Why Hawaii, America’s paradise, is also its worst state for business

First came the Covid-19 pandemic, striking at the very heart of Hawaii’s economy.

Then, just as the state was beginning to recover, came last summer’s deadly Maui wildfires, which killed more than 100 people, destroyed upward of 2,000 structures, did $5.5 billion in damage and paralyzed the state’s tourism industry yet again.

Finishing last in CNBC’s 2024 competitiveness ranking, America’s Top States for Business, seems pretty minor in comparison to all of that. But Hawaii’s economic issues go even deeper than the high-profile tragedies that have befallen the state.

Consider the Honoapiilani Highway.

Hawaii Route 30 hugs the western shore of Maui. Well before the fires, state transportation officials warned in a 2021 report about climate risks that the highway was at risk from rockfalls, landslides, flooding from high waves, storm surges, coastal erosion and even tsunamis. Already, portions of the road frequently close due to flooding.

“Given our understanding of what is changing, we need to make some tough decisions to ensure the long-term viability of the State,” the report said.

Hawaii was never going to do well in a competitive ranking that emphasizes infrastructure, as this year’s does. The state is remote — 2,400 miles from the mainland — and as an island chain, basic infrastructure features that are important elsewhere, such as freight rail, are irrelevant. But now, even the infrastructure the state does have is under threat, such as the Honoapiilani Highway.

“That’s the only link to the rest of the island from the area where the wildfires were,” said U.S. Secretary of Transportation Pete Buttigieg, who visited Hawaii in February.

The state is set to receive $2.8 billion under the Bipartisan Infrastructure Law, and nearly half of it will go toward rebuilding bridges and roads. Some $160 million of that will go toward relocating portions of the Honoapiilani Highway.

“We’re funding them to raise that highway to higher ground,” Buttigieg told CNBC. “We’re not going to make somebody build a road the exact same way if it’s getting washed out year after year by what used to be a once-in-100-years event.”

It will be at least 2027 before the improvements are complete, transportation planners say. Add the many other roads and bridges needing help, and it begins to explain why Hawaii’s infrastructure ranks No. 47 in this year’s Top States study.

The high cost of paradise

Hawaii is also America’s most expensive state to do business in, with the third-highest cost of living. Residents and businesses pay the nation’s highest utility costs, and corporate and individual taxes are high.

With so many inherent disadvantages, why doesn’t Hawaii finish at the bottom of the rankings every year? The answer, in part, is because it’s Hawaii, with a legendary quality of life. But now, even that is under siege.

Hawaii ranks No. 7 for Quality of Life in 2024, its lowest ranking in the important category since our Top States study began in 2007.

It is not that Hawaii isn’t still a paradise. But even in a paradise, working families need child care.

While licensed child-care facilities are readily available in Hawaii, they are prohibitively expensive. According to Child Care Aware of America, child care in Hawaii costs 18% of the median income for a married couple. That is the most expensive in the country, and nearly twice the national average.

Multiple studies have linked quality child care and preschool to economic competitiveness.

In 2022, the Hawaii legislature approved $200 million in spending for new prekindergarten classrooms, part of a broader goal championed by Lt. Gov. Sylvia Luke to offer universal pre-K for three- and four-year-olds in the state by 2032.

“Access to preschool is a social justice issue for Hawaii,” Luke said in a statement at the time. “Children who have attended high-quality preschool or child-care programs are much better prepared for success in kindergarten, but not every family has access to early learning programs.”

The plan was to build 80 new classrooms by this August, with ambitious annual goals after that. But according to a website for the program run by Luke’s office, the program is already falling short of its goals. Two years after the bill was passed, only about half the money has been spent. Just 13 classrooms have been built, with another 50 under construction. The physical facilities are just part of the battle. Hawaii also faces a serious shortage of child-care workers.

An economy struggling to rebound

Put it all together, and it leads to America’s second-worst economy, according to the Top States study, after Mississippi. It is little surprise that no major companies are headquartered there. Economic growth was modest last year as the state struggled to recover from the wildfires, and job growth was meager at best.

In their most recent quarterly economic outlook, published in June, forecasters with the state’s Department of Business, Economic Development and Tourism predicted that tourism will end the year flat following a 4% drop in the first four months of the year, largely due to the wildfires.

They do expect visitor traffic to bounce back next year, and to continue growing — albeit at more modest levels — through 2026.

But in America’s Bottom State for Business, they have learned the hard way that Mother Nature can have other ideas.