Why Hawaii, America's Paradise, Is Also the Worst State for Business

An aerial photo taken on August 10, 2023, shows destroyed homes and buildings burned to the ground in Lahaina after wildfires raged across west Maui, Hawaii.

Patrick T. Fallon | Afp | Getty Images

First came the Covid-19 pandemic, which hit Hawaii's economy at its core.

Then, just as the state was beginning to recover, came last summer's deadly attack Wildfires on Mauikilling more than 100 people, destroying more than 2,000 structures, causing $5.5 billion in damage and once again paralyzing the state's tourism industry.

Finishing last in CNBC’s 2024 competitive rankings, America’s Top States for Business, seems small by comparison. But Hawaii’s economic woes run deeper than the high-profile tragedies that have struck the state.

Think of the Honoapiilani Highway.

Hawaii Route 30 runs along the western coast of Maui. Long before the fires, state transportation officials warned in a 2021 report climate risk report that the highway was at risk from falling rocks, landslides, flooding from high waves, storm surges, coastal erosion and even tsunamis. Parts of the road have been closed many times due to flooding.

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

A sign warns of road damage from an earthquake caused by seismic activity near Kilauea volcano on the Big Island in Hawaii Volcanoes National Park on May 17, 2018.

Mario Tama | Getty Images

Hawaii would never fare 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 archipelago, basic infrastructure that is important elsewhere, like freight rail, is irrelevant. But now even the infrastructure the state does have is under threat, like the Honoapiilani Highway.

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

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

“We're funding them to get that highway to higher ground,” Buttigieg told CNBC. “We're not going to have someone build a road exactly the same way that it's been washing away year after year in what used to be a once-in-a-100-year event.”

An aerial view shows cars backed up for miles on the Honoapiilani Highway as residents are allowed to enter areas affected by the wildfire again, in Wailuku, Hawaii, on August 11, 2023.

Justin Sullivan | Getty Images

It will take at least 2027 for the improvements to be completed, transportation planners say. Add in the many other roads and bridges that need help, and it starts to explain why Hawaii’s infrastructure ranks 47th in this year’s Top States study.

The high cost of paradise

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

With so many inherent drawbacks, why doesn’t Hawaii end up at the bottom of the rankings year after year? Part of the answer is because it’s Hawaii, with a legendary quality of life. But now even that is under siege.

Hawaii is ranked No. 7 for quality of life in 2024, the lowest score in this key category since we began our Top States survey in 2007.

More coverage of America's Top States for Business of 2024

It's not that Hawaii isn't paradise anymore. But even in paradise, working families need childcare.

Although licensed child care facilities are easy to find 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 almost twice the national average.

Multiple to research have linked quality childcare and preschool education to economic competitiveness.

In 2022, the Hawaii Legislature approved $200 million for new preschool classrooms, part of a broader goal championed by Lt. Gov. Sylvia Luke to provide universal preschool education for three- and four-year-olds in the state by 2032.

A family walks together on the beach during sunset in Kauai, Hawaii.

Fly View Productions | E+ | Getty Images

“Access to early childhood education is a social justice issue for Hawaii,” Luke said in a rack at that time. “Children who have attended quality preschool or childcare 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 August, with ambitious annual targets 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 law was passed, only about half of the money has been spent. Only 13 classrooms have been built, with another 50 under construction. The physical facilities are only part of the battle. Hawaii also faces a serious shortage of childcare staff.

An economy struggling to recover

Add it all up and it makes for the second-worst economy in America, according to the Top States study, after Mississippi. Not surprisingly, no major corporations are headquartered there. Economic growth was modest last year as the state struggled to recover from wildfires, and job growth was meager at best.

In their most recent quarterly economic outlookpublished in June, meteorologists from the state's Ministry of Economy, Economic Development and Tourism predicted that tourism will end the year flat, after a 4% drop in the first four months of the year, mainly due to forest fires.

They do expect visitor numbers to increase again next year and that growth will continue, albeit at a more modest level, through 2026.

But in America's Bottom State for Business, they've learned the hard way that Mother Nature may have other plans.

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