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    Blockbusters Buried in “Tax Administration”

    Tom Yamachika
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    Blockbusters Buried in “Tax Administration”

    Every year, our Department of Taxation submits bills to the Legislature for their consideration.  Those bills are included in the Governor’s Package.  Under our laws (section 231-3(7), HRS), the Department is supposed to recommend “any amendments, changes, or modifications of the laws as may seem proper or necessary to remedy injustice or irregularity in taxation or to facilitate the assessment of taxes.”

    So the Department of Taxation is sponsoring SB 3145 and HB 2177 (same bill, introduced in both chambers of the legislature) “Relating to Tax Administration.”

    That bill contains a few things that do sound like boring administrative stuff.  It expands the Department’s authority to require electronic filings.  It makes professional tax preparers file returns electronically.  It takes away the fee for certified copies of tax clearances (but that doesn’t affect the Department’s ability to charge for tax clearances themselves, even though they don’t charge for them now).

    Then we get to penalty enhancement.  This is where the bill starts getting scary.

    First, it says that late filing penalties, which are now 5% a month but are capped at 25%, can go to 75%.  That wouldn’t be relevant to most of us who are diligent and file our taxes on time all the time, but if a person falls off the system for one or two years for whatever reason, the penalties can get pretty intense.  Right now, unlike in the federal system, a taxpayer who misses a return can and occasionally does get written up for 70% penalties (25% for failure to file, 25% for negligence, and another 20% for substantial understatement).  Penalties are added to the tax and bear interest at 8% just like tax, so everything adds up quickly.  The bill would change the 70% to 120%, more than the tax owing.

    Next, it adds a new penalty for returns that are late but that do not show tax due (including situations where the government owes the taxpayer money).  Those returns aren’t currently penalized.  The bill gives the Department the authority to impose a penalty anyway and determine the amount of that penalty itself without further legislative action.

    Next, it takes aim at informational returns where no tax is due.  These would include the Hawaii versions of Form 1099 and Schedule K-1.  If these forms aren’t filed on time, the penalty is $200, times the number of recipients of the forms, times the number of months that the returns are late.  The federal code has a version of this penalty in place and the Department’s saying that it’s high time we adopted it too.

    It then makes a grab for interest on money paid on disputed taxes on appeal.  Occasionally folks don’t agree with the Department’s assessment of tax due, and the system allows the taxes to be paid and set aside while the courts or the Board of Review determine who is right.  The bill says that if the taxpayer wins, the State will pay the taxpayer 4% on the money held if the taxpayer is an individual, 3% if the taxpayer is a corporation getting back less than $10,000, and a measly 1.5% if the taxpayer is a corporation getting back more than $10,000.  But if the taxpayer wins, it’s the taxpayer’s money so why is the State allowed to profit by giving the taxpayer a below-market interest rate?  The Hawaii Supreme Court used to have a rule saying that because the money is held in a special account, the actual earnings in the account attributable to the taxpayer’s money would be refunded to the taxpayer if the court ruled in the taxpayer’s favor.  Perhaps we should go back to that rule.

    Both the House and Senate bills are alive at this point in the legislative session.  We’ll give you more session updates in the coming weeks.

    Blame Jones Act for Hawaii’s dependence on Russian oil

    Grassroot Institute
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    By Keli’i Akina

    The world is holding its breath as we watch the outbreak of war in Ukraine and wonder what it bodes for the future.

    For those of us in Hawaii, there is an extra reason to be concerned, aside from the geopolitical implications and the loss of life: It is very likely that the sanctions against Russia will lead to a dramatic increase in energy prices. That’s because for years, Hawaii has been getting about one-third of its crude oil from Russia.

    Why would Hawaii import oil from Russia when we could get it from the U.S. mainland? After all, the U.S. mainland is closer, and both countries are large exporters of the low-sulfur crude oil relied on by Hawaiian Electric for generating electricity. 

    As Grassroot Institute of Hawaii research associate Jonathan Helton explained in a recent article, it is a simple matter of economics. It is much cheaper for Hawaii to buy oil from Russia than from the U.S., even though the per-barrel cost of oil from Russia is more expensive than from Texas. 

    How is that possible?

    Blame the Jones Act. The 1920 federal maritime law requires all goods shipped between American ports to be on vessels that are U.S. flagged, built and mostly owned and crewed by Americans.

    The result of more than a century of protectionism has been that U.S. ships are more expensive to build and operate, with the additional costs inevitably passed on to consumers. In other words, the added cost of using American ships makes it more expensive for Hawaii to buy oil from Texas than from Russia. 

    According to a study from the Grassroot Institute, the Jones Act costs Hawaii about $1.2 billion a year, including 9,100 fewer jobs, $400 million in lost wages and $150 million in lost tax revenues. Gasoline in the islands costs up to $55.2 million more a year due to the Jones Act, and the average family’s electricity bill is higher by about 14 cents every day. 

    That is why Hawaii needs a Jones Act exemption. With the outbreak of war in Ukraine and the sanctions against Russia, it might be the only way to guarantee that we can continue to import oil at a reasonable cost.

    In calling for an exemption, we are following the same path as the Hawaii Refinery Task Force. As far back as 2014, the task force warned that a political crisis could lead to increased dependence on domestic oil, accompanied by higher freight costs. 

    Its solution? A Jones Act waiver that would let Hawaii import fuel from the mainland at lower prices.

    Specifically, the No. 1 recommendation of the task force was: “Explore actions to allow Hawaii fuel supply to utilize foreign flag vessels from domestic ports in lieu of Jones Act vessels in order to expand supply sources into the state at more competitive prices.”

    Again, that was in 2014, eight years ago. Yet, despite that well-reasoned call for reform, Hawaii’s political leaders generally have done nothing to avert the situation in which we now find ourselves. 

    The sad fact is that, when it comes to fuel imports, we have spent years perched between a rock and a hard place, and now we are feeling the squeeze. 

    Maybe we should never have been so reliant on Russian oil imports to begin with. But that was a choice based on the high cost of U.S. oil, thanks to the Jones Act.

    The best way forward is to obtain a permanent Jones Act exemption for our state that would let Hawaii buy oil from U.S. sources at lower costs. 

    After that, we should update the Jones Act in general, to bring it into the 21st century and reduce its burden on all Americans.
    _____________

    Keli’i Akina is president and CEO of the Grassroot Institute of Hawaii.

    Hawaii needs Jones Act waiver for oil imports

    Grassroot Institute
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    Hawaii needs Jones Act waiver for oil imports

    The Grassroot Institute of Hawaii says the 1920 law is a main reason Hawaii relies on Russia for more than a third of its crude oil supply

    By Jonathan Helton

    With Hawaii reliant on a U.S. geopolitical rival for its oil, there has always been a risk that the islands could be cut off from their energy supplies in the event of a conflict.

    In 2014, the Hawaii Refinery Task Force predicted: “If access to foreign sources of petroleum products is reduced (e.g., due to Chinese growth, Korean peninsula instability, Asian natural disasters impacting supply sources), Hawaii may need to rely on a significant amount of domestic supply and be exposed to higher freight costs. These costs will directly impact consumers.”[1]

    The task force recommended pursuing a Jones Act waiver for petroleum shipments to Hawaii, although back then it realized that obtaining one would be very unlikely.

    Now, with U.S.-Russia tensions at a peak, Hawaii’s politicians might consider it more of a priority to ask for such a waiver, since Russia supplies more than one-third of Hawaii’s crude oil imports.[2]

    Just today (Feb. 22, 2022), President Joe Biden said the U.S. would impose “full blocking” on two large Russian financial institutions and “comprehensive sanctions” on Russian debt, in response to what he is considering an “invasion” by Russia against neighboring Ukraine.[3]

    “That means we’ve cut off Russia’s government from Western finance,” Biden said. “It can no longer raise money from the West and cannot trade in its new debt on our markets or European markets either.”

    Hawaii is already feeling the heat from these tensions, with gasoline prices soaring across the state.[4]Now that the U.S. has imposed sanctions on Russia, things for Hawaii could get worse.

    As Biden said earlier this month: “I will not pretend this will be painless. There could be [an] impact on our energy prices.”[5]

    Biden did not specifically mention Hawaii, but he probably should have. The state’s reliance on Russian oil puts the state at enormous economic risk. Without Russian oil, Hawaii could diversify to other sources, but this would still come with a cost. The state could not replace 34% of its crude oil imports overnight.

    Russia is a big producer of low-sulfur or “sweet” crude, which Par Hawaii, Hawaii’s only oil refinery, says works best for Hawaiian Electric Co.’s electricity generation.[6] 

    But it’s not like this particular kind of crude oil is rare. Low-sulfur crude made up 56% of U.S. crude oil production in 2018.[7]

    So why does Hawaii import its oil from Russia, more than 3,700 nautical miles away, when the U.S. mainland is just 2,500 nautical miles away?

    Look no further than Section 27 of the federal Merchant Marine Act of 1920, also known as the Jones Act. The act limits the shipping of goods between U.S. ports to only ships that are flagged and built in the U.S., and mostly owned and crewed by Americans.

    In other words, the Jones Act limits price competition in shipping, allegedly to promote U.S. national security and the domestic shipping industry. In practice, however, the law has been a failure on both counts.

    On the latter count, America’s oceangoing Jones Act fleet has shrunk to fewer than 100 ships, and its shipyards capable of building such oceangoing vessels have similarly declined in number.[8]

    The oil tanker in the high sea

    Regarding national security, it is hard to find a clearer example of failure than this: The law encourages Hawaii to buy oil from U.S. geopolitical rival Russia.

    Why? Simple economics: It is too expensive for Hawaii to buy oil from U.S. sources.

    The problem starts with the cost of the U.S. ships. For example, in 2014, building a 115,000-ton oil tanker in the U.S. cost $200 million,[9] while a tanker twice as large built abroad cost $106 million.[10]Building the same 115,000-ton tanker abroad today would cost about $58 million.[11]

    Once those U.S.-built ships are on the water, the cost difference doesn’t go away. The U.S. Government Accountability Office has estimated that U.S. ships cost at least $6.2 million more per year to operate, in part due to high U.S. tax and labor costs.[12]

    Because the Jones Act mandates use of these expensive ships in domestic transportation, it is no wonder that many U.S. businesses prefer buying goods such as crude oil or liquefied natural gas from foreign sources.[13]

    Back in 2014, when there were still two oil refineries in Hawaii,[14] the report from the Hawaii Refinery Task Force stated that “waiving the Jones Act will increase Hawaii’s access to [mainland] fuels at lower prices. … This would be a very positive factor with one or both refineries closed.”[15]

    As the task force report concluded, “What differentiates petroleum is that Hawaii already pays much higher prices for energy than the rest of the United States with minimal dependence on Jones Act vessels.”

    All things considered, the Jones Act has never been a good deal for Hawaii. And now, with relations between the U.S. and Russia potentially collapsing, it very likely could wreak havoc on energy prices in the state.

    If Hawaii cannot obtain a general exemption from the Jones Act, our lawmakers at least might want to push for a waiver for energy imports.
    __________

    Jonathan Helton is a research associate at the Grassroot Institute of Hawaii
    __________

    [1] “Hawaii Refinery Task Force — Final Report,” prepared by ICF International and Poten & Partners Inc. for the Hawaii Department of Business, Economic Development and Tourism, adopted April 9, 2014, p. 41.

    [2] Kevin Knodell, “Analysis: Why Russia has its eye on Hawaii,” Honolulu Star-Advertiser, Feb. 13, 2022. See also “Hawaii: State Profile and Energy Estimates — Petroleum,” U.S. Energy Information Service, Feb. 17, 2022.

    [3] Vladimir Isachenkov, Yuras Karmanau and Aamer Madhani, “Biden announces sanctions against Russian oligarchs, banks; Ukraine’s leader calls up some military reservists,” The Associated Press via Hawaii News Now, Feb. 22, 2022. See also Haik Gugarats, “Biden outlines new Russia sanctions threat,” Argus Media, Jan. 20, 2022; Liam Denning, “Biden’s Ukraine Response Is Mired in Barrels of Oil,” Bloomberg, Feb. 22, 2022.

    [4] Kristy Tamashiro, “Pain at the Pump: Gas prices are rising in Hawaii, experts don’t expect cheaper prices any time soon,” KHON2, Feb. 17, 2022.

    [5] Alex Gangitano, “Biden warns energy prices could be impacted if Russia invades Ukraine,” The Hill, Feb. 15, 2022.

    [6] Emily Burr, “Half of Foreign Oil for Hawai‘i Comes from Russia and Libya,” Hawaii Business magazine, June 22, 2021.

    [7] “The United States tends to produce lighter crude oil and import heavier crude oil,” U.S. Energy Information Administration, Aug. 23, 2019.

    [8] Joshus Mason and Jonathan Helton, “Five myths about the Jones Act,” Grassroot Institute of Hawaii, Nov. 2021, pp. 8-9.

    [9] Jackie Northam, “A Boom In Oil Is A Boon For U.S. Shipbuilding Industry,” NPR, March 14, 2014.

    [10] “Owning a Tanker in the 21st Century; Laws, Costs and Logistics,” Henderson International Group, 2014.

    [11] Compass Maritime Weekly Report, Feb. 18, 2022. See listing for 115,000-ton Aframax tanker in chart labeled “Compass Maritime Tanker Values,”

    [12] “MARITIME SECURITY: DOT Needs to Expeditiously Finalize the Required National Maritime Strategy for Sustaining U.S.-Flag Fleet,” Government Accountability Office, Aug. 2018, p. 24. Note: This study is about the differential in operating expenses of foreign-built, U.S. flagged ships. In addition to such high operating expenses, Jones Act ships must also charge higher freight rates to account for their substantially higher capital costs. See: “Matson Sues to Remove MSP Subsidies for APL’s Guam Service,” Maritime Executive, Nov. 28, 2018.

    [13]  Philip G. Hoxie and Vincent H. Smith, “The Jones Act is a lose-lose for Puerto Rico and US LNG,” American Enterprise Institute, July 22, 2019.

    [14] “Hawaii: State Profile and Energy Estimates — Petroleum.”

    [15] “Hawaii Refinery Task Force, Final Report,” p. 39.

    [16] “Hawai‘i’s Energy Facts & Figures,” Hawaii State Energy Office, November 2020, p. 3.

    We Have a Health Care Crisis – And Our Taxes Aren’t Helping

    Tom Yamachika
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    We Have a Health Care Crisis – And Our Taxes Aren’t Helping

    We have a health care crisis on our hands.

    According to a study by the University of Hawaii School of Medicine, there is a shortage of physicians in Hawaii.  The school has forecasted that the gap between supply and demand is now close to 1,000 doctors, and it has been getting worse over the years.

    Source:  University of Hawaii, John A. Burns School of Medicine.

    This shows a problem, although highlighted by the recent pandemic, that has been years in the making.  According to reporting by the Grassroot Institute of Hawaii, Hawaii’s healthcare crisis includes a growing doctor shortage, lack of specialty care in rural areas, high emergency room wait times and the fact that we have among the fewest hospital beds per capita in the nation.  Its causes include a low Medicare reimbursement rate, General Excise Tax (GET) applying to medical practices, and our sky-high cost of living.

    Medicare, for example, is supposed to pay for health care for seniors that need it.  Medicare will only reimburse medical work at “reasonable charges” and will not reimburse the doctors for the GET they have to pay.  Doctors usually wind up absorbing the tax rather than attempting to surcharge their patients for it, meaning they have to account for yet another expense amidst Hawaii’s high cost of everything.

    In our current legislative session, there is a bill (HB 1407 / SB 2020) to disallow the wholesale GET rate of 0.5% on a sale unless there is a resale at the retail 4% rate that follows it.  The Department of Taxation testified strongly in favor of it, while different hospitals and health care organizations testified it would be a disaster for them.  The House committee hearing it advanced the bill forward, while the Senate Ways and Means Committee deferred it.  The fate of the bill is uncertain at this point.

    There may be people out there thinking that, well, doctors are rich fat cats, so why shouldn’t we tax them up the wazoo?  The short answer to that question is that they are going to jump on a plane and get the heck out of here – which is backed up by the statistics discussed earlier in this article.  Then, of course, they won’t be around when you need them.

    And we need them.

    Wouldn’t you say so, legislators?

    Election year or not, higher taxes are on the Legislature’s agenda

    Grassroot Institute
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    Election year or not, higher taxes are on the Legislature’s agenda

    By Keli’i Akina

    Watching proposed tax hikes make their way through the Legislature has become an annual tradition in Hawaii, like fireworks on the Fourth of July or hearing Christmas carols at the grocery store in mid-November.

    There is actually no need to raise taxes right now, especially given the state’s $3 billion budget surplus. But raising revenues is no longer the primary rationale for the tax increases being proposed. Instead, lawmakers want to use taxes to bring about social change. 

    Some tax bills seek to discourage certain behaviors, such as using fossil fuels or drinking alcohol. Others are purely redistributive in nature, like the bill that would create new income tax brackets and drive Hawaii’s top marginal income tax to 19% — the highest in the nation. Or the proposed “wealth asset tax,” which would levy a 1% tax on the global net worth of individuals with more than $20 million in assets.

    Whatever the motivations, the problem with these tax bills, according to Tom Yamachika, president of the Tax Foundation of Hawaii, is that they would have “a lot of ramifications … which I don’t think people are thinking about so much.”

    Yamachika was my guest on this week’s episode of “Hawaii Together” on ThinkTech Hawaii. As usual, Yamachika stays busy during each legislative session analyzing the many tax proposals, then explaining to the public their many possible ramifications.

    For example, he said, the proposed massive increase in the state’s so-called carbon tax, intended to wean Hawaii consumers away from fossil fuels, “would result, predictably, in a very large increase at the [gas] pump.”

    While that is bad news in itself, there hasn’t been enough consideration about how significantly higher fuel prices would affect consumers and businesses in the islands as a whole. 

    “If you think you have it bad now commuting from one part of the island to the other,” he said, “think about if you’re a truck driver. That’s your business, and while you may not pay the bill, it’s going to be a heck of a lot bigger bill.”

    Or consider the proposed constitutional amendment that would let the state join the counties in taxing real property. Those who don’t own a home might think that higher property taxes aren’t their problem. 

    But, said Yamachika, “it’s going to affect you whether you are renting somewhere, whether you own your own house or if you’re in an apartment. Basically, the issue is that the cost of just staying somewhere is going to increase.”

    As for all the bills seeking to soak “the rich,” hikes in the state’s personal income tax, corporate income tax or capital gains tax, if enacted, would still affect the little guy. 

    “If you, for example, penalize somebody who has a business with a hundred employees, he’s not going to just stand there and take it,” explained Yamachika. “He’s going to pull out more money from the business to cover the tax, which leaves less for the employees or higher prices for the consumers or both. … Or, the person says, ‘I don’t need this, I’m getting out of Dodge. I’m going to jump on a plane, and I’m out of here.’ So the business moves, the jobs move, and what happens to us? Well, we lose the revenue.”

    Even “sin” taxes, like the proposed surcharge on alcoholic drinks, could have effects that our legislators might not realize. 

    “When you … find a cause that depends on that sin tax — for instance, using a tobacco tax to fund a school of medicine or a cancer center — the tax causes some people to stop smoking, but that means revenue goes down,” said Yamachika. “Then the [supporters of the] causes being supported by the sin tax panic, wondering if [the revenues] are going to disappear. Their answer is to raise the tobacco tax even more.”

    While the supporters of these different tax proposals might be swept away by ideological considerations or the allure of playing Robin Hood, we need to keep reminding lawmakers that tax hikes have real economic consequences, like discouraging investment and raising the cost of living.

    That’s why we continue to urge that the Legislature ditch the tax hikes and focus on policies that will make Hawaii more affordable — like reducing regulations, removing barriers to housing and cutting taxes and fees.

    Taxes should not be used as a policy tool to shape public behavior. All they do is make Hawaii more expensive and increase the number of people leaving our state for better opportunities on the mainland.
    __________

    Keli’i Akina is president and CEO of the Grassroot Institute of Hawaii.

    Jones Act lobby sails with dubious job estimates to bolster defense

    Grassroot Institute
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    Jones Act lobby sails with dubious job estimates to bolster defense
    The numbers keep increasing, even as the “Jones Act industry” declines

    By Joe Kent and Jonathan Helton

    The Jones Act lobby constantly claims that the “Jones Act industry” supports 650,000 American jobs, with the implication that repeal of the law or any reform to it would see those jobs vanish.

    It’s a figure we see repeated all over the place.

    >> “America’s domestic maritime industry is responsible for nearly 650,000 jobs and more than $150 billion in annual economic output.” ~ American Maritime Partnership website.[1]

    >> “The Jones Act, which turns 100 years old today, supports 650,000, maritime industry jobs and helps provide the ships and civilian mariners need for military sealift. The Jones Act protects America, and American jobs, which is why we need to protect the Jones Act.” ~ Tweet from the U.S. Maritime Administration.[2]

    >> “The 40,000 Jones Act vessels operating in the domestic trades support nearly 650,000 American jobs and almost $154 billion in annual economic impact and $41 billion in jobs.” ~ Offshore Marine Service Association website.[3]

    >> “The Jones Act contributes substantially to U.S. economic activity, creating 650,000 jobs.” ~ Mike Stevens, CEO of the Navy League of the United States.[4]

    Just saying it over and over again, however, doesn’t mean it’s true. In fact, the 650,000 estimate is really nothing more than doublespeak.

    Consider the source: Ultimately, the 650,000 jobs number comes from a January 2019 study conducted by PricewaterhouseCoopers for the Transportation Institute, a pro-Jones Act advocacy group backed by the maritime industry.[5] It was titled “Contribution of the Jones Act Shipping Industry to the US Economy.”[6]

    Notably, a full copy of that study has never been made publicly available. However, a copy of its executive summary was eventually leaked, and in it lies the allegation that the “Jones Act shipping industry” supports 95,000 direct jobs and 553,000 “indirect or induced” jobs.[7]

    To be clear, it is not saying the Jones Act is responsible for those jobs, but rather the “Jones Act shipping industry.” It’s a misunderstanding to conflate the industry with the law, since the law may support some industry jobs while destroying others. In fact, a 2019 study from the Organization for Economic Cooperation and Development found that the U.S. shipbuilding industry would expand output by 71% in the absence of the Jones Act’s build requirement.[8]

    The maritime industry – its ships, mariners, longshoremen and other employees – exists independently of the Jones Act.

    In other words, those alleged 650,000 jobs would exist even if the Jones Act were repealed or reformed.

    In the case of Hawaii, the American Maritime Partnership, the nation’s premiere Jones Act lobby group,[9] released a study in 2020 stating: “Around 13,000 residents of Hawaii are employed in [the] U.S. Jones Act domestic maritime industry.”[10]

    Similarly, a proposed resolution in support of the act in the 2022 Virginia General Assembly claims, “Virginia is home to over 19,280 maritime jobs supported by the Jones Act …”[11]

    In both cases, the source of the estimates was the secretive 2019 PricewaterhouseCoopers study.[12]

    Neither claim accounts for whether the jobs are direct, indirect or induced, but the point remains that whatever the breakdown, in both cases the jobs would exist with or without the Jones Act.

    And it’s not clear that these job estimates are even accurate. The Hawaii Department of Transportation, for example, estimated there were only 2,486 positions in the state’s maritime cargo sector in 2016.[13] That is a sector involving international and domestic cargo, making the claim that Hawaii’s domestic sector alone supports 13,000 jobs more incredulous.

    Similarly, in 2011, the U.S. Maritime Administration pegged the national jobs in the “water transportation” sector at 61,300 and those in “shipbuilding and repair” at 95,800.[14] Combined, these 157,100 jobs are a far cry from the 650,000 jobs that Jones Act supporters claim.

    Inexplicably, the law’s supporters have even claimed the jobs attributable to the law rose substantially in recent years. In 2017, Larry Willis, president of the Transportation Trades Department of the AFL-CIO, claimed that the Jones Act “supports 500,000 jobs.”[15] This number was echoed by other outlets.[16]

    How did the jobs created by the Jones Act jump from 500,000 to 650,000 in just two years? The large oceangoing fleet grew by only two ships, from 97 to 99, between 2017 and 2019.[17] Those two ships did not create those jobs, so which part of the industry did? The inland barge and tugboat industry? Since the Transportation Institute has refused to release the study, no one knows the reasoning.

    No matter how many jobs the domestic maritime industry actually supports in Hawaii, Virginia or anywhere else throughout the United States, even more jobs could be created if the Jones Act were repealed or modified.

    A 2020 study by John Dunham & Associates of New York, commissioned by the Grassroot Institute of Hawaii, found that eliminating the Jones Act could result in adding 5,600 direct jobs in Hawaii. Repeal could generate an additional 6,800 indirect and induced jobs, for a total of more than 12,000 jobs.[18]

    Eliminating the U.S. ship-build requirement of the law alone, said the Dunham study, could result in 3,800 more jobs — primarily because such a reform would make it easier for U.S. companies to buy less expensive foreign-built ships for use in the domestic trade.[19] More U.S. ships would produce more shipping jobs for mariners, stevedores, truckers and anyone else involved in the maritime-related transporting of goods, from sellers to buyers.[20]

    More shipping competition also would lower prices for U.S. consumers, who in turn would have more money to buy more goods, which again would benefit the shipping industry and create more jobs.

    Referring to the PricewaterhouseCooper study, the Transportation Institute stated that the American domestic maritime industry contributes $3.3 billion a year to the Hawaii economy.[21] But again, without access to the full study, it’s impossible to know how that figure is calculated.

    Assuming the $3.3 billion is correct, that benefit would presumably still exist if the Jones Act were relaxed, since the domestic maritime industry would still exist.

    In fact, the benefits could be even greater if the Jones Act were repealed or reformed.

    The John Dunham & Associates study found that Hawaii alone could see an annual $1.2 billion benefit if the Jones Act were repealed, or a $531 million annual benefit if just the law’s U.S.-build requirement for Jones Act-qualified ships were reformed. That would be in addition to the presumed $3.3 billion benefit that “the Jones Act industry” already provides.

    The upshot is that repeal or reform of the Jones Act could actually increase the value of America’s — and Hawaii’s — maritime industry, both in terms of jobs and income.

    And that is no exaggeration.
    ____________

    Joe Kent and Jonathan Helton are research associates with the Grassroot Institute of Hawaii.

    ____________

    [1] “Economic Security,” American Maritime Partnership website, accessed Jan. 24, 2022. See also “American Maritime Partnership Announces New Leadership Team,” AMPartnership press release, Feb. 9, 2022, in which new AMP president Ku‘uhaku Park, who also is senior vice president of government and community relations at Matson Navigation Co., states: “I am honored to take on this leadership role on behalf of the 650,000 men and women in America’s maritime workforce.”

    [2] U.S. Maritime Administration Twitter account, Jun. 5, 2020.

    [3] “Jones Act,” Offshore Marine Service Association website, accessed Jan. 24, 2022.

    [4] Mike Stevens, “America Will Need the Jones Act Long After the Colonial Pipeline Crisis Is Resolved,” RealClear Defense, May 29, 2021.

    [5] “About,” Transportation Institute, accessed Jan. 28, 2021.

    [6] “Contribution of the Jones Act Shipping Industry to the US Economy,” Prepared for the Transportation Institute by PricewaterhouseCoopers, January 2019.

    [7] “Ibid,” p. E-3; According to the study, 43,000 of these jobs are in “shipbuilding and repair.” However, these figures should be suspect since Jones Act carriers frequently have their ships repaired outside the United States. See: Jonathan Helton, “China a threat to Jones Act lobby, except when it’s not,” Grassroot Institute of Hawaii, May 4, 2021.

    [8] Karin Gourdon and Joaquim Guilhoto, “Local content requirements and their economic effect on shipbuilding: A quantitative assessment,” OECD Science, Technology and Industry Policy Papers, No. 69, April 2019, p. 21.

    [9] “American Maritime Partnership Announces New Leadership Team,” American Maritime Partnership press release, Feb. 9, 2022. New AMP president Ku‘uhaku Park, who also is senior vice president of government and community relations at Matson Navigation Co., states in the press release: “I am honored to take on this leadership role on behalf of the 650,000 men and women in America’s maritime workforce.”

    [10] Reeve & Associates and TZ Economics, “Impact of the U.S. Jones Act on Hawaii,” July 2020, p. 16. See also the American Maritime Partnership’s July 21, 2020 general news release on the study, “Comprehensive Jones Act Study Finds No Effect on Cost of Living in Hawaii,” in which it stated, “The Jones Act industry supports 13,000 jobs for Hawaii families.”

    [11] “Senate Joint Resolution No. 47: Expressing the sense of the General Assembly in supporting the Jones Act,” Virginia General Assembly, Jan. 13, 2022, accessed online Jan. 24, 2022, in Richmond Sunlight.

    [12] The 19,280 figure for Virginia is found in Figure E-2 on page E-5 of the executive summary of the PricewaterhouseCoopers study prepared for the Transportation Institute. The Hawaii figure of 13,000 is mentioned on p. 16 of “Impact of the U.S. Jones Act on Hawaii” and is credited in footnote 32 to the PricewaterhouseCooper study, but the only number for Hawaii in the summary is 9,500, in Figure E-3 on p. E-5. Separately, the Transportation Institute has a page on its website listing Jones Act-related jobs for each state; it also takes its figures from the same study. For Hawaii, it says 13,000. See “Jones Act Shipping Statistics: Jones Act Impact on America’s Economy,” Transportation Institute, accessed Jan. 24, 2022.

    [13] “Marine Cargo and Waterborne Commerce in Hawaii’s Economy: Trends and Patterns in Hawaii Marine Cargo 2001 – 2016,” Hawaii Department of Business, Economic Development & Tourism, May 2019, p. 9.

    [14] “2011 U.S. Water Transportation Statistical Snapshot,” U.S. Maritime Administration, Nov. 13, p. 20.

    [15] Larry Willis, “Scapegoating a law that protects good jobs will not help Puerto Rico,” The Hill, Oct. 25, 2017.

    [16] “Smith Statement on the Jones Act,” Press release from Congressman Adam Smith, Jan. 20, 2015; “Without a Strong U.S. Maritime Industry There Would be no National Maritime Day to Celebrate,” Crowley Maritime, accessed Feb. 1, 2022.

    [17] “Summary Tables: United States Flag Privately-Owned Merchant Fleet, 2000 – 2019,” U.S. Maritime Administration, Table 2, accessed Feb. 1, 2022.

    [18] “Quantifying the cost of the Jones Act to Hawaii,” Grassroot Institute of Hawaii and John Dunham &

    Associates, July 2020, p. 24.

    [19] Ibid,p. 24.

    [20] Donald Frost, “Impact of the Jones Act: The ‘Build American’ Requirement,” originally published in CMA Shipping newsletter August 2016; reprinted in Hawaii Free Press, Sept. 13, 2016. See the section “Possible disruptive effects of global competitive bidding to build ships for the Jones Act trades.”

    [21] “Jones Act Shipping Statistics: Jones Act Impact on America’s Economy,” Transportation Institute, accessed Jan. 24, 2022

    DHHL, Spend Your Money!

    Tom Yamachika
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    DHHL, Spend Your Money!

    The Department of Hawaiian Home Lands (DHHL) administers about 200,000 acres of public lands to be leased to native Hawaiians, upon which they may live, farm, ranch, and engage in commercial or other activities.  The department, led by a nine-member commission, must provide financial and technical assistance to native Hawaiians (those with at least 50 percent Hawaiian blood), which enables them to enhance their economic self-sufficiency and promote community-based development.  According to the Hawaiian Homes Commission Act of 1920, by doing this, the traditions, culture, and quality of life of native Hawaiians will be self-sustaining.  In practice, however, moving native Hawaiians to homestead lands has been an agonizingly slow process.  The Council for Native Hawaiian Advancement reported that the list of Native Hawaiians awaiting homestead land leases has been growing steadily from nearly 26,000 in 2010 to more than 28,700 today.  It’s no exaggeration to say that scores of Hawaiians have died on the wait list.

    Back in 2015, we wrote about agencies that received federal grants but were unable or unwilling to spend the money.  DHHL was listed at that time as having $55 million in federal housing funds awarded for Native Hawaiians but unspent, resulting in HUD suspending additional funding.

    House Bill 2511 and its companion Senate Bill 3359 in this year’s Legislature propose to provide a historic amount of funding, $600 million, to DHHL.  If enacted, this would be the single largest state or federal investment in the program in any one year in the 100-year history of the Hawaiian Homes Commission Act.  The bill currently has great support in both chambers of the Legislature. 

    We want to make sure that DHHL will be able to use the money for their mission.  Some statistics on their website, however, make us concerned.

    The federal Department of Housing and Urban Development (HUD) provides a Native Hawaiian Housing Block Grant program.  DHHL is the sole recipient of such grants.  In 2014, DHHL was sitting on about $55 million in federal funds unspent, as a result of which HUD stopped providing additional funding in 2016.  Recent news reports say that the federal money is still not flowing.  DHHL’s website, https://dhhl.hawaii.gov/nahasda/, shows its current grant status:

    201414HBGHI0001$9,700,000$7,736,927.94 (80%) expended
    201515HBGHI0001$8,700,000$59,575.66 (0.007%) expended
    2016 0No federal appropriations
    201717HBGHI0001$2,000,000No expenditures/encumbrances
    201818HBGHI0001$2,000,000 No expenditures/encumbrances
    201919HBGHI0001$2,000,000 No expenditures/encumbrances

    It’s 2022, and the agency is still working on 2014 and 2015 money.  We need to understand the problems that are preventing this money from doing some good here in Hawaii.  We can’t throw a great deal more money at it blindly.

    When these statistics were presented to the Legislature, DHHL was motivated to respond to us by saying that the block grant funds were all obligated, and that the available balance of block grant funds was slightly over $14 million.  They also noted that the U.S. Treasury recognized DHHL as a high performing grantee in expending funds for rental assistance provided through the Consolidated Appropriations Act. 

    Just to be clear, we are not at all opposing a historic level of funding for DHHL.  We just want to make sure the money is put to good use and does not languish.  So, we need to understand the operational challenges and we need to address them directly if we want to do the most good.

    More sunshine would help combat corruption in Hawaii Legislature

    Grassroot Institute
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    More sunshine would help combat corruption in Hawaii Legislature

    By Keli’i Akina

    Hawaii’s political leaders are looking for ways to rebuild trust with the public, following this week’s shocking and disappointing corruption and bribery charges filed against two Hawaii state legislators.

    It would be unfair, of course, for us to hold all of our legislators accountable for the alleged actions of just the two. However, with so many important decisions happening out of the public eye, we can understand how this could have happened. 

    In the effort to regain public confidence, some legislators are seeking guidancefrom the state Ethics Commission. But that only addresses part of the problem. To truly root out any hint of corruption and underhanded dealing, the Legislature must make a sincere effort to be more transparent in all of its practices.

    Keli’i Akina

    The Hawaii Supreme Court’s recent “gut and replace” decision ended one questionable legislative practice, but there remain many other ways that our state lawmakers can avoid the public eye. 

    As veteran observers of the Legislature know, it’s rare to see outright votes against a particular piece of legislation. Often, bills are passed unanimously with strange amendments, like a date that makes the law effective 50 years in the future, then quietly killed or altered in a later committee. 

    At times, it’s nearly impossible to know exactly why a bill was killed or who was for or against it. Such things happen behind the scenes. Meanwhile, the public is left to piece together the clues and try to guess why. 

    When the Grassroot Institute of Hawaii wanted to learn why last year’s bill to restrict the governor’s emergency powers died at the last minute in conference committee, we received contrary accounts and heard objections to the bill that had already been addressed in its earlier versions.

    The lack of open disagreement in the Hawaii Legislature could be interpreted as a sign of “collegiality.” But the effect is that the real business of politics — deciding what bills get heard, what will pass and what compromises will be made — happens pretty much in secret. 

    When sweeping changes such as this year’s minimum-wage increase sail through one house of the Legislature without a word of argument or a single “no” vote, one begins to wonder whether the public really has a voice in the Legislature at all.

    Is this a result of Hawaii’s one-party dominance? That could be part of it. But more important is that these practices are so ingrained that the problem transcends political parties.

    The problem is a lack of transparency and accountability.

    This isn’t about partisanship. So long as our politicians can hand out favors through tailored regulations or promises of hefty contracts, we probably will always have corruption, no matter which party or parties are dominant. 

    Short of radically changing the focus of government, the next best solution is greater transparency, to help ensure greater political accountability. We need more sunshine in our Legislature, and we need it now. 

    Our elected and unelected state officials can help make that happen, through legislation and rule-making. 

    At the Legislature, our lawmakers also can stop rushing bills through hearings so they can hammer out secret deals in conference committees. 

    They need to demonstrate integrity and courage by going on the record with their positions and voting against bills they disagree with, in committees or on the floor. 

    They need to stop leaving so much power in the hands of the committee chairs to hear, pass or kill bills.

    We, the people, have a responsibility here as well. We must demand better behavior and hold our elected officials accountable for their actions — or lack thereof. If we want more transparency, we must be active and engaged at the Legislature. 

    Do not forget that accountability begins at the ballot box. We are the ones who have endorsed the current system by electing those who are unwilling to challenge it. If we want change, we must be clear about the need for reform — and demonstrate through our votes what will happen if those demands are not met.
    _________

    Keli’i Akina is president and CEO of the Grassroot Institute of Hawaii.

    $100 tax refund would be nice, but how about $1,362?

    Grassroot Institute
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    $100 tax refund would be nice, but how about $1,362?

    The following testimony was submitted by the Grassroot Institute of Hawaii for consideration on Feb. 2, 2022, by the Senate Committee on Ways and Means.
    _________________

    To: Senate Committee on Ways and Means
          Senator Donovan M. Dela Cruz, Chair
          Senator Gilbert S.C. Keith-Agaran, Vice Chair

    From: Grassroot Institute of Hawaii
                Joe Kent, Executive Vice President

    RE: SB3100 — RELATING TO CONSTITUTIONAL TAX REFUND FOR RESIDENT TAXPAYERS

    Comments Only

    Dear Chair and Committee Members:

    The Grassroot Institute of Hawaii would like to offer its comments on SB3100, which would create a one-time tax refund for resident taxpayers in keeping with Article VII, Section 6 of the Hawaii Constitution.

    The state of Hawaii is currently enjoying a $3 billion budget windfall, thanks to higher-than-expected tax revenues and an infusion of federal funds. 

    Hawaii’s residents and businesses, on the other hand, are struggling to rebound from the pandemic and lockdowns, which closed many businesses forever and continue to reverberate through the economy.

    Under the circumstances, it seems clear that returning a portion of those excess funds is both compassionate and economically wise. Hawaii’s taxpayers would benefit from the tax refund, and the economy would benefit from the spending and investment that will follow.

    Earlier this year, the Grassroot Institute wrote about the budget surplus in the Hawaii Filipino Chronicle, suggesting that the Legislature return some of the windfall to taxpayers, as provided in the Hawaii Constitution. We also suggested that the Legislature help alleviate the state’s high cost of living by cutting taxes, which the state can clearly afford.

    When Gov. David Ige proposed that the state send refunds in the amount of $100 per taxpayer and dependent, the Grassroot Institute praised the suggestion, noting that this is a good way to help working families while boosting the economy.

    We commend the Legislature for considering this bill and applaud its purpose, but we would like to suggest that the Legislature go even farther in this effort to help Hawaii taxpayers.

    Currently, the bill sets the refund amount at $100 multiplied by the number of qualified exemptions to which a taxpayer is entitled. Given that one refund is to be distributed to each resident taxpayer who files an individual income tax return for 2021, this is an attempt to approximate the governor’s goal of $100 per taxpayer and dependent, or $400 for the average Hawaii family.

    The governor hoped to add about $110 million to the economy via the refund. However, we suggest that, given the amount of the budget surplus, the state should seek to return at least one-third of the windfall, or about $1 billion, to the taxpayers. That would equal approximately $1,361 for each of Hawaii’s 734,673 taxpayers.

    The state can afford to do more for Hawaii taxpayers, who have gone through so much in the past two years.

    We urge the committee to consider increasing the amount of the refund contemplated in this bill. By doing so, you would help foster economic growth and greater prosperity in Hawaii.

    Thank you for the opportunity to submit our comments.

    Sincerely,

    Joe Kent
    Executive Vice President 
    Grassroot Institute of Hawaii

    The real emergency is there is no balance of powers

    Grassroot Institute
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    The real emergency is there is no balance of powers

    By Keli’i Akina

    Now that the Legislature is back in session, there is one question that many of us are asking:

    Will the Legislature fix the state’s emergency powers law so that our governor will not be able to extend an emergency for as long as he or she likes?

    For example, our current COVID-19 “emergency” has been going on for almost two years. 

    As of next month, it will be two years that we have lived under executive orders; two years that we have seen democratically enacted laws suspended and “temporary” regulations imposed by edict; two years that the people’s voice in government has been constrained.

    The governor’s emergency powers are derived from the state’s emergency-management statute. It says an emergency is supposed to end after 60 days. But Gov. David Ige has extended the COVID-19 emergency 25 times through “supplemental proclamations” — something not mentioned in the emergency-management statute. 

    In effect, he has turned a 60-day emergency into one that will last at least 751 days, assuming he doesn’t extend it again when the current supplemental proclamation expires on March 25.

    The Legislature had the opportunity last year to change the law, to require Legislative approval before emergencies can be extended. Unfortunately, that bill failed at the last minute in conference committee. 

    The good news is that several bills have been introduced in the current legislative session that might finally restore the state’s vitally needed constitutional balance of power.

    According to Malia Hill, Grassroot Institute of Hawaii policy director, one of the most promising of these bills is HB1585, which has already passed its first committee hearing. As she explained on the latest episode of my ThinkTech Hawaii program, “Hawaii Together,” the bill would require that any suspensions of law be justified and any edicts issued under the emergency statute be consistent with the state Constitution.

    Also, the Legislature would be able to terminate a state of emergency by a two-thirds vote, and it could end an emergency “in whole or in part.”

    As good as the bill is, however, Hill said it could be improved by strengthening protections for government transparency and civil rights. In addition, she would like the bill to require legislative approval before the governor could extend an emergency. 

    HB1585 and its Senate companion, SB3285, are not the only bills that would reform the emergency-management statute. There’s also HB1416, which is very similar to the bill that nearly passed last year. 

    Even the governor has proposed some bills that address the issue: HB2121and SB3089. They include limits on the suspension of laws and a nod toward constitutionality. But, as you might expect, they do not include a legislative check on the governor’s power to extend an emergency. 

    One of the most interesting — and telling — things about the governor’s bills is that they would make explicit the executive’s ability to extend an emergency by proclamation. As Hill pointed out, “It’s almost like an acknowledgment that, ‘Hey, maybe this wasn’t 100% OK and legal up until now, but now for sure, I can 100% do that.’”

    Regarding the governor’s suspension of Hawaii’s open-records laws as part of his emergency orders, Hill noted that there is a bill that has been introduced, SB2916, that would prohibit suspension of open-records and vital-statistics requests during an emergency. 

    She said she hopes that SB2916 passes, but if not, “There’s no reason why we couldn’t see protections for transparency added to whichever emergency management bill moves forward this session.”

    Hill acknowledged that reforming the emergency-management act is a challenge, in that nobody wants to inhibit the ability of the governor to respond to a true emergency. But the current law, she said, was written for more immediate emergencies — natural disasters such as hurricanes and tsunamis. Thus, the bills before the Legislature have been “specifically tailored to address the shortcomings in the existing law” that were exposed by the public policy responses to COVID-19.

    Hill said the goal of the reform efforts is not to criticize the governor, but rather to restore Hawaii’s constitutional balance of powers.

    “It’s not so much [about] getting these mechanisms to stop the governor as just ending the ambiguity of this 60-day time limit and finding a way to make sure that people have a voice in the way that an emergency is managed, via their elected representatives.”

    Ultimately, she said, even if the Legislature does rein in the governor’s emergency powers, it still might not step in to terminate an “emergency” — unless the people demand it. 

    In the end, there’s no substitution for getting involved and letting your own voice be heard.
    ____________

    Keli’i Akina is president and CEO of the Grassroot Institute of Hawaii

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