Hawaii Legislature Increases Taxes, Spending, but Some Controversial Tax Measures Die

BY MALIA ZIMMERMAN – A number of controversial measures died on Friday evening at the Hawaii State Legislature because lawmakers were unable to get their proposals passed out of conference committee before the 6 p.m. deadline.

Lawmakers and observers interviewed by Hawaii Reporter said that this legislative session was more chaotic than any other over the last three decades, in part because of stark disagreements on key money management issues between the Democratic majority leadership in the House, Senate and newly elected Democrat Governor Neil Abercrombie.

One political analyst compared the relationship between the houses to a “rocky marriage heading toward divorce.”

Another contributing factor: Taxpayers, including retirees, and business owners, who are suffering during challenging economic times told lawmakers repeatedly that they could not afford to have the $1.billion budget shortfall balanced on their checkbooks.

But lawmakers also heard daily from public union members, state department heads, county mayors and social service agency providers who want money for their employees, clients and pet projects.

That relationship breakdown, along with the tension between the taxpaying public funding state government and those entities surviving on taxpayer funds, led to a scurried ending on Friday with many wondering if the state budget had in fact been balanced by the deadline.

While government spending increased over last year, and the state government continues to grow in size in personnel and spending, with a new agency formed just to focus on space, tax increases and new taxes that were supposed to fund this growth died in the final hours and minutes of conference committee negotiations.

That includes the 50 percent increase on alcohol sales, which a large, well-organized coalition of restaurants, stores and distributors, opposed. The Senate killed that measure.

That also includes a new tax on retirees’ pension income, which was reduced from the governor’s $120 million tax proposal down the House’s $7 million proposal, but killed when the Senate refused to budge on its opposition to taxing seniors. Lobbying against the proposal were a number of feisty, educated and dedicated senior citizens, organized by the AARP, who were at the legislature daily until the legislation was killed.

Plans to increase the state’s General Excise Tax by 25 percent, institute an Internet Streamline Tax and add a 20-cent fee to every plastic bag (and eventually ban them all together), also died.

And legislation to legalize gambling in Hawaii in the form of one stand-alone casino in Honolulu, with the theory that it would bring in at least $100 million to the state through licensing fees and tax revenue, and add hundreds of jobs, was resurrected Thursday, only to be killed again on Friday afternoon. State Senate via Sen. Malama Solomon and Rep. Joe Souki rallied for the gambling proposal, but with Hawaii as one of just two states without any form of legalized gambling, majority and minority members in the House and Senate politely turned their idea down.

Measures to have taxpayers finance a $1 billion undersea power cable and give two well-connected, well-financed Hollywood production companies additional film tax credits that would cost the taxpayers $46 million but gain the state two “green” film studios and productions here, also failed in the final hours.

But not all news was good news for Hawaii taxpayers or county governments.

Hawaii’s large and small businesses, consumers, drivers will see their costs go up, while county mayors will see their revenues from the state Transient Accommodation Tax imposed on hotel rooms, will be capped.

The biggest chunk of the revenue plan comes from removal of General Excise Tax exemptions for local businesses including Hawaiian Airlines, Matson and general contractors. Hawaiian and Matson were exempt so they could keep down prices and compete on a global scale with companies that do business in Hawaii but don’t pay that tax, while contractors were exempted because they otherwise would be double and tripled taxed, thereby raising the cost of construction in the state. These businesses say the prices will have to go up. Some companies could also face service cutbacks and employee layoffs or even closure.

The state’s emergency funds – the Hawaii Hurricane Relief fund and the state Rainy Day fund, are almost entirely depleted after the legislature raided these and other special funds. The Hurricane Relief Fund, which was funded by homeowners after Hurricane Iniki hit Kauai and Oahu in 1992, causing billions of dollars in damage, was set up to cover insurers in the case of another hurricane.

Drivers will see their state motor vehicle registration and state vehicle weight tax increased – and that is in addition to county vehicle taxes.

Those renting a car – whether local or visitor – will now pay a $7.50 car rental surcharge per day; people going to court will pay a surcharge to support indigents; and for some of Hawaii’s more wealthy residents, income tax exemptions gone.

County mayors were frustrated with lawmakers who will cap their Transient Accommodation Tax, or TAT, imposed on hotel room bookings. The money is supposed to help counties with upkeep of facilities and services that visitors utilize.

Collective bargaining agreements were not funded, so the governor will need to excise restraint in his bargaining negotiations – something many critics say the union-friendly governor has not done yet.

Hopes of raising revenue through new compassion centers for medical marijuana users also died.

While House and Senate majority leadership said the budget is balanced, minority members aren’t so sure. And even if the budget is balanced today, if the economy worsens, and tax revenues decrease, the Council on Revenue will have to revise its projections downward, ultimately forcing lawmakers to reduce spending or look for revenue sources.

Lawmakers this week could still revive proposals that officially died by making floor amendments or the House and Senate could agree on something they had not agreed to during conference committees.

The legislative session ends May 5 at midnight. Until then, virtually anything could happen, so lobbyists, taxpayers, union leaders and social service agency heads will watch them closely.

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