Hawaii looks to boost construction to offset industry slowdown

  • Melchor Construction General Contractor Sonny Melchor works on a house in Hualalai Vistas in 2015. (Laura Ruminski/West Hawaii Today, file)
  • The Kona Brewing Co.'s new brewery construction progressed in 2019. (Laura Ruminski/West Hawaii Today)

HONOLULU — Construction work in Hawaii is likely to slow next year, but state lawmakers seem inclined to go along with Gov. David Ige’s plan to budget extra money to boost state construction spending and give a lift to the industry.

In a presentation to House and Senate lawmakers last week, Chief State Economist Eugene Tian said the good news is that state tax collections are up by about 6% thus far this fiscal year, initial unemployment claims are down, and the number of air seats to Hawaii is expected to increase by more than 6% in the first half of 2020.

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In recent months the state construction industry also has been “doing great,” Tian said, but the value of private building permits issued for the first 11 months of 2019 was flat.

“The construction permits indicate that the construction activity will be busier in Honolulu County, but all the other islands will be slowing,” Tian said Tuesday.

The value of private permits issued for residential and commercial construction projects actually decreased, although that decrease was offset by an increase in the value of additions and alterations of existing structures, he said. The number of residential units authorized in the first 11 months of 2019 decreased by 26.3% from a year earlier, Tian said.

Tian also noted the number of completed housing units each year has dropped considerably in the past decade. From 2001 to 2009 an average of 7,000 new units were completed each year, but the average number of housing units completed declined to 3,300 a year from 2010 to 2018.

In his latest budget, the governor has proposed an additional $1.4 billion in state construction spending for the fiscal year that begins July 1, bringing the total construction budget for that year to an extraordinary $2.6 billion.

“This allows us to continue to make strategic investments in infrastructure,” Ige said as he presented his proposed new budget on Dec. 16. “We do believe that with the low interest environment and the state’s improved bond rating, this is the time to invest in critical infrastructure that has been delayed or put off for many years.”

Ige noted Hawaii now has the highest bond rating in the state’s history, which reduces borrowing costs for public works projects.

Tian said the administration already has a track record of pushing ahead with public works projects. He said spending on state government construction projects peaked at $1.6 billion in 2018, and the state awarded contracts worth more than $2 billion that year, which was the most ever.

The Ige administration pushed ahead with projects because the growth in the state economy has been slow at about 2% a year, he said.

“Government investment is important, I think, especially when the economy is slowing down,” Tian said. Government construction spending now will boost gross state product in the near term, “but that investment will function for the next 30 or 40 years. It’s adding, it’s still contributing to the economy.”

Senate Ways and Means Chairman Donovan Dela Cruz said, “We have to make the right investments ” to try to even out the dips in the economy.

Meanwhile, the administration’s plan to decrease debt payments by $12 million next year came under scrutiny.

The reduction implies the administration intends to borrow less, which might mean it won’t move ahead with some construction projects, state Sen. Gil Keith-Agaran said. Lawmakers have asked for a list of the projects that will be scrapped.

In general, Keith-Agaran said he supports the idea of spending more on state construction projects to “prime the pump of the economy,” a step that was also taken by former Gov. Ben Cayetano during the downturn in the mid-1990s.

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“If it doesn’t affect the debt limits, then, yeah, that’s fine and we can do that, and we’re well below what the debt limit would be,” he said. But if the administration is also canceling projects, he questioned whether some of the Ige plan to increase construction spending is “just sort of PR as opposed to actually doing something.”

Keith-Agaran is vice chairman of the Ways and Means Committee, a position that gives him a great deal of control over which state construction projects are included in the final state budget that will emerge at the end of this year’s session in May.

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