Because Hawaii, America’s paradise, is also the worst state for business

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

Then, just as the state was beginning to recover, came last summer’s killer Maui wildfiresthat killed more than 100 people, destroyed more than 2,000 structures, caused $5.5 billion in damage and crippled the state’s tourism industry once again.

Finishing last in CNBC’s 2024 Competitiveness Rankings, America’s Top States for Business, seems tiny compared to all that. But Hawaii’s economic issues run even deeper than the high-profile tragedies that have struck the state.

Consider the Honoapiilani Highway.

Hawaii Route 30 hugs the west coast of Maui. Long before the fires, state transportation officials warned in 2021 report on climate risks that the highway was at risk from rock falls, landslides, flooding from high waves, storm surges, coastal erosion and even tsunamis. Already, sections of the road are often closed due to flooding.

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

Hawaii would never do well in a competitive ranking that emphasizes infrastructure as it does this year. The state is remote – 2,400 miles from the mainland – and as an island chain, key infrastructure features important elsewhere, such as freight rail, are irrelevant. But now, even the infrastructure that the state has is under threat, like the Honoapiilani Highway.

“This is the only link to the rest of the island from the area where the fires were,” said US Transportation Secretary Pete Buttigieg, who visited Hawaii in February.

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

“We’re funding them to take this highway to higher ground,” Buttigieg told CNBC. “We’re not going to have somebody build a road the exact same way if it’s washed away year after year from something that was once in 100 years.”

It will be at least 2027 before the improvements are complete, transportation planners say. Add in the many other roads and bridges that need 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 the most expensive state in America to do business, with the third highest cost of living. Residents and businesses pay the nation’s highest utility costs, and corporate and personal taxes are high.

With so many inherent disadvantages, why doesn’t Hawaii finish last in 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’s not like Hawaii isn’t still paradise. But even in a paradise, working families need childcare.

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. This is the most expensive in the country, and almost double the national average.

Multiple studies have linked quality child care and early childhood education to economic competitiveness.

In 2022, the Hawaii Legislature approved spending $200 million for new kindergarten 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 one statement at that 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 targets thereafter. 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. Only 13 classrooms have been built, with another 50 under construction. Physical facilities are only part of the battle. Hawaii also faces a serious shortage of child care workers.

An economy struggling to recover

Put it all together and it leads to America’s second-worst economy, according to the Top States study, behind Mississippi. It is not surprising that no major company is headquartered there. Economic growth was modest last year as the state struggled to recover from wildfires, and job growth was lackluster at best.

In their most recent quarterly economic outlookpublished in June, forecasters at the state’s Department of Business, Economic Development and Tourism predicted tourism would end the year flat after falling 4 percent in the first four months of the year, largely due to the wildfires.

They expect traffic to rebound next year and continue to grow—albeit at more modest levels—through 2026.

But in corporate America’s downstate, they’ve learned the hard way that Mother Nature may have other ideas.