As Hawaii looks for ways to rebuild an economy devastated by the global pandemic, military spending takes on a more prominent role as other income streams dry up.
Tourism has collapsed, but defense spending in Hawaii has remained stable and may increase as tensions between the Chinese military and American allies and trading partners have caused the Pentagon to refocus on the Pacific.
Politicians have described Hawaii’s economy as a “three-legged stool” propped up by tourism, construction and defense spending.
For many Hawaii residents, the pandemic has exposed the delicate nature of the state’s economy, as travel restrictions have essentially shut down tourism –– arguably the most important leg of this chair.
“If we didn’t have our military and federal defense component of this three-legged stool, we’d be as dead as can be,” said US Representative Ed Case from Hawaii. “It has really provided some stability in an economy that is overly dependent on just a few economic drivers.”
On Monday, economists said the economic fallout from Hawaii’s tourism shortage will be worse than expected, based on a new set of indicators they were able to measure. The grim news even came as Gov. David Ige signaled he would likely wait longer than Oct. 1 before lifting the 14-day mandatory quarantine for travelers to Hawaii, which tourism industry officials had anticipated.
John Greene, the defense industry specialist at the Hawaii Department of Business, Economic Development and Tourism, told Civil Beat that military spending is one of the few parts of the Hawaiian economy that hasn’t been seriously affected by the pandemic.
Greene’s job is to analyze how the military is affecting Hawaii’s economy by tracking incoming dollars. He’s also part of a project studying how jobs and infrastructure destined for military use could be diverted to civilian use if for some reason the Pentagon cuts spending on the islands.
Hawaii Military Affairs Council Vice President Jason Chung said the military in Hawaii is critical to the diversification of Hawaii’s workforce. In an email, he said it offers “an opportunity for our youth to enter a new, exciting field that offers high-paying jobs and the opportunity to stay at home on the islands”.
Hawaii is home to the military’s Indo-Pacific Command, which oversees all operations in the Pacific Islands, Oceania, East Asia, the Indian Subcontinent and the waterways connecting them. It is the US military’s largest area of operations.
Military bases often work like cities. They depend on utilities such as water and electricity and require waste management services. They also need engineers, plumbers, electricians and others to keep the base running on a daily basis and to work on future projects.
Many of the people who do this work are Hawaii residents who are either employed directly by the Department of Defense or work under contracts with private companies.
In fiscal 2018, the Pentagon’s direct spending through contracting pumped $7.2 billion into the Hawaiian economy, accounting for about 7.7% of the state’s GDP.
This ranked Hawaii second in the United States for the highest defense spending as a percentage of the state’s GDP. according to the Pentagon Office of Economic Adjustment.
These numbers are available from the state Hawaii Defense Economy Project, which tracks defense spending through May 30 of this year.
The military has spent about $2.3 billion in the state. Of the service branches, the Navy is the biggest donor, shelling out around $821 million.
An estimated $663.4 million has gone into construction projects, $313 million into engineering services, and defense spending on ship construction and repair has accounted for about $197.6 million to date.
So far this year, Colorado-based Hensel Phelps Construction is the largest recipient of defense dollars for work in Hawaii with $154.2 million. In second place is local builder Nan Inc., who received $70.1 million.
Third was local defense contractor Manu Kai with net cash flow of $63.3 million from multiple contracts including management of the Pacific Missile Range Facility at Barking Sands on Kauai.
Of the Pentagon’s spending in Hawaii, 57.8% went to island businesses. But regardless of whether the contract is awarded to a mainland or Hawaii-based company, the majority of the work is either performed by Hawaii residents or ultimately outsourced to local companies.
“There’s always this stream of subcontracting,” Greene said. “Regardless of the industry you’re in, if it’s a big contract, small companies will be involved.”
Traditional well-known military companies such as Lockheed Martin, BAE Systems, Northrop Grumman and Booze Allen Hamilton are also participating in the campaign.
In December 2018, Lockheed was awarded a contract to develop an anti-missile radar that is expected to cost $1.9 billion to complete.
The Trump administration tried to defund the project for the current fiscal year as it explored alternative missile defense systems for the Pacific, but Hawaii’s congressional delegation fought to restore funding despite opposition from some native Hawaiian activists and critics who question its strategic value.
A stable cash flow
But the radar also has strong proponents in Hawaii’s business community. Chung said when a military facility is established, it often becomes the largest employer for the surrounding areas, supporting local businesses like restaurants.
While the pandemic has largely kept tourists away from Hawaii, military service members and families remain and continue to support local businesses.
Along with active-duty troops, National Guardsmen and reservists, and civilians working for the Department of Defense, Hawaii has a military workforce of about 72,100, according to state data.
They have continued to order food, shop and support a variety of community businesses. Greene says bases are becoming “anchor institutions” for the cities and metropolitan areas that surround them.
“We haven’t looked into that in depth,” Greene said of how specific spending by troops and family members helps keep the economy running, but the pandemic is starting to paint a clearer picture.
“Anecdotally, you can see that the locations that are closer to a military installation are not necessarily as badly affected as downtown locations,” Greene said.
Case noted that while there are a variety of studies that have attempted to track the overall impact of the military to include both contracts and military spending, they often come to different conclusions about how much of GDP it actually represents .
“I think the best estimates are somewhere in the range of 15% to 20% direct and more indirect,” Case said.
As technology changes the way the military does business, it has opened the door to new opportunities and new threats. To protect against Russian and Chinese hackers, the military needs more tech-savvy employees and contractors to adapt to an increasingly digital world.
With critical headquarters in Hawaii was the military Boosting the state’s tech economy as it hires cyber security specialists and funds training and education programs to expand the talent pool.
The Air Force played a key role in establishing the University of Hawaii’s Maui High Performance Computing Center, and the Navy helped establish its applied research laboratory and continues to work closely with the university. As of May 30, the Department of Defense has injected about $40.6 million into the University of Hawaii system this year.
“These are, you know, high-skill jobs that the military almost encourages here in our state,” Greene said. “They have a lot of DOD community investments in counties that might not be as visible to the public as a military base, but they’re still there.”
However, as COVID-19 clearly demonstrates the state’s over-reliance on tourism dollars, there are also concerns that relying on the military to make up the difference will only lead to further dependency.
“There are obviously negative aspects that come with being in the military,” Greene said, citing local concerns about pollution Fuel depot at Red Hill.
Local residents have regularly feuded with the military over issues ranging from environmental concerns to the preservation of Hawaiian heritage sites. Military training on the islands has left decades of duds on Hawaii, despite efforts to clear it up and dispose of it.
But the state hopes to use skilled jobs and infrastructure created by Pentagon spending to fill other sectors.
“Cybersecurity can translate to financial institutions and medical facilities where information needs to be protected,” Greene said. “They have a lot of overlap in terms of DOD needs and non-DOD needs for this type of workforce. “
Greene also points to the Pearl Harbor Naval Shipyard, which employs about 6,500 people, noting that it created the state’s largest industrial base.
“Much of that … work that goes into repairing their naval vessels may also result in the repair of non-military vessels, whether for pleasure boats or their merchant vessels that need repairs,” Greene said. “They do pipe assembly, welding, those types of jobs that offer a lot of flexibility to work in DOD and non-DOD areas.”
The Pentagon currently views the Indo-Pacific as a top priority military theater, and Hawaii is the nerve center for missions across the region on land and sea. As tensions with China escalate, the military is unlikely to seek to rein in its presence or spending in Hawaii any time soon.
“Hawaii’s Economy in Transition‘ series is supported by a grant from Hawaii Community Foundation as part of the CHANGE Framework project.
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