing. I just want to know like how your guys's communication and relationship is with them.

I personally do not. I rely on the Director to have that relationship.

Thank you. That was my question with what's going on with Venezuela and you know, travel just being not safe in many places that Hawaii would be viewed as the prime destination area. And I just wondered if that was in your forecast.

Thank you. Oh, I'm sorry, it's not in this forecast because that just happened. But you're thinking.

We're thinking about it and we are going to update the forecast in the coming months. Not that Kauai can afford any more people, but it seems like we're overcrowded and I see a lot of like foreign visitors, not necessarily Asian, more like Indian. They seem to be all over the island. Thank you.

Members of the Committee. Additional questions.

So my question is a little more maybe complicated.

So and I had this conversation with Dr. Mangan before, but you know, when the Hawaii Tourism Authority, when they strategically are starting to go after the higher end tourists, you know, back in the, you know, 80s into the 90s, Maui made a decision where when they built out Makena, Wailea, Kapalua, right.

That they were going to go on after the whole. So the type of higher end tourists. So the inventory they built was for that and the result of that was they brought these people in. And my take on it was that they were people that could afford to buy.

They said, well, this is a nice place, maybe I'll buy a home here. Right. So they started buying up the high end supply. Right. And then that ran out and then they started buying market things. So you know, back in the 90s, Maui was. Housing was cheaper on Maui than Honolulu.

Today it's the opposite way or opposite thing. Right. So it has, our policy has created outcome. And you know, and the, you know, over a decade ago the amount of homes that were owned by people from out of state were the low 20%. Now we're nearing close to 30. Right. And it's this appetite from out of state.

Does it, when we come up with these policies, do we have to like, do you guys take that into account and advise and that, you know, we may want to think it through a little bit because it may create outcomes that we don't want. Right.

It is today we have more homes that are owned by people from out of state and. Right. In part it was because when Maui only built inventory for high end tourists, they didn't build for the middle and the lower end tourists. So Maui was the first to have the uptick in Airbnb and all those kind of things.

So the market adjusted for it. Right. Which again, took housing supply and then drove. So all these kind of policies and you know, and then Kauai is kind of following in the Big Island. And then Oahu, you don't feel it as much because it's so big, but it's happening. Right. So, you know, what's your thoughts on that?

From my own perspective, I statement, I'm from a policy standpoint, I'm not, I feel like I agree with the statement and from a policy standpoint, I think the policymakers, I'd hope that the policymakers do think that through, but I agree with the statement.

So this is, this is my opinion, this is not the d vet opinion or anything like that. But one of the things that you mentioned, the 80s and 90s, honestly, tourism was so different at that point. It was not the commodity that it is now.

It was those Japanese bubbles.

And nobody could have expected this Internet thing with Airbnb and all the different platforms.

So I understand the Airbnb and things. I think what my point is that when we do these things, the market will adjust. Right. It looked for inventory to accommodate those visitors that were on the middle and the low end. Right. And so you have outcomes that have driven the prices up. Like you said, it flipped.

Maui was cheaper than Oahu.

Right.

Now it's the other way around. So, so I agree we should be more careful about what the policies are.

You know, we're not policymakers on this side of the table, but you give.

Us information to kind of help. We're happy to give you the kind of information that you think you might need. We do publish information, of course, about, like, vacation rentals. The DBED as a whole has a lot of information about, you know, jobs and other things like that.

So we are trying to provide information and if there's anything in specific, specific that you think you need, please let us know.

Thank you. Thank you. Members, additional questions. Okay, Sinan, we're going to recess briefly and then I believe we're moving on to Yuhiro. Yeah.

Okay. A brief recess to get the tech set up and all that.

Aloha. We're reconvening today's budget briefings. And now we have Dr. Carl Bonham from UHERO to give us kind of an economic outlook also. Go ahead.

Aloha. Thank you, Chair, Vice Chair, Members, it's my pleasure to be here. I know you, many of you probably saw the Council on Revenues meeting. So we're a little bit more upbeat than the title of my talk would suggest.

This is actually the title is from our last forecast report and we're working already on the next forecast report as usual. And I can say I think, I'm not sure we're necessarily going to avoid a recession, but I'd say we're a little bit more optimistic than we were three months ago or six months ago.

And mostly that's about incoming data. So I've actually updated these slides versus the slides I presented yesterday at Wham to incorporate some of that updated data. This is not an updated slide. This is all 2024 data. And the purpose, the one on the left is shares of gdp.

So the, you know, we all know that Hawaii's economy is highly specialized. The thing that is somewhat unique about where we stand today is that our specialization, it basically puts all of our eggs into the US basket.

And what I mean by that is if you look at tourism, actually, let me go ahead and show the next pie chart. So as of Today, actually, that's 2024 data numbers haven't changed much from 2024. US visitors account for close to 80% of all the visitors in the state.

This is actually average daily visitor census, which is what you kind of care about. And while it hasn't changed much from 2024 through the first three quarters of 2025, it's changed a lot over the last several decades. So, for example, the gold wedge here is not Canada. It's. I'm sorry, it is Canada, not California.

And Japan is at only 5%. So if you go back several decades, these ratios were very, very different. So essentially, in the tourism space, almost all of our eggs are in the US basket. And the US visitor is now one of the highest spending visitors because. Not because, I'm sorry, but this isn't because of HTA marketing.

This is because of the surge in prices that happened during the pandemic and the fact that at least part of that time in 21 and 22 US visitors couldn't go anywhere else in the world.

And they all came to Maui and Kauai and they filled up Hawaii, thankfully, in many ways, and they spent good Money and they've continued to spend good money. But 80% of our visitors coming from the US at the same time that the US economy is at least a little bit fragile.

Now, going back to the GDP, the GDP slide, tourism in 2024 made up 16.1% of wise GDP. That was down a full percentage point from 2023 because of the Maui wildfires, because we lost those high spending visitors to Maui. So that gives you an.

And so 16.1% of our economy is tourism and 80% of those visitors are from the U.S. so that's one of the areas of concentration. Now look at the other big chunk of Hawaii's economy, government. So state and local government plus Federal Government combined is almost 20% of the economy. And obviously Federal Government is us. Right.

So anything that impacts federal spending in the islands is another risk factor. And then of course there's a lot of stuff that happens at the state level that is federal pasture.

So these are the kinds of things that make us worry about the outlook and in part led us to the conclusion that we were likely to experience a mild recession in 2025 and entering into 2026 because of the federal spending slowdown and the very weak growth of tourism that we've seen through really through the summer and into the start of the fall.

It's changed a little bit. I'll show you a slide about that in a second. This, this slide is just another sort of indication of how dependent we are on US Visitors. And you know, I mentioned the rebound of US Visitors that happened in post pandemic.

This, all the, so these are visitors by market and they're all indexed to 100 right before the pandemic. So this is where we were in January of 2020. It's all seasonally adjusted. So I can pick, can compare different months. And this is the revenge travel period. So it's above 100. Right.

So in 21-22 and all the way through to today, there are more US visitors in the islands than there were in January of 2020. And today it's roughly 6,7% above where it was in back in 2019 and in 2020. In contrast all the others, the total is, you can almost see it, the light gray lines.

And this data has been updated from what I showed yesterday at Wham. So the total is below where it was pre2020. But that's all because of weakness in these other markets. And you see if you look at Canada, you can see the multi year decline in Canadian visitors that really started right after the Maui wildfires.

And you also see that despite some growth in the last several months in Japanese, strong growth in Japanese visitors relative to where they were pre pandemic, we're still.

Lingering in the sub 50% in terms of recovery. So, the takeaway from those last two slides is that where we are right now is heavily dependent on the US economy. So, where the US economy goes in 2026 and in 2027 is going to play a really important role in driving Hawaii's economic performance.

These are month-to-month changes in payroll employment. And the gold bars are what we think the revisions are going to be. Right? So, that—when the jobs report—so, we're going to get a jobs report tomorrow, and that'll be a preliminary number. It's based on a survey, and the survey is a survey of businesses.

And they might get 50 to 60% of the businesses responding when they first do the survey. And then, the data changes a little bit month to month, and then once a year, those—that survey data is called benchmarking.

And it's, it's revised and lined up with the population of employed workers, which we know from the unemployment insurance system. So, we know everybody who is eligible for unemployment insurance. That's the population of workers. So, what I'm getting at is that no one's making these numbers up. These revisions are a normal part of the process.

But even before the revision happens by the Bureau of Labor Statistics, the data they use is available and we can calculate what those revisions are likely to look like. So, if you—what happened in 2024, before revisions, we were adding about 170,000 jobs per month.

Very, very strong job growth, not as strong as '23, but still very strong job growth. When you look at the revised data, we're talking about a much lower level of job creation. And if you look at that going into 2025, particularly since April, and I think we all know what happened in April. It was labeled Liberation Day.

And I think what it liberated us from was from new jobs. And since April, the US economy has only added 17,000 jobs a month. And you see that in these blue bars—up and down and up and down. And actually, when we finally got the October data, we saw a decline of over 90,000 jobs.

Most of those were federal jobs. Right? That was when the Doge Early Retirement System finally showed up in the data. We'll see what happens tomorrow when we get the December jobs report. But basically, hiring in the US has come to a standstill. We're bouncing around zero.

So, that's really our primary concern about the US economy is that we are not creating very many jobs. It makes us fragile. And it shows up in—I think Joe mentioned consumer sentiment. It shows up if you look at Michigan Survey on Consumer Attitudes. They're worried about job creation.

They're worried about what would happen if they lost a job and how hard it would be for them to find a new job. Our take, Joe mentioned this, our take, and I think the take of many economists, is that a major source of challenge here is these are tariffs.

This is sort of a history of how much activity has happened on the tariff front over the last year or so. And really, the point is to show you how chaotic it's been. So, we go from the start of the year, 2.5% average effective tariff rate, all the way up to almost 30% at one point.

And as of now, a number close to 17%, 18%. And then maybe on Friday, Supreme Court's going to make a decision, they're going to make some decision. Whether it's going to be a decision on tariffs, we don't know. But the tariffs could all go away. Well, most of them could go away on Friday.

And then, that creates a whole other round of uncertainty. So, then what? Right? And I'll tell you what, I think if we could do that in Q and A. But this creates uncertainty for businesses who don't know, you know, should I expand? Should I, you know, invest? Should I hire people?

How much are my inputs going to cost? And it's not just about final products, right? It's not just about t-shirts made somewhere else in the world or toys made in China or whatever.

It's about the input—inputs to the manufacturing process—that is so, so common in the US. So, we don't look at 2026 as being a time when uncertainty is going to go away. The optimists, people who have the sort of highest forecast for the US economy for next year, think that uncertainty is diminishing.

Certainly, the consumer. So, this is a really stark picture of—this is Michigan Survey Consumer Sentiment. It's actually their Current Condition Syndicate. So, this is asking consumers what they think about the current economic environment and it's pretty shocking that this number would be the worst in more than 40 years.

It's hard to imagine that you could say that things are worse now than, you know, they were at the depths of the Great Recession. It's not—it doesn't make much sense. But what it's, I think what it's telling you is that outside of the top quartile of the income distribution, people are really struggling.

And they're really struggling because, you know, we saw price increases post pandemic. Those obviously haven't gone away. And we're seeing additional price growth, right, with actually until the last messed up CPI read that came out.

So, the US Consumer Price Index, the last release, the data is messed up because they missed the October data and then the November data relies on the October data, so don't put much stake in that. But every month from April on, inflation had increased. So, consumers are feeling those higher costs.

They see the weak labor market and so, they're extremely pessimistic. That's another sense in which the US economy is fragile. I know I'm spending a lot of time talking about the US economy but there's a reason for that. It's because we're so dependent on that right now. So, what's really—so, you essentially have sort of a glass half full, a glass half empty economy.

If you're in the top part of the income distribution, your, your, your glass is more than half full. It's overflowing. And it's overflowing because this blue line is the growth in—or it's the actual value of corporate equities and mutual funds.

So, it show—and that's, that's measured on the left axis. So, it's gone from 35 up to—I don't know what the units are here. Sorry for leaving off those units. The whole point is the growth in stock market wealth grew roughly 15%, 16% last year—has far outpaced the growth in income, which is the second line.

And so, typical households' income is going up very slowly but people who have large amounts of stock market wealth are seeing big. 15% on a million or $2 million of wealth is a lot of money. And actually, the top small fraction of U.S. households are doing close to half of the consumption in the US economy right now.

It's really stark. Again, that's a source of fragility because if the stock market doesn't continue to perform at similar numbers, or at least if it were to fall, this goes to the wealth effect.

So, that—on as a rule of thumb, for every dollar increase in wealth, and that's stock, stock wealth, housing wealth, et cetera, you end up with about 2 to 3 cents of extra spending. And so, people really do spend that money. So, that's another concern, right, if the stock market turns down, whether we're going to lose that and you know, is that what's driving Hawaii's tourism spending of like.

So, the other part of the US economy that's sort of a glass spilling over is the dark blue bars here are investment in basically AI. I's information processing.

And so, that bar, this is contribution to US real GDP growth. So, total investment without AI would have been negative in the first two quarters of 2025. With AI, it turns positive. And this, of course, goes back to the stock market wealth. So, what's driving the stock market gains last year primarily is the tech stocks.

And that's primarily being driven by hope for AI. And so, essentially, you have a situation where jobs aren't growing very much. The top end of the market, the income distribution, is doing very well. All the consumption is heavily concentrated amongst those people who are doing really well.

Anything that disrupts that, whether it's someone, I shouldn't even say this, but a bug in a Nvidia chip or something that—I'm making this up, don't—you know, I mean, some revelation that we've got a problem could easily turn a lot of this on its head. So, that's the kind of stuff that keeps us up at night.

Since we released our last report and we started working on our next report, we've revised our forecast for US and Japan. We haven't revised the Canadian and Australia forecasts here, but the—so, for 2025, because we got, we got a very strong Q—Q3—read for US real GDP.

So, our fourth—our estimate of what 2025 is going to come in when we get the Q4 data, which I don't think is going to be until like January 20th is over 2%. So, higher than that blue chip forecast that Joe was using.

I think our forecast, our forecast is now at 2.2% for '25 and for '26, it's just barely under 2%. So, that's pretty respectable growth. It's not full, but it's not full potential growth. It would suggest the unemployment rate might go up a little bit more for the US economy.

And it's really that fragility that, that we worry about. So, let's turn and talk about Hawaii because that's what we're interested in. When we released our last report, the visitor spending numbers had really disappointed all summer long. One of the things that's quite puzzling about. So, this is real visitor spending, right?

So, you can find the real visitor spending data on our data portal every month when the visitor spending numbers come out, it goes up on our data portal as soon as DBED releases it. And if we have the monthly Consumer Price Index, we use the Consumer Price Index because we've got a long history of that.

It's not a perfect measure, but it's, it's better than nothing. And so, so, we're deflating it using the Consumer Price Index and it's up as soon as the data becomes available. And you can, you can find it on, on our—we have a data portal that has not all the tourism data that DBED produces, but a fair amount of it.

And we, we have that by county by a variety of different, different slices on that data. And so, really, if you—I can't seem to get my pointer to work here.

Okay.

Well, there's a horizontal line there that's labeled Maui Wildfire low. And in the summer of 2025, total visitor, real visitor spending, bounced off of that low. So, we started the year reasonably strong. And then, starting about April—April, May, June, July into the summer—real visitor spending fell pretty sharply. And month to month, it was falling sharply.

And all this time, we're seeing visitor arrivals and average daily visitor census that are very, very weak. Primarily, weakness on Oahu, Maui. Maui really sort of paused in their recovery, if you will. And so, that was really what was leading to a lot of our pessimism. We had a lousy year in 2024 post wildfire.

We lost about a billion dollars in real visitor spending in 2024 and it looked like we were set to repeat that. Now, why the visitor spending numbers surged in the, really, September, October, November, I don't know. We certainly didn't expect it. It's not spending on hotels, it's spending on—Jennifer mentioned transportation.

If you look at spending on transportation, entertainment, and, you know, eating and drinking, they're all up—strong double digits. So, 15%. And I don't understand why that would be the case because the underlying prices for—so, we have data from the Consumer Price Index on food away from home, and that is not up 15%.

Those prices are not up 15%. You'd be hearing about it from, from your constituents if it were. It's up 4 or 5%. So, still a pretty respectable increase. So, you have flat number of visitors, prices growing about 4 to 5% in really all these categories, but we have visitor spending growing at 15%.

So, I can't explain it, but there is some reason to think that it's real and that's that the excise tax numbers also started going up pretty, pretty strongly in October—September, October, November.

And so, that actually—these things together are sort of part of what led to some changing thinking about Hawaii's prospects in, in the new year. Yeah. So, this is the, this was the forecast we released in the fourth quarter, which shows a sharp down—this is average daily visitor census. And this is the state excluding Maui.

So, outside of Maui, we saw a pretty sharp decline in the number of visitors in the summer. And so, our forecast was, okay, we've seen that sharp decline. Now, we're going to have a pretty lengthy recovery from this because US consumers, on average, are hurting. The wealthiest consumers are doing fine.

They're going to continue to see price increases pass through from tariffs and weak labor market performance, so we think that's going to be a relatively slow, slow recovery. And then, with Maui, we didn't see the sharp decline because they were in kind of recovery mode, but we did see a real pause in that recovery.

This forecast, with the incoming data—December data was pretty good. Passenger count data for December was the first time, I think, that the total passenger count numbers turned positive for a month in quite a while. And so, I—anyway, I think these numbers will go up in our next forecast.

And I actually started updating that forecast before the Council on Revenues meeting yesterday to try and inform what we thought was coming there. The other piece that what led us to be relatively pessimistic about Hawaii is economy in 2025 was the labor market. So, this is payroll jobs.

And this is data that we construct from the preliminary data that the Bureau of Labor Statistics and DBED, formerly Department of Labor, they have a joint relationship with the Bureau of Labor Statistics to produce that data. That's preliminary. As I said earlier, there's a benchmark revision that happens.

We won't get that benchmark revision until March, but we know the data they'll use to construct the benchmark revision, so we do it ourselves. And every time that we've done this, that process has led us to get closer to the actual revised data than we would have if we'd used a preliminary.

It doesn't make it exactly the same. And what that data shows us—lost my pointer again. That peak, right, it shows—looks like it's January 2012, it is January 2025. Basically, from the start of the year on in this revised data, this, we call it an early benchmark, job numbers have basically been completely flat, I mean, month to month down all the way through the summer and then starting to grow in the second half of the year.

And so, to put this in context, if you look at the preliminary data that's available from Bureau of Labor statistics, it shows almost 2% year over year job growth for the whole year. In the revisions that we're working with, we get 0.6%. So, it's a really, really different picture.

And that really, that picture is why we were saying we think we're having a mild recession because we've been seeing this extremely labor market. Now, the other thing that's a little confusing is unemployment rate keeps going down. So, you know, what Joe mentioned, we now have an unemployment rate of 2.2%, second lowest in the country.

But Hawaii's unemployment rate is almost always in the bottom of the distribution of unemployment rates across the entire country. And the reason the unemployment rate goes down when you have very weak job creation is that the labor force growth is even slower. Right?

So, yeah, businesses still struggle to find workers because we're adding very little to our, to our labor force, which is exactly what you should expect when your population is not growing and it's also aging. So, few more slides about the labor market.

You know, we just saw, we just had an unemployment, excuse me, we just had a minimum wage increase, and that the minimum wage increase is great for people who have jobs. I'm a little worried that in the current environment, it's going to create problems for people who don't have jobs.

So, anybody who loses a minimum wage job and is trying to, trying to get back to work, I think it's going to be harder. So, I should tell you what the slide shows. So, this is—all this data is indexed to January of 2020. The dark blue line is job postings from Indeed.

And so, you see there's a trend down from the peak that happened roughly end of 2022. It's been declining pretty steadily. The, that, that data only started in, in 2020, the gold line. And I just updated this; the data just came out this week. This is from the Bureau of Labor Statistics Job openings and Labor Turnover Survey.

And so, these are job openings for the state. And that data goes all the, all the way back to 2017. And even with the jump up in October as the first sizable jump up this year, those numbers are still down around where they were in 2018, 2019. So, it's some of the weakest job openings.

So, what I'm getting at is that we're not adding a lot of jobs. There are not a lot of jobs, relatively speaking, available. And so, the increase in the minimum wage is likely going to make it harder for low skilled entry workers to find work. And that is another sort of source of drag.

This, this chart—again, these are from our last forecast reports. We'll be revising those, but it shows you—this is from second quarter 2025 through the fourth quarter of 2026, so it shows you where we think the job gains and job losses will be over that time period.

And the biggest job losses were expected to be in Federal Government. So, that shows a forecast of almost 1,500 jobs lost amongst federal civilian workers over that time period. We had already, as of the second quarter, we had already lost 1,300 federal civilian jobs. And actually, in the October data, we lost 2,000 more.

And so, we've already surpassed this forecast. Federal civilian job count in Hawaii is the lowest it's been since 2007,2008. So, those slides I showed at the beginning about all of our eggs being in the federal basket, we're feeling some of that. Fortunately, in October, November, contracting added about 1,000 jobs.

And you can see our forecast, the very top bar there, was that contracting over this time period would add 600. So, we underestimated the job gains in contracting and we underestimated the job losses in federal civilian.

But overall, we were looking at total job losses of around 2,000, which is where you get the sort of mild recession story. We were talking about an increase in the unemployment rate of 30-40 basis points. So, very small changes. I mentioned the contracting job growth and this is history and forecast of government contracts awarded.

And we're—so, the blue wedge is residential permits. And you know, if you—it's hard with all the other stuff going on. If I were to show you just a graph of the, of residential permits, you, you would see the increase, right? We are definitely seeing a sort of steady increase from the post great recession lows in residential building.

The green wedge, once you've, after you've looked at the blue one, now you have to look at the width of the wedges, which makes it really hard. I shouldn't even use this type of chart. And so, that green wedge is the nonresidential permits. They're relatively stable, right?

We're not building a lot of new commercial properties, office buildings, or hotels. Really, all the action has been, and we continue to be in that gold wedge, which is government contracts.

Now, this data, you know, if you went and you looked at the, if you looked at our website or you looked at DBED's website and you looked at government contracts, it wouldn't line up. And that's because particularly federal contracts, when they're announced—so, like the Pearl Harbor dry dock work, right, when that contract gets first released, when it's, when it's awarded, right, it's a $7 billion contract.

I just made that number up. But we're talking multiple billions of dollars. But it's not happening in the month that it gets released. The contract is awarded.

It happens over the next five years. So, what we do is we take that data and we spread it out over multiple years to reflect what we think the activity will be.

And in June of this year, Navac awarded an $8 billion contract that for some reason didn't show up in Building Industry Weekly or—I can't remember the name of the source data that I think DBED uses when they collect that data. So, I think that's why we have—we happen to see the press release from Navac.

This may be happening because the Federal Government is changing where they do the procurement, where they do the bids and the awards. And so, that may be what's going on. Anyway, that's why we have a high level of government contracts, and it continues for multiple years because that work is going to go on.

And you know, I don't think, you know, I don't think we've even put the stadium in here yet. So there's other things that are going on. Right? State projects would go in here. So, really, construction jobs are at—they're at a record level right now.

We saw strong growth over the last several months, and we think that's going to continue. Not necessarily growth. Right? But remaining at a fairly high level of activity. Last couple slides are forecast slides to show you that relatively mild small downturn.

So, people who kept their jobs wouldn't really even feel the kind of recession we were talking about. Maybe they would be aware that it was a little harder to find a job. Maybe their wages wouldn't go up quite as fast because of a little more slack in the labor market. But we'll be revisiting this.

Notice that the job count here is still below where it was in 2019, which should not surprise anybody because labor force is below where it was in 2019. Right? And population is below where it was in 2019. So, this chart, two different things. Gold lines are inflation.

The 2025 inflation, that would—high 2% for the whole year. Started off at, I think 4.5%, fell all the way to about 2%, and has been climbing for the last several months. We're in the 2.4%, 2.5% range right now.

And we think that it's going to continue to go up, probably peaking in the second half of this year in the 3% range, 3.5% range. And the rationale for that is tariffs. Probably about half of the tariff effects have shown up in inflation nationally. The, we think there's—so, we think there's more to come in 2026, but there's a heck of a lot going on right now.

We talked about Venezuela a few minutes ago. Potential impacts there on oil prices. A weakening economy also tends to bring down inflation.

So, we're not talking about anything like pandemic, post pandemic, you know, high single digit, low double digit inflation rates, but still, something to be aware of. Our GDP forecast for the state for 2025, I think, is actually higher than, than DBED's. Not actually sure what theirs are. And also, we do the calculations differently.

So, we deflate GDP using the Consumer Price Index because the national deflators that the Bureau of Economic Analysis uses are based on national data. The vast majority of that is national prices, which doesn't reflect what's happening in Hawaii. But anyway, about 2%—and then we had a 0% forecast for 2026.

I don't think that's what's going to happen. But if we don't get some growth in visitor spending, like I showed you the bounce back in visitor spending, if that were to go away, you know, it's still a fragile situation. I just think it's a little bit more optimistic than we presented last time.

And so, I can stop there and answer questions. Yeah.

All right, thank you very much. Members, questions? Rep. Hussey.

What does the data look like on unemployment rate if you also factor in out migration?

Not sure how exactly how I would do that. I mean, so basically, if nobody left, right, our labor force would be significantly higher. Right? I think, I guess I would be more inclined to look at—I don't know why I'm telling you this because I don't know the number off the top of my head—but at the rate of labor underutilization. Right?

So, but the short answer is yeah, if people weren't leaving because they can't find the kind of job they want or they can't earn enough to support their family or whatever reason they're choosing to move, our labor force would be higher and obviously, we would have, holding everything else constant, we would have higher unemployment.

I have a quick one. You teased earlier like you're on the radio that...

I was on the radio?

Well, it was like you're a radio host, you know, you throw the whole thing. Anyway, you teased us and said you may have some thoughts or maybe you can speculate on the impact of this SCOTUS potentially suspending tariffs.

Oh, okay. Yeah, I mean there's—I guess my take on this is this is just going to, I think the right decision is that declaring an emergency in order to—Canada is sending all the fentanyl across the border and that's why we're going to double tariffs on Canada. That's clearly not a legal you—I'm not a lawyer.

So, let's say that they decide that these are illegal. There will be some short-term economic gains associated with that, in part because I suspect businesses will start importing goods that were formerly too expensive because of tariffs.

And so, the same thing that happened early on in 2025, where we actually saw a surge in imports, that could very well happen again. The other way you could see economic impacts is if the Federal Government actually starts sending money back to businesses. Right?

So, you know, if you were charged a tariff and the Supreme Court says, well, that was not legal, we've already seen, I think Costco and a few other businesses have already filed lawsuits to ask for their money back. So, that has potential to bolster their bottom lines.

But my guess is what we'll see is the Administration will start to reimpose tariffs through legal mechanisms. And so, that's why I don't think it's going to reduce uncertainty. The uncertainty will now be, okay, what are the tariffs going to be and when are they going to arrive? Because the legal process takes a little more time.

By legal, I mean not declaring an emergency and using that. So, sometimes there has to be a study that shows that there's dumping or there's anti-competitive practices. And I have no doubt that those studies will—they're probably already in the works.

But we're going to face considerable uncertainty on the tariff front again, and that will tend to act as a drag on.

On labor market, on investment. So it's kind of a, kind of a repeat. Maybe the tariffs aren't as high, but a little bit of a repeat of the uncertainty. Great.

Thank you, Members Kitagawa and then.

Hi Dr. Bonham, thanks for being here. In the beginning you mentioned about the Council on Revenues and the reporting not being out yet.

And I'm just looking at the September report and I'm wondering about the, you know, the estimate with the growth from the previous year and In September for 2026 it was a negative 4.7 and 2027 is 2%. And I'm just wondering if you can share what those numbers might be if they're similar. If, I mean you said it's.

Exactly the same.

Okay. Yeah.

We adopted the exact same forecast.

And you know that that was based on hour and a half deliberation that looked at incoming data. There's a, there's a lot going on in the current fiscal year because we have these year over year effects from that big estate settlement that happened or not settlement, but payment in 20, fiscal 25 and of course income, changing income tax rates, all of those things were affecting 2026, fiscal 2026.

Okay, so all the numbers are the same.

And yeah, I mean really there was a, I think there was a change. Just like I'm expressing a little more optimism here. I mean I shared that with the other council members and I would say across the board, the council members were more optimistic than we were at our last meeting. And so that was.

And so maybe we should have raised the forecast, but we're also recognizing the uncertainty. So. Great. Thank you. A little more context. The, the models that the Tax Department runs based on council Members inputs were actually giving us lower numbers. And so our sense of optimism said no, we don't believe those lower numbers.

So let's stick with the current forecast. Thank you. Rep. Temple, thank you.

Thank you for being here today. My question is on government contracting. Does your Department have some type of dashboard that monitors the federal, state and county contracts and whether it's been awarded to local or another state or international and how can we get that type of information.

So we don't have it broke, data broken out the way you're describing and when so when we want to know. So for example, the example I'll give is the NAVAC award.

They in their press releases and actually the other source would be Building Industry as a monthly magazine that details government contracts awarded and talks about who got them and what they were for. So that's really the source that we use.

So we publish on our data portal, we publish monthly government contracts awarded and then when we try to understand. So for that $8 billion example, not all of that is going to Hawaii companies because NAVFAC also manages work in Guam and elsewhere.

And some of the companies that might be doing work here or elsewhere could be oftentimes they're consortiums with, with mainland companies. And so we take that information and use it to adjust what I showed in that slide. But we don't have a dashboard that tries to do that.

Thank you. Thank you. Great.

thank you for coming. Always interesting listening to your insights. One of the things that you highlighted earlier in one of your graphs was both the Canadian and Japanese visitors which were the two like individual countries we track closely. We're flat after Covid.

Rep. Kush.

And a lot of that in my understanding and correct me is the foreign exchange rate. The dollar was super strong during that period because all the fiscal stimulus going on and then the dollar has been on a pretty strong downward trend right now. And I forget where we are compared historically, but we're down a lot.

And then I imagine HTA looks at your data to help them. Maybe, maybe not. Okay. You know, they're probably looking at opportunities like the chair was talking about earlier.

And do you foresee that maybe being a part of the growth story again if we don't mess with our foreign partners via truth social or other mechanisms to hurt sentiment, but just the mechanics of the imbalance between currencies?

Yeah. So there's a lot going on there and actually part of our pessimism if you were to go back 69 months ago was that normally when you go through a big tariff changes like we, we experienced, normally you would expect the dollar to appreciate and it didn't this time.

And you may remember there was a whole bunch of conversation about I mean the, the art the dollar was behaving more like a a less developed economies currency would with fear of inflation and and, and Fed capture and so on. And so yes the dollar weakened quite a bit this year.

Not as much against the yen as as against other currencies. And so you know, really against the yen. It hasn't moved all that much.

I haven't looked at the data in the last last few weeks are in our forecast we have the wind the yen appreciating over the next several years it should as interest rates in Japan go up and as interest rates in the US go down and that's been the direction that should start driving additional appreciation of the yen and I think some of what we've already seen in Japanese visitor growth is in part coming out of a little bit better affordability because of currency movements.

But there's other things going on as you pointed out. One of them is attitudes towards coming to the United States, particularly amongst Canadian visitors. But the Canadian visitor, we've seen double digit losses for two years in a row.

So we saw roughly 10% loss Canadian visitors in 2024 largely attributed to Maui because Canadian visitors are, they love to go to Maui. In fact, I'm reasonably certain that in 2023 there were pre fire Canadians probably went to Maui more than any other county.

And so we saw big losses in 24 and then that was piled on in 2025 with another 10% loss. So that's not really, you know, that's not a currency story. It is also is partly related to their, to their weak economic performance as well because their, their economy got.

So all of our trading partners, economies are being negatively impacted by high tariffs right there. You know, Japan and Canada are much more export oriented than the US Is. And so when they can't, when they're not exporting as much to the US they're being impacted.

So I think that, I have no doubt that HTA is watching currencies and they're probably relying on somebody's forecast of currencies and thinking about that. And I think that is a reason to believe we'll see some, some resumption of growth as long as we don't, you know, take over one of these countries.

And of course then the currency won't matter if we. Stop there.

Rep. Lee Loy Sorry, I keep, I keep using Lee Loy, its an old habit.

Thank you Dr. Bonham for being here. Happy New Year. I did want to get back to your construction government contract contracts. I'm always tracking that. And you mentioned that when you prepare the forecast, you spread it out, right. So they get awarded the contract and then spread out over time.

I was just if this is too far in your acknowledging that a government contract might last anywhere from 48 to 60 months where others might be more short term12, 18, 24 months. I just want to understand how your stat spread.

Yeah, so the only thing that we're spreading out are the large federal contracts. And usually in the award there's a time frame. Right. So if I remember correctly in the last one, I was referring to the $8 billion one. So we're doing multiple things.

One is we're trying to make sure we understand what fraction of that is actually going to be spent in Hawaii and in some cases, it's what fraction is going to be spent in Hawaii. And it's actually what we call construction. Because sometimes it's. Right. If you're buying equipment, right.

Let's say you're putting in a bunch of H Vac systems. Well, those aren't made here. Right. That's an import. It's not. And the installation of it is construction, but the purchase of the H Vac is not construction. So we're basically taking all the information we can get out of award announcements.

And sometimes I reach out to our partners in the construction industry to try and get more information. And then we're parsing out things where the companies are not Hawaii companies, parsing out things that are done in Guam or elsewhere. Then we're spreading that number out over the number of. And just evenly, right. We're.

That's not how it works. But so let's say out of that 8 billion, we decided 5 billion of that was sort of construction in Hawaii. And the award announcement said it was over a five year period. But oftentimes those get extended.

And then the other thing that happens is on those kinds of contracts, oftentimes the full amount doesn't get spent. Right. And so we've done some analysis on historically, if you award a $5 billion contract and only 4 of it gets spent. So we may also, I think we're also doing that. There's a lot going on.

It's just, you know, it's a forecast.

Yeah. And I understand that. And then same question for residential, because we know residential would not extend or hopefully would not take four years to construct them.

Yeah. So for the residential, we're not doing any smoothing and it's actually a little problematic. So the residential. The biggest problem from a forecasting perspective is that when you're talking about high rise condo, like we're seeing primarily on Oahu right now, those permits don't get issued until basically the building is done. Right.

I mean, literally, it's not uncommon for the permit. And that's true for resort properties as well. It's not uncommon for the permit to be finally issued three to six months before occupancy. And so it's not a leading indicator. And so when someone says, well, building permits are up 10%, so therefore construction is going to boom next year.

If you're talking about residential, it doesn't work that way. That works that way for DR Horton and for other single family where they, they go and they get, you know, they get permits for say 60 units and they build them. And before they're done, they draw another 60. Right.

And that's a leading indicator and there's no need to smooth anything. So really we should be smoothing backwards with the, with the high rise permits. Yeah. And so that's the sense in which getting data on permanent applications and using permit applications instead of final permits, but that data is harder to, harder to come up with.

And that data related to permit data is based on permit valuation of construction.

Those are, that's right, those are permit valuations.

We also, on our data portal, we also publish actual number of units which that data comes from DBED and, but in the forecast model we want the values and then we Deflate them using DBED's Construction Cost Index to try to get them in real terms because that's driving construction jobs and excise tax base, etc.

Thank you.

Thank you, Chair.

Thank you. Members. Additional questions. Go ahead.

So the, You know, right now you write the feds are, you know, their jobs, they release people some early retirement, those kind of things. Tourism is flattening. And so, and we know that our workforce, age, population right there, things like that.

But, but there is optimism among, within the departments, state departments that are saying that they're making strides on being able to hire and things like that.

I feel that part of that they're saying that it's their creative new things they're coming up with and things like that, which may be true, but at the same time it's because of this, what's happening with the feds and the softening of tourism.

And my fear is that when it flips and the feds are hiring again and tourism is booming again, that the people we're hiring will leave. And so we maybe back in, you know, same boat we were, you know, a few years ago, whatever. And we're still going to have these huge vacancies. Right.

Is it reasonable to think that that may happen?

Oh, sure. Yeah. I mean the, the caveat to that of course is that it depends on when it flips. Right. It, because you know, once you start working for state government and you start getting closer to being vested and I mean it, it's harder to leave the longer you've been there.

But yeah, if the, particularly with Fed jobs that pay really well and have great benefits and that could flip. By the end of the year, I think because many of these agencies have lost workers that they need. Right. In order to do their work, they need those people.

And so yeah, I think that's very related because people are always comparing those opportunities. Same with city and county. Right. I mean, they struggle to hire.

One of the things that we've talked about a little bit in some of our reports is remote work and how making it easier, this is HR rules making it easier for state agencies. And county is separate, but same thing for them and for the university to hire people who don't live in town.

And I don't mean in town, Honolulu. So if they're working for your office, why can't they live in Hilo? Most of us are now completely adept at working over Zoom. It's hard initially, you know, when someone is being onboarded, that's challenging.

But, you know, during the pandemic, we hired two faculty Member without ever seeing them anywhere except Zoom. And we do a lot of, we don't even have in person meetings as much anymore. We do most of them. We might all be in the same building, but we're still doing the meeting over zoom anyway.

Making it easier for people to work remotely increases the flexibility for your labor force and also has the potential to easier to keep older workers or workers who need a more flexible schedule, whether it's because they're caring for their, you know, their auntie or whatever.

The kinds of challenges that we face in state labor force, I think requires a little more flexibility.

I think in General, I think that, you know, the concern is also, I think tourist industry will pay what they need to pay to fill whatever. So. Right. So that's the other field that they will do. But. Okay, but you use, you bring up a good point.

That right there it's changing where people are working remotely and those kind of things. So, and I've asked you this before, but the, the spread between unemployment and the U6 number, is it flattening? Is it, is it shrinking because of these options that they have as far as being flexible to work?

And you know, I don't know that. Yeah, sorry, I don't know the answer to that off the top of my head. I haven't looked at U6 in a while.

Maybe in six months. Well, because, you know, because we have, you know, it's expensive to live in Hawaii, right? Then when, when it's hard, then that number usually the spread usually shrinks because people need.

Right.

And so I'm just wondering what's happening.

The data's on our data portal, but I haven't, I haven't looked at it, so I can't. But I'll shoot you a chart that shows the comparison between the headline unemployment rate and the, the U6.

Hi, again, do we have much information on digital currencies and I guess any projections and recommendations and how we can use that for Hawaii?

Yeah, Rep. Templo, go ahead.

Well, you know, honestly, I. My take is that we probably shouldn't be.

It's not. Yeah.

I can leave it that I don't. And we don't have. I don't think there's. I'm not sure there's any source of data on that. There might be, but I'm not aware of it.

Additional questions? Okay. If not, we're going to recess before getting to the Department of Budget and Finance. We're going to set a soft target for about six minutes. Recess.

Aloha. Reconvening the Committee on Finance. We're going to open up with the Department of Budget and Finance. Congratulations and please proceed with your update.

Aloha and good morning Chair, Vice Chair, Members of the Finance Committee, it's an honor to be here in front of you for the first time as the acting Director of Finance. I took the position or assumed the assumed the role in December 8th. So I'm still getting up to speed on many things.

But we have an important formative presentation on the financial plan and the supplemental budget. Just before I begin, I just want to say I look forward to working with each one of you on just being wise financial stewards of our public resources. And I know we have anytime you have budgetary issues, you have hard decisions to make.

And so I hope to be as informative and helpful as possible. So we have a detailed test written testimony that we submit submitted to each one of you. I encourage you guys to read it.

Having sat through several briefings where the Director reads 25 page briefing testimony, I did not want you to subject that to you guys just starting out. I do want to be my first act as a Director some act of torture. So I will PowerPoint presentation that is a little bit abbreviated.

However, there is more details in the briefing package that we can discuss if you'd like. So. Working before.

Seems to be that.

Delayed.

Sorry.

Okay, so I'm going to be talking about four different, four different categories on the agenda. One is the administration's priorities, two budgetary considerations, supplemental budget and finally the financial plan. I want to start off with the Green Administration's priorities. These inform all of our decision making.

So it's improved the overall quality of life, wise people by making strategic investments that do the following. We want to increase housing opportunities, improve access to health care, expand opportunities to educational equity, protect our environment and improve government responsiveness.

The reason I want to start off here is as we are engaged in the inevitable trade offs of any budget. These are the lens through which we look at the budget. These are the priorities that we're always thinking about that are in the back of our heads. There are some other budgetary considerations.

So I'm sure we just had the economic briefing, but there's just massive amounts of federal policy uncertainty. Right. The changes that have occurred at the federal level are seismic. And I don't think that's an understatement. We just, I don't think that's going to change anytime soon.

And so that's just one thing that we're in a Lot of cases we're responding more than we're being able to be proactive about things. There are economic concerns. So the last time the budget was, the biennium budget was formulated was in spring of last year. The economic picture was very different. Right.

We've lowered the economic growth outlook or the core has significantly. We'll be talking about that. And that has filtered into General Fund revenues. The other thing that is very important to consider is the state reserve policy. We have essentially two goals or three goals, but two moving parts of our state reserve policy.

So we always want a little some reserves to build to accommodate mass changes at the federal level economic downturns. And this is the goal that is actually official policy, which is either 55% General Fund carryover balance and a 10% rainy day Fund balance. And we want those two to be combined of 25%.

If the rainy day Fund is, has balance has been met, then the goal is 20%. So our existing rainy day Fund, which. Is the. The emergency budget and reserve Fund EBRF is 14.4. So we've met that goal.

So the goal now is 20% if you take the EBRF plus the carryover Fund, 20% for each of the out years. The other things that we are considering is state liabilities and fixed costs. About 4047% of our General Fund budget goes to fixed cost.

And those we have pretty good understanding and can forecast those costs in the out here. So beyond that, what has been happening over the last eight months, nine months since the budget was formulated, we have lower than expected growth, which means we have lower General Fund revenue. Covid money has really worked through the system.

So Covid happened in 2020. We're in 2026. You could argue that Covid money was still working through the system until last year. It was through fiscal stimulus, through budgetary support. Whether that was we had extra money in our budget to pay for things or it was just stimulating the economy and was feeding through.

But that is broadly totally worked through the system now. And so even we're going to be operating from a slightly lower baseline than we were before. In terms of revenues. The feds are pushing more costs onto the states.

So right now at the federal level, the Federal Government spends more on interest rate payments than they do on defense spending.

So whoever is at the Administration level of the Federal Government, we're probably not going to get a huge change in adding additional social services provided by the Federal Government until they get their fiscal house in order to. Right. So one of the things that we the Current Administration has done is they pushed more responsibility on us.

So when the Federal Government steps down state government, we're stepping up. Right. That brings on a higher cost for us. And the level of uncertainty, like the Federal Government shutdown when they were not in operation, we stepped up to that. And that brings certain costs.

So what, what we're dealing with in this financial plan, according to the last time that we had the supplemental budget, is lower costs, lower revenues. I'm sorry, and higher costs. And on top of that, we feel like it's extraordinarily important to have some level of budgetary agility, given the level of uncertainty that we're facing as a state.

So this is the core numbers. Hopefully you have this in front of you because it's a little detailed, but this is very important. So this shows you the core meeting in March 12, which is the top number. That was the last time that the Governor, the biennium budget was formulated.

And then you have the May 21 and the September 4 meetings. In each one of those meetings, they lowered the economic forecast, which lowered the General Fund revenue forecast that we were working with. If you look at the bottom number, that adds the two sums the two differences together.

So in 2026, we have 315 million left less than what we had when the Bionim was created. In 2027, we have 410. If you go out to the out years, it's over half a billion dollars. Right. Total all this up $2.8 billion less than what we thought we did last time we had a biennium budget.

This requires us to rethink the approach that we had. So just as a, remember, reminder, the backdrop of all this, lower revenues, higher costs, we went, told the departments, okay, you're going to please limit new requests and work within your existing budgets. We, we do have some money, additional money in this.

A lot of it is responding to the federal policy changes. So we're, you know, taking on more responsibility for paying for the SNAP Administration and Medicaid as well. These are our supplemental budgets going forward by Department. This is for all funds, not just General funds.

What you'll see is it's $19.7 billion in fiscal year 2026, in 20.4, in 2027, if you look at the breakdown, the largest, the largest by a couple percentage of points is Health and Human Services, followed by bnf, Education and then Health. For the General Fund budget going to departments, the largest is bnf.

I'll explain to that in the next slide why that is the case for Followed by education, health and human services. It's $10.4 billion this year and 10.6, so pretty modest increase. These are the statewide fixed costs versus non fixed costs. So everything in the blue on the right hand side is all non fixed costs. So that's 53%.

And fixed costs, which is a retirement system, debt service, health Fund, Medicaid, entitlements, things that we can really have a, a good handle on. That's 47% of our budget. So 53% of the budget is stuff that we have a lot more discretion over.

And even that a large portion of that is comes down to salaries for state employees. This is the statewide CIP Department budget by Department. This is our GO bonds, right? Things that are funded with our GO bonds. Education is the largest. We have.

Education is the largest, followed by Deep Ed, followed by U of H. In fiscal year 2026, we're budgeting $1.5 billion of CIP budget and 1.3 in 2027. So this is the General Fund plan. I want to spend some time on this. This is very important and I want you to understand like what's going on here.

So hopefully you guys have all spent some time and seen this before. But I'll just go over the basics. You have revenues on top, you have expenditures. Take revenues, mine is expenditures. And you get the difference, right? And that's what we're looking at.

So if you go down to revenues under and over expenditures, that's the difference between total revenues and total expenditures. In fiscal year 25, we were at 378 million. For then we're going, we're negative 238 million. That means our expenditures are exceeding our revenues by 238 million. Those numbers grow in the next year and start to decline.

And then on the out years they get positive, right? So I'll talk about how we did that in a minute. But what I wanted, I want to take us through all the broad trends.

If you look at the ending balances, right, we're coming into this with a relatively healthy ending balance of for fiscal year 25, it's $2.1 billion, right? And then as you, if you look at this, this line, as we go across this field, it's decreasing and decreasing.

And where we hit a low of fiscal year of $891 in fiscal year 29. So if you look at the right below this, under the dotted line, these are the percentages of how much it is. We start at 9.9% and we go down to 8.1%.

What if you guys remember, the goal was to stay above 5% for that number, right? And we want these numbers to add together the 19.9 plus the EBRF Fund, which is the last one, we want that to exceed 20%. That's the goal. We, this financial plan meets that goal.

And so the question is, if we have $2.8 billion less than what we thought we did and we have higher costs, how did we achieve that? We did a number of things. First of all, let's look at, yeah, we'll look at revenues, right? So the top line, you'll see this is the current core forecast. 4.72.1.9.

That was of September. Carl Bonham was just here, he told you the core is unchanged. So this financial plan will stand and does not need to be updated. So tax revenues are the largest part of our revenue system. If we go down to other revenues, this is how we have managed to meet our state policy goals.

In fiscal year 2026, that's the Plavix settlement of 550 million. And then you'll see in 282930 and 31 that the revenues start going up. This represents the administration's package which involves a number of different proposals.

But it does represent a pause in the out years of the tax relief Fund of Act 46, as well as additional measures to support Alice families and lower income families. Underneath this, the operating budget, it does increase over time. If you look at total, this is the top line number, right?

It does increase over time, but we've asked our departments to limit expenditures. The increase reflects a lot of our fixed costs. So these are our pensions, health care, Medicaid, Medicare. The other things that it includes are settled bargaining agreements. There are three collective and those would go until 2029 and after that those will need to be renegotiated.

There's three collective bargaining units that have not been finalized. 511 and 14 that will still need to be included in this financial plan. If you go down to lapses, this is another important fact. So the last time you saw this, the lapses were probably smaller than what they normally are.

We looked at the last, the five year average of our lapses over the average lapse for each year over the last five years and it came out to $250 million. So that's about 2.5% of our General Fund budget. You can argue if that's a high, if that's too high or too low, but that's what it is.

So we wanted to have some realistic assumptions. And so doing this we were able to meet our state reserve policy goals. If we did not have the revenue increases, we would not. What we would see is larger and larger numbers over the revenue.

Everything would be in red and they would be larger for going from 28 fiscal year 28 to fiscal year 30 and we probably in sometime in fiscal year 29 or 30 we'd drop below the 5%. Right? So that is why we're having to make tough decisions right now.

And that is what the Administration is why we have this has informed our the legislative proposals that we will be delivering on January 26th at the State of the State. Just following up. Two important things that BNF always wants to communicate to you guys is that we are below the General Fund appropriation expenditure ceiling.

General Fund appropriations are below the expenditure ceiling set out in the state constitution. If you look under this column B down here and you see that this is the proposed budget amount for fiscal year 26 and 27, you'll see 11.4 billion and 11.6 billion more or less.

This is below the General Fund expenditure ceiling, which is right below that of 11.9 billion and 12.6 billion. So we're good there. I did not include it in this presentation. But we are also below the debt ceiling. If you want to talk about that we can. But that is in the Exhibit 3 of the testimony.

Finally, according to Article 8, Section 6 of the state constitution, if whenever the General Fund exceeds 5% for the previous two years, that 2026 or the Legislature must provide a tax refund, a tax credit or make a deposit in emergency funds, fiscal year 24 and 25 did exceed 5%.

So we are informing the 2026 Legislature that you must provide one of the following tax refund, tax credit, deposit into emergency Fund or prepay of debt service or some kind of. That's all I have right now and I look forward to working with you over the next couple years.

Great. Thank you very much. That was. I think this is always kind of the most illuminating part of the conversation is this collection of projections and analysis.

I have one brief question just because it might help inform the discussion and then as much as possible, let's try wrap by 12:15 so we have a break before the 1pm afternoon briefings.

So in that other revenue section which reflects what will be, I guess, the administration's tax proposal, can you clarify whether those figures are the net impact of the legislation or it's just revenue generation not including the proposed tax credits?

So 1.8 billion. The way it works is we're providing actually like everybody gets to like all the tax adjustments that have occurred up until now.

Everybody gets to keep which will still represent the largest tax cut in the history of the state is the out years that are being paused and then we are compensating our Alice families and lower income families with additional tax credits. But this is all net of everything.

So this includes this is net of all of our different legislative proposals. And have you folks mostly finalized what those credits are or is it still a little bit of flux prior to Bill introduction?

We're always in flux in the Administration, but we have a very pretty good idea what's going to be in the package.

Okay, thank you. Members questions Reprusto and then Rep. Kush.

Thanks for being here. Thanks for your presentation. So I have a question. You alluded to bargaining units that have not yet finalized their contracts and I'm curious about how that figures into this budget and the budget moving forward. Do you assume that there will be no raises?

Do you assume that the raises will be the same percent as other bargaining units?

What are the assumptions that you make? Great question. They're not included in this. So it's as if they have not gotten anything. Once they do get those that will be an additional cost into this budget.

And if so assuming that they get the same increases as the other bargaining units because they tend to follow in line, then I'm wondering how that changes your budgets and if you could get us a a re estimation of the budget like how much we would be in the red or how much what those costs would be if your assumptions change.

So just to be clear, your request is if we assume that all the other state workers receive the exact same budget negotiations before, what would be the budget impacts.

We can do that.

Thank you. Rep Kusch. I had two questions. Chair, if you allow. One was just on the CIP expenditure side. I see this year is at 113, then we go to zero and we have a 35, a negative 35 million. And I was just wondering if you could highlight that. Okay.

Just so we're all looking at the same thing. Zero on the multi year General Fund plan.

And you're asking in CIP the negative 35. zero yeah. We converted some of our General Fund budget to CIP budget. So some budgetary items were in the General Fund budget. We move some of that to our CIP budget and that's what it includes.

Okay. And then my next question was regarding the tax Fund or credit. You recognizing the law Is there any, have you run any kind of projections what the effect of like a tax refund would be or you, you know, bolstering our emergency funds or prepaying debt or pension payments?

Has there been any kind of financial modeling to see, like, what were the outcomes of those different options.

Generally those we do in consultation with the Legislature during the session. If you want any particular analysis, we're happy to provide it to you.

Okay, thank you.

Great. Members, additional questions.

Thanks for being here. Congratulations on your new position. I have questions about the new green fee.

So I'm reading in your presentation about, you know, you have estimates 42 million FY26, which I'm assuming is from this January when it started to June, and then 87 million FY27 and that in the middle of session you're going to come with a list of projects that the Committee has approved.

So a couple of questions relating to that. In the way that it's broken out, it looks like FY26 of 42 million is all CIP related potential projects. But then in FY27, it seems like the 87 million is split between operating and CIP.

So I'm wondering why that might be the case instead of it, you know, is there a reason that we're not doing any operating for the green fee in this FY26 year because it's all lumped in the CIP section.

And then the other question is say the, you know, the Committee comes up with a list of projects and it doesn't total either it doesn't total the total amount of revenue made or the Legislature decides not to Fund every single project that is suggested, what happens to the rest of the green fee money?

Does that go back into the General Fund that then can be used for any other project? Or is there a mechanism that BNF is doing where it's keeping the green Fund revenue separate and that it only can be used for the green fee project. Sorry, green people project.

Yeah.

So I'm not completely sure about the details, the detail question, the second one, but we'll get back to you on that.

Okay. And the first one.

So FY26 is. This is Rob Becker, our finance administrator.

So FY26 is cipher, because if it was appropriated as operating by the time the budget's enacted, you would have no time to spend it. Right. So, so that's FY26. FY27 is a split going forward. That's the projection.

What was the other question? It was if they don't spend all the money of the allocated money, does it go back to the General Fund?

So the tax increase goes into the General Fund. That's where it is. The requirement of the Administration is to propose those amounts for green projects, but it's up to the Legislature whether it makes those appropriations or other appropriations. It's not bound to use that money for green projects.

And so if it's not used, it'll stay in the General Fund and can.

Be used for other could be other projects. It's General funds at that point.

Okay.

Thank you for that.

Thank you.

Anyone on this side, before I go. Back.

Any additional questions for Members? I have a brief one and then we'll open it back up and see if that helps.

So given all of the uncertainty and the last year of kind of shaving about $2.8 billion off of our projections over the course of the financial plan, are you and I understand the move to 250 for the lapses and being more reflective of actual lapse habits, but are you at all concerned about kind of losing that roughly $800 million in cushion given how much uncertainty we have?

Well, now that I am the acting Director of finance, I worry about everything. That's fair. You know, we feel that this is a like, if you look at this, we were even prepared for a slight decrease in the core revenue estimates or in the core forecast. They kept that.

So we do have the cushion has proven resilient to the core. So and we that makes gives me heart.

Yeah.

Members, additional questions Rep. Templo with that. Line of questioning with the assumption if the economy does take for worse, what areas are most vulnerable?

I mean, in a recession, government costs go up and revenues go down. However, we do have the EBRF and the rainy day Fund. Like that's what it's for, right? So if there was a large recession, we, we are prepared to handle unexpected events, right? And that's part of why we have a healthy and robust state reserve policy.

Do you know what Department or programs are more at risk?

Do you guys have like a priority list or you value which ones you guys keep or no, we don't have everybody. We love everybody equally here. We don't have a priority list. We work with you guys. You know, you guys are the you have the power of the purse, right?

And so a lot of that decision making falls upon you. The Administration has advisory power to make recommendations and we can articulate things and conduct analysis on your behalf, and we're happy to do that.

Thank you. Thank you. Great. Additional questions.

Rep. KIHOKO. I'm so confident too. Go ahead. Thank you. Thanks for being here. Thanks for joining us. I'm just really curious.

Towards the end of last year we heard a amazing announcement that Hawaii was given a rural transformative health care grant to the tune of $188 million per year over the course of the next five years, which would almost equal a billion dollars.

I'm trying to find where we're putting that money, whether it's showing up now, if it's not showing up. Is there a separate grant category?

This is the General Fund. Financial zero yeah. So it wouldn't go in. It's not going through the General Fund. So yeah, it's not reflected here in the financial plan. It is included in our testimony. Right.

So we are, we are aware of it, we are tracking it and we're looking forward to making the best use of those resources.

So just following that thought process through because we know some of those dollars will be very restrictive to particular uses. Right.

Has any thought been given and I don't want to use this word, but I will like supplanting funds, right, from some of the General funds which would then be shifted over for the use of these grant funds which then could be utilized elsewhere.

I haven't looked at that.

I'll study the issue. And can I get back to you on that? Yeah, absolutely. And I think in align with my colleague regarding our bargaining units, I think we're really trying to get our arms around what else is not included in this budget that might come up later on.

And we don't want to make any real hard business decisions without the full picture of some of this outstanding bargaining unit numbers along with some of this large sums of Brahmani would enter into our budget and then shift other areas of the General.

Yeah, I think it's a good question. I mean it's the policy Administration that we do not comment on collective bargaining agreements that are currently in negotiations. So that's just our policy. We don't put it in there until they're finalized. But you know, I think Reparuso's idea is a good one and we can provide you those numbers.

Thank you.

Thank you. Thank you. Thank you.

Additional Questions Rep. Peruso, I just have. One more question and it has to do with a conversation that came up yesterday or the day before about restrictions. So I know that you folks have asked departments to give imposed restrictions and I'm assuming I've actually seen, I think a little bit of language around the guidance that you provided.

But I'm wondering if you are Also evaluating the effects of those restrictions. How are they being prioritized and are you asking departments for reports or evaluations of the impacts of those restrictions?

So the protocol is if departments feel that they're being like, their operational capabilities are being affected by that, they can submit a BNF and we will review it and then we'll let it go respond to that. So. That's, that's not what I asked.

Zero, so sorry. I was just asking.

And not about the process of interaction with the Department so much as are we tracking the. Are you tracking the efficacy of government and like, if our impacts are like really impacting how well the government functions, Is that what you're saying?

Right. And which parts of our community are being most severely impacted by those restrictions in specific departments?

Yeah, I mean, we would be relying on departments kind of reporting for that. Right, because the departments, for my understanding, is the departments report like the impacts that they're making and if they're having certain impacts and they're like, they're the metrics, the efficacy of their, of their operations are changing, then they should report that.

We can communicate that to you. Okay, but it's not standard procedure. Like, it's just if they feel like it's affecting their operations.

Thank you, Members. Any additional questions for.

Thank you.

So the, you know, you're choosing to, I think you're choosing to in the future delay tax decrease. That was kind of promised to people and I. And so that's a little concern for me. Right.

And then, but, but at the same time, similar to the $35 million that you're converting from cash to geo, there are other things that you can convert also before you do any reduction, what was promised. Right. So the green fee is cash, but you're going to do CIP projects with that. You could GEO that. Right.

And then you could use the cash for that. There's the 49.5 that you're asking to increase the ceiling in the stadium, in the stadium Fund.

Right.

That technically that's cash. You could convert that to geo.

Have you guys considered all those possibilities? We have not considered every single possibility, but we have considered many. The issue, the big issue is 50 million or even 100 million was not, was not adequate to meet our state reserve policy.

Well, there's several things. Right, so that's one, I'm just asking you specifically on that.

Have you considered that. Half of the green fee projects. So half of the green fee is geo. Right.

And if there's other ideas that you have, I'm happy to yeah. So I think that should be a consideration. Right. So similarly, I think, you know, I think there will be impacts to the departments if we cut. But at the same time, right. We have cut in the past and the departments have survived during the wildfire.

We moved the Administration moved money from the major disaster funds from all different areas. And then it was. They were. I wouldn't say they were okay, but they worked things out. I think the exercise that we're supposed to be going through is that.

And that's why I asked Dr. Bonham that question about if, if the Fed start hiring again and tourism comes back, some of the gains we've had in employment, we're probably going to lose.

So assuming that we have all these vacancies and then in the future we may have more vacancies, wouldn't it be a better idea for the Administration to at least work with the departments to figure out which are the absolute need to have versus nice to have and start looking at the budget from that perspective and knowing that people are leaving the state.

Right. Our workforce segment is shrinking and the likelihood of us in the near future, soon, we're still going to have this problem of we're not going to be able to hire. Right.

We are not the employer of choice that we were back in the 90s when the benefits were better and we used to give, you know, medical for the spouse and all these different things. And it was different before and people wanted to work for the state, but now it's a little harder for us to hire.

So, you know, we have the collective bargaining issue coming up where I'm kind of like, you know, I think we got to pay more and we to kind of retain them. But because. Right. Inflation is outpacing income. That was part of the discussion today. So all these things. But then we've got to. Right. Size what we have.

So we got to go through that exercise. Now, I believe that, okay, the Legislature has the power of the purse, but BNF is the one that administers.

So you guys are supposed to be going through this exercise and forcing that discussion with the departments that, you know, knowing in the future, based upon what the economists are telling us, that we may not have the workforce that, you know, we desire and these vacancies may be a real thing for a while. You know, we.

Are you guys going to start doing that? Because that's. I would rather, I would rather start working on that because that's to me a reality that we are not going to get the workers that we expect and we got to start figuring out what we can do.

Yeah. I started this position four weeks ago, but those are all questions I have in my mind. And so one of the things that our goal is to provide analysis. Right. And so that all of us collectively can make the decisions that are right for the future of this state.

And I think having more information on different scenarios and those impacts would help facilitate this discussion.

And that's something that I look forward. To because of the urgency. Right. The House will have the budget first. The urgency for you to provide us information or work with your departments to kind of gather information to help us work through that process before we have to put the budget up would be very helpful.

You know, you, my suggestion would be, you know, you said that the governor's plan is little fluid. I would suggest you update that plan before the state of the state and you start giving us information as far as what can be possibly done in that respect. Right. I know this question was brought up to you recently, but.

Right.

The, the Governor vetoed the five year tax credit lapse. You know how that was in place. It probably would have helped our financial situation at this point because in the sixth year. Right. It would have been an assumption at that point in time. Now I have never been about that.

We have, we're supposed to repeal all those credits, but I believe that the five year sunset was to give the Legislature the opportunity to review those credits, right.

To see whether we should extend it, repeal it or modify it and to do an evaluation of is it getting the outcomes that it was intended to get or to create. And by vetoing it.

I think I still believe that was a mistake because without a sunset there is not a fair or a conversation will be very different versus well, let's kill the Bill because it just continued.

Right.

And if you know this and the conversation is very different. So and like I said, one concern is that that was in place. It would have helped the financial plan. Right.

It would have helped you, I believe in the bond market because it would have shown that we are responsible and we are looking at possibilities of the future. I think it works against us that it was vetoed. I think it can hurt us. Any comments to that?

And I'm telling you all of this because these are the types of things that you need to address soon. Because. You are the acting Director. But at some point you're going to have to go before the Senate to be advising consented.

They're going to want to see action and during tough times and I know you, you're you know, your short time you just came in, but it, it's, but these things are, it's a big deal right now. Right. We're going through a difficult time.

And I know that the council came out and said it was flat, but there's still concerns going forward. Right. There's still uncertainty what the feds will do and all those different things. So I believe that a delay in those things will hurt the economy.

I think those are the people, you know, that they want to be in effect.

Right.

So I'm just curious to see, what are you going to do between now and State of State?

I will take your comments to heart.

And no, I think those are really important and I will.

Use those to inform my actions between now and the state of the State.

Members. Additional questions. Okay, I have a hard one. Okay. You know, does the Administration, have they given any thought to some of our conversations around some of the federal action?

And a lot of it, a lot of how it presents itself is the threat to the state if there's a withholding of federal funds, and what is our responsibility to our residents here to not put those funds in jeopardy?

So with that in mind, has Administration given any thoughts to strategically trying to further shore up revenues so that the Federal Government has less leverage over our actions?

I know it's a hard question. That's a very hard question that involves, like, legality and lawyers and funds and things. And to my knowledge, we haven't really.

Done that exercise, have we? What exercise? To shore up other areas of the state. I mean, the AG has been doing a lot of work with the legal battles.

But I think you're asking if there's, like, other sources of funding besides federal funds that we're trying to. Well, I guess what, I mean, from a strategic point of view, if the Federal Government is going to be shifting additional costs to us.

But also there have been many examples where they've restricted funds to the states or threatened to withhold or potentially even punished other states for their actions. Would we be better positioned if we had a larger reserve or at least working towards a larger reserve so that those actions are less risky or puts us less in jeopardy?

If we can imagine having a much larger reserve system so we could handle, handle all of this, a couple of extra billion dollars, I would say, zero, yeah, that's a great idea, but this is the reality.

We're thinking about that.

And, you know, that's a good comment. And we'll think about that as well. If there's any possibilities for that.

We will. We would definitely want to explore it.

I got you. Okay.

Members, additional questions.

Okay. Seeing none, we are.

Aloha and welcome to the House Committee on Finance. We're reconvening now at 1pm on January 8, 2026. For the purposes of budget briefings. We're very excited to welcome the Department of Labor and Industrial Relations. Please proceed.

Good afternoon and Happy New Year. Vice Chair taken. Honorable Members of the Committee, thank you for this opportunity to provide you with updates on the Department, the Department's budget and operations. With the Chair's indulgence, may I introduce the Members of the Department in attendance. Please stand or wave as I call your name.

First is Phil Kunstman, Deputy Director. Lynn Iraqi Reagan at Administrative Services Officer. Also from ASO is Francis Pagawa, Fiscal Officer. Our ASO team keeps the Department running efficiently and us on track. And all of us are wondering that we would be stuck in the Stone Age if they were not around.

David Rodrigues, our State's Deal Officer and Herrera, Ustakio, Unemployment Insurance Administrator. With her is Artie. Barbara is a Program Development Officer. Our UI team spends their days turning complicated rules into actual help for real people while shepherding the UI modernization, which is basically superhero work all around work all into one.

Mary Claire Piliton Freitas, Workforce Development Division Administrator. Also from WDD is J. Ishibashi, program specialist. The WDD's mission is helping residents prepare for the jobs of today and tomorrow. Joanne Biddenhar, Disability Compensation Division Administrator. With her is Royden Poito. He's a program Sports chief.

You know, if there were an award for balancing empathy, accuracy and a mountain of regulations that already have a trophy shelf. Sherry Lee, she's our Wage Standards Division Administrator. The division make sure payday means payday and everyone play by the rules. Randall Hu is the Program Specialist and acting Hawaii Occupational Safety and Health Administrator.

They make sure everyone goes home safe, healthy and with the same numbers of fingers and toes they came with. Scott Wheeler is the manager of our Research and Statistics Office. Our RNS helps everyone understand trends and explain what all those numbers mean. Ray Domingo, Executive Director of the Office of Community Services.

OCS touches lives across our communities and they do it with dedication, heart and impressive ability to juggle priorities given the number of GIAs that they're administering. Marcus Kawatachi, Executive Director of the Hawaii Civil Rights Commission. They make sure fairness isn't just an idea, it's the standard. Dwight Takamini, Chair of the Hawaii Labor Relations Board.

With him is David Scan Hearings. Officer HLRB helps labor. Helps keeps labor and management talking and occasionally agreeing. Alani Kiyoge, Executive Director of the Hawaii Retirement Savings Board. She is helping us all plan for the future so one day that our biggest worry is in bills whether to retire in Maui, Kauai or Big Island.

And last but not least, Bennett Misalucha, Executive Director of the Workforce development council. With 41 council Members, her job description sounds like a dance choreographer for a first line of elephants. DLIR's operations rely on approximately 60% of federal funding, primarily for unemployment insurance, workforce development, and our hioship.

Under the New Federal Administration, this funding faces significant uncertainty driven by shifting policies, the termination or attempted termination grants, reductions in award obligations, and prolonged delays in approvals and distributions. This environment is constraining our planning and directly affecting recruitment and retention. Attention Prospective candidates increasingly ask whether positions are federally funded and often view that as a disadvantage.

While we were fortunate during the recent shutdown to continue drawing down federal funds and avoid major impacts, Congress reliance on continuing resolutions with essentially level funding means that while cost rise for collective bargaining goods and services, our funding remains flat.

In light of ongoing federal uncertainty and consistent with Governor Greene's budget instruction, DLIR is submitting no new requests and only two minor budget adjustments. Our first request is a transfer of $318,000 to effectuate the budgetary transfer of the State Park Council and State Fire Marshal to the Department of Law Enforcement pursuant to Act 302 of 2025.

I would like to acknowledge Fire Chief Cassoul Todd for his pivotal role in reestablishing the Office of the State Fire Marshal, hiring Fire Marshal Dorothy Booth, and guiding the legislative changes that made this possible.

Fire Chief Todd's legacy is the revitalization of the centralized approach to statewide fire protection in the wake of the Maui Wildfires and firmly positioning Hawaii to prevent future tragedies. This impact will be deeply missed.

Second is a transfer of $134,350 from the personal services category to the other current expenses category to pay for current and ongoing expenses for Unemployment Insurance Division program operations.

Given the uncertainty surrounding federal funds and the growing pressure and existing state resources, we are exercising physical restraint, for example by requiring additional justification for overtime and travel, especially for federal programs.

However, since maintaining relationships with other states and federal partners is crucial, I am approving travel to stay informed and learn the best practices for handling these challenges. Even as we exercise fiscal restraint, we are prioritizing efficiency initiatives that reduce long term costs and improve service Delivery.

Efforts include procuring 30 licenses for Microsoft Enterprise Copilot to begin learning how to apply AI to improve productivity, developing an AI powered chatbots to support routine customer interactions and improve the navigation of our website Transitioning our landlines to Teams Calling, which is available on our Microsoft platform Developing DLIR specific online training available through D Herd's Adobe Learning Management System to deliver high quality consistent training statewide Transitioning from on premises network storage to Cloud via SharePoint and OneDrive and our administrative services office has also procured Freshworks to streamline support for fiscal, IT and related central services functions.

If it would please the Chair, I would like to continue with a few highlights. Considering our modest budget requests, OC has worked diligently to facilitate the Legislature's award of 49.5 million to 95 Hawaii nonprofits impacted by federal delays and funding reductions.

In partnership with Aloe United Way, OCS is ensuring these funds are deployed quickly and efficiently so that vital community services can continue without interruption. On December 23, 25 million check was delivered to AUW the Hui Huakai Project. Our unemployment modernization project remains on track and scheduled to go live in March of 2027.

Recently, the UI team has been refining the Claimant Portal through focus groups with claimants and community organizations. These interactive sessions have been highly productive and the feedback is helping fine tune the portal. The focus is on plain language and ensuring it's clear, accessible and easy to understand for our claims.

In October, the Hawaii Retirement Savings Board approved an RFI for an interstate partnership and in December evaluated responses from consortiums led by Colorado and Connecticut to ensure due diligence and make an informed decision. The Board has requested additional information from both partnerships, which will be considered at either the January or February Board meeting.

We remain hopeful that the Retirement Savings Program will be implemented this year. The Department has been actively participating in the Paid Family and Medical Leave Working Group chaired by Representative Sayama.

The DLIR recently procured a consultant with legal and labor law expertise to help develop a request for proposals to use the $750,000 appropriation for an Ariza legal analysis and an actuarial study in December. We welcome Scott Wheeler as Chief of the Research and Statistics Office.

I am confident he will greatly enhance the services provided to our Division visions and strengthen the Department's research and statistical contributions to policymakers in the community. Act 2512025 formally established both public Sector State Internship and Workforce Development Program and the Private Sector on the Job Training Work Experience Program.

We've initiated a pilot project in the AG sector to strengthen the AG workforce and guide expansion into other key industries. Our focus is on creating pathways to careers for Hawaii's youth that do not rely on Traditional pathways like apprenticeships. In the fiscal year, WDD placed 204 interns, recent high school graduates, college students and recent college graduates.

Those 17 were hired upon completing their internships. Since the inception of the Hele Imua Internship Program, 1200 have participated and a total of 130 interns have been hired. In addition to collaboration with the Department of Education, the program engaged students interns from 30 public high schools across the state in fiscal year 2025.

On behalf of DLIR, we look forward to working with you. Thank you. And we will do our best to respond to any questions you may have.

Great, thank you. Before we open it up, we kind of have a few basic ones for most departments. Can you, I know, I know it's here in your testimony. Can you maybe elaborate a little bit more on federal Fund impacts to some of your programming?

Maybe just kind of give like a broad, broad overview of maybe some of those challenges and then maybe what your outlook is given all of the uncertainty around these things from week to week.

Yeah, we're closely monitoring the federal budget situation and its potential impacts. You know, in response to this uncertainty. You know, we're managing our finances conservatively by making a prudent prioritized expenditures, limiting non essential costs and ensuring that available resources are aligned with our core mission and statutory responsibilities.

I think that approach allows us to maintain program stability within remaining while remaining flexible with federal funding levels change.

And you know, we had a, you know, we had our regular Nashua meeting, Nashua's Capital Hill Partners, you know, and they have a lot of or good eyes and ears in D.C. and they told us that there is no appetite for another government shutdown.

So hopefully there's, you know, they'll be, we don't have to deal with that again.

Hopefully. Can you touch a little bit on, you know, existing restrictions and their impact to your Department? Do you think you'll be in need of some sort of emergency appropriation or are you just handling things already?

I think we'll, you know, with the, I mean we don't anticipate any. From. The restrictions, but you know, we're not requesting any emergency appropriation because we, I think we're, you know, our current budget remains in the trajectory that was approved for the biennium.

You know, we, you know, when we submitted, when we submitted that budget, I mean it was conservative and you know, like I mentioned, I mean we're managing, managing our expenditures carefully and you know, I think, then I think our existing resources are sufficient.

Okay. And then before we open up, just want to thank you and your Department for working with us on the granted aid process that we reopened. Is extremely helpful kind of working together to work out that process. And you guys are a great partner in that.

I appreciate you doing a lot of the hard work after legislators did the easy work of appropriating it. We're also joined by Chair Sayama. And at this point, I just want to open up to the Committee. If you folks have questions.

Go ahead. Thank you, Chair. Thanks, Director, for being here. You mentioned the internship program. You had about a thousand applicants, about 100 finding jobs, 10%. Absolutely amazing. Just curious what the goal for the Department was as far as percentage of number of applicants.

You meant you're talking about the hell, I mean. Well, you know, when it was first, you know, contemplated, it was really to reduce the brain drain. And you know, because it was also to address the, you know, the vacancies because sometimes, you know, what they teach you in school doesn't match what the.

What organization, the skills that they want. So it was a way to bridge the gap. And because when, you know, when people apply, they don't meet the mqs or the minimum qualifications. And this is a way to help them get in the board.

So, Director, have you set a goal as far as the number of agencies within the state and how you want to reduce that? Has the Department set any goal to that number? And I ask because we do. We see a lot of vacancies. Right. And we're trying to entice people to come to the state of the counties.

Great jobs benefit programs. Maybe what they weren't in the past. Just curious if there was any kind of goal setting.