Hawaii takes steps to protect its economy as COVID-19 spreads

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While some states escalated medical efforts this week to prevent the spread of COVID-19, Hawaii lawmakers were also looking to protect an economy dependent on tourism.

The archipelago state’s House of Representatives approved a resolution Tuesday to form a committee that would report back on the steps necessary to prepare for the financial effects of a COVID-19 outbreak.

House Speaker Scott Saiki introduced the resolution saying he wants lawmakers to have the information necessary to shrink spending, if needed, to avoid the kind of cuts the state had to make during the recession that began in 2008.

Air China Ltd. flight attendants walk through the departure hall at San Francisco International Airport in San Francisco Jan. 31, the day the U.S. restricted travel from China.

COVID-19 may deeply impact Hawaii’s economy due to the state’s proximity to Asia and reliance on the tourism industry and imported goods, according to Saiki’s resolution.

The state saw a 7.3% drop in international passengers in February and has an estimated loss of more than $23 million in visitor expenditures, according to the State Department of Business, Economic Development and Tourism. The total passenger count including both international and domestic travel, which includes the mainland U.S., was exceeding 2019 numbers in January, but dropped below last year’s numbers on March 1.

The coronavirus identified in December in central China had spread to almost 80 countries Wednesday morning with outbreaks in South Korea, Italy, Iran and the U.S., according to the World Health Organization. Deaths from COVID-19 had grown to 11 in the U.S., but all but one was reported to be from a single nursing home in Seattle. The other death was an elderly man outside of Sacramento.

The number of cases in the U.S. was reported to be 108 by the World Health Organization on Wednesday. WHO reported 93,090 cases globally with 2,984 deaths. Of that number 12,688 cases and 214 deaths were outside of China.

COVID-19 is caused by a member of the coronavirus family that’s a close cousin to the SARS and MERS viruses that have caused outbreaks in the past.

Though the economy of the archipelago state, made up of eight major islands, has diversified over the past 30 years, 17% of its gross domestic product and 18% of its employment still stem from tourism, said Alan Gibson, a Fitch Ratings director.

“That is significantly higher than other states, but the economy is not solely dependent on tourism,” Gibson said. “Other sectors include government, military, research and development, education and construction.”

It’s not as significant as it was 30 years ago in 1988 when tourism represented 33% of the state’s economy, Gibson said.

The state has experienced global pressure on the tourism sector before, Gibson said, which is why it is well placed to respond this time.

“They have built up reserves and diversified their economy; and they are thinking administratively about how to respond, like the announcement the Legislature made,” he said.

Saiki said he wasn't currently proposing to cut spending and build up financial reserves, because he wants to assess the economic effect of the outbreak before taking such steps, which is why he proposed the committee. He didn’t rule out having to make such cuts, however.

“We don’t want to leave the public in a lurch with last-minute draconian proposals like Furlough Fridays,” Saiki said when he announced the proposal on Friday. “We do not want to put the public, we do not want to put workers and students, in those kinds of positions.”

The state had to slash $2.1 billion from state budgets over a three-year period when tax revenues fell during the Great Recession, Saiki said. That led to furloughs for government employees, a four-day week for public school students, a 5% salary cut for public employees and millions in dollars in cuts to mental health and other services, he said.

The committee comprised of representatives from state and local government, private companies and non-profits were asked to examine the potential economic effects of the COVID-19 outbreak so lawmakers can be prepared to cut spending if tax revenues drop precipitously. But the hope, Saiki said is that committee will identify potential economic and financial impacts to the state and develop short-term and long-term mitigation plans so that these types of cuts can be avoided.

The committee's chair and members will be appointed by Saiki and have a May 7 deadline to report back, the day the legislature adjourns.

Moody’s analyst Kenneth Kurtz wrote that COVID-19 would negatively affect tourism in Hawaii and the U.S. territories of Guam and the Commonwealth of Mariana Islands in a report in late January. But he added the addendum that U.S. territories were likely to feel a greater effect, because the majority of Hawaii’s visitors originate from the U.S. and Canada. At this point, Hawaii hasn’t experienced a drop in North American visitors.

“There is not a whole bunch of new data since January when the coronavirus became an issue in terms of travel,” Kurtz said, adding that at this point everything in the report holds true.

The U.S. State Department issued a travel advisory on Feb. 20 advising American citizens not to travel to China. President Donald Trump placed restrictions Jan. 31 that prevented any foreign national who had been in China in the last 14 days from entering the U.S. American citizens and permanent residents, who had traveled to China, were redirected to one of 11 airports to undergo a health screening.

The U.S. Department of Health also advised U.S. citizens to exercise increased caution when considering travel to South Korea or Japan, but there were no additional protocols for travel from those counties.

So far, Kurtz said, the tourism numbers in Hawaii have held up quite well. Though there has been a decline in international visitors, 71% of visitors to Hawaii come from the U.S. and Canada.

“If Americans decide they want to quit going to Hawaii, there would be a negative impact,” he said.

Though DBEDT reports daily passenger numbers on its website, which have shown the drop in international traffic reported above, it's more robust monthly economic reports have a one-month delay. The most recent data is for January, which is before the travel restrictions were announced.

“It would be premature to speculate at this point on the impact to our economy, whether its tourism or any other sector of the economy,” said Charlene Chan, a DBEDT spokeswoman. “It is a wait-and-see. There are a lot of unknown factors.”

The outbreak has resulted in the cancellation of conferences across the country.

In Hawaii, both the Honolulu Festival and the Festival of Pacific Arts & Culture, which bring thousands of participants to the state, have been cancelled or postponed due to COVID-19 concerns.

The vote on Saiki’s resolution came as other Western states received news that spurred them to action.

As the number of cases reported in California hit 51 Wednesday, the most of any state, Gov. Gavin Newsom declared a state of emergency, as did Los Angeles, San Francisco and Santa Clara counties.

Hawai Gov. David Ige appointed Lt. Gov. Josh Green Wednesday as the administration’s liaison between the state and healthcare community for COVID-19 preparedness and response.

Currently, there are no confirmed COVID-19 cases in Hawaii — however, the virus is spreading internationally, and suspected community spread in the continental U.S. emphasizes the need for the state to prepare for a potential outbreak, according to Ige’s office.

“As we continue to ramp up our statewide efforts to address the growing COVID-19 threat, we are doing everything in our power to prepare for any possible cases and the resulting impact on our healthcare system,” Ige said. “Because Lt. Gov. Green is a physician, he is uniquely positioned to act as our liaison with healthcare officials across the state.”

Green will evaluate the medical community’s readiness to deliver care to individuals who test positive for COVID-19. He will also evaluate the current equipment supply, coordinate efforts to secure additional equipment as needed and advocate for appropriation funding at state and federal levels, in cooperation with Ige and Hawaii’s congressional delegation.

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