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    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

    Tax Hikes Still on the Table

    Tom Yamachika
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    Tax Hikes Still on the Table

    Our Legislature is now in full swing.  Politicians are busily preparing and debating bills that would affect our future.  One thing different this year, or that is supposed to be different this year, is that because we have just had a U.S. census and the representative and senatorial districts have been reapportioned, each of the elected inhabitants in the big square building on Beretania Street will face the voters this November.

    But you wouldn’t think so by looking at some of the measures being proposed.

    Last year, when our economy was in the toilet, legislators put forward an omnibus tax increase bill, Senate Bill 56.  I called it the “Enola Gay” bill.  It proposed hefty increases in individual income tax, raising the top bracket from 11% to 13% and hoisting the capital gains maximum rate from 7.25% to 11%.  Corporate tax rates were raised from three brackets with a top rate of 6.4% to one bracket with a rate of 9.6%.  The bill attracted national attention for the magnitude of hikes being considered, as the bill would give us the second highest marginal tax rate in the nation but that highest rate would kick in far earlier than it would in any other state.  When the bill crossed over to the House, many top lawmakers including the Speaker of the House panned it.  The Speaker gave the bill a rare quadruple referral, and not a single House committee touched it.

    This year, Senate Bill 2242, “Relating to Taxation,” proposes the exact same individual and corporate income tax rate hikes.  The preamble in the bill recites that state government needs to “increase revenue for essential public services and uplift Hawaii’s most vulnerable workers.”  The bill also seeks to end state income taxation of unemployment compensation benefits. 

    Maybe the Senate doesn’t care about how this bill is going to be reacted to nationally, or if it is going to meet the same fate in the House as last year’s Senate Bill 56.  The bill is a single referral bill, which means it only needs to be considered by one committee, and it is scheduled to be heard by the Senate Ways and Means Committee on February 2nd.  If the bill passes, it goes to the House.  If it fails there, there is always the possibility that a friendly Senate committee could create a Frankenbill with its contents, like how House Bill 58 was operated on last year.

    In the meantime, the House is also attracting national attention.  House Bill 1815 seeks to create an “Online Sports Wagering Corporation” that would regulate and administer sports betting in the State over the Internet.  That might not be so remarkable, but the bill also proposes a sports wagering tax on all winnings paid out to any person by a sports wagering provider.  The tax rate is 55% of winnings.  No, there is no missing decimal point.  According to multiple national specialty news networks, the 55% rate would put us ahead of New York’s and Hawaii’s 51% rate to make Hawaii wagering the most heavily taxed in the country.  “Hawaii Five-Five,” the networks call it.  Hey, we don’t fool around here in Hawaii.

    So far, House Bill 1815 has not been scheduled for a hearing in the House.  The bill is considered a long shot even by the betting industry networks.  The Governor, after all, was given a bill by his Department of Hawaiian Home Lands seeking to establish a casino in Kapolei last year.  The Governor did not include the bill in his legislative package.  Other friendly legislators introduced the bill in both houses instead, and the bill was killed by both House and Senate committees.

    Hold on to your wallet, folks, because our Legislature is in session!

    Emergency powers reform bill could be stronger, institute says

    Grassroot Institute
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    Emergency powers reform bill could be stronger, institute says
    • HB1585 needs greater clarity about the role of the Legislature and stronger statements about protecting transparency and individual rights

    HONOLULU, Jan. 31, 2022 >> A legislative proposal to reform the state’s emergency powers law, HB1585, would be a good start toward restoring Hawaii’s constitutional balance of powers, but it could be much stronger, according to testimony submitted by the Grassroot Institute of Hawaii.

    The bill is to be heard Tuesday, Feb. 1, by the House Committee on Pandemic & Disaster Preparedness. 

    In the institute’s testimony on the bill, Institute Executive Vice President Joe Kent stated that state law currently includes a 60-day limit on emergencies, but does not address what should happen if an emergency exceeds that limit. Thus, it is possible for the governor to extend an emergency period indefinitely, with little input or oversight from the legislative branch. 

    Joe Kent

    Kent said HB1585, if enacted, “would amend the state’s emergency-management statute to clarify that the powers granted for emergency purposes should not be inconsistent with the Hawaii Constitution, require justification for the suspension of laws and place parameters on such suspensions, and allow the Legislature to terminate an emergency, in part or in whole, by a ⅔ (two-thirds) vote.” 

    That, he said, would be “an important step toward addressing an oversight in the state’s current emergency-management law that was not apparent until the COVID-19 pandemic: the lack of a meaningful legislative check on the governor’s emergency powers.”

    As for how the bill could be improved, Kent suggested:

    >> Adding a provision stating that supplementary proclamations extending an emergency must be approved by the Legislature via concurrent resolution.

    >> Adding a provision that clarifies how the Legislature could act when it’s not in regular session, since currently the bill does not provide such an avenue.

    “Given the need to create a streamlined approval process in an emergency,” he said, “the bill could include a mechanism whereby the Legislature could approve or deny extension through the use of remote technology.”

    In addition, Kent said, “it would be good to see a firmer statement in favor of preserving government transparency, especially the state’s sunshine laws and open records, as well as stronger guarantees that emergency orders that close a business or deprive an individual of a right would also have to demonstrate a rational basis for the restriction.”

    To see read the Grassroot Institute’s full testimony, go here.

    Minimum-wage hike deserves debate

    Grassroot Institute
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    Minimum-wage hike deserves debate

    By Keli’i Akina

    We’re just over a week into the 2022 legislative session, and already, we are seeing behavior that calls into question the Legislature’s dedication to the principle of democratic debate.

    Take, for example, the minimum-wage bill.

    The Senate is currently considering SB2018, which would raise the minimum wage to $18 an hour by 2026. In this case, “considering” is a generous description of how the Senate has treated the bill.

    The first hearing, in the Committee on Labor, Culture and the Arts, was on Monday, scheduled in a way guaranteed to depress the number of people planning to testify.

    After being approved by that committee unamended, the bill was scheduled for decision-making in the Ways and Means Committee on Thursday. The committee gave the bill less than 3 minutes of consideration before approving it, with only Sen. Glenn Wakai noting any reservations.

    This is a bill that would increase the minimum wage by 78% over the next four years while Hawaii’s businesses are still struggling to recover from the pandemic and lockdown. Yet, the Senate has tried to avoid any real debate on the issue.

    Rather than host a full and nuanced discussion of the bill and its economic implications, the Legislature has surrendered that responsibility to op-eds, articles and hosted panels in the media. Those, of course, are important, but they cannot replace proper democratic debate.

    Any senators who have looked at the written testimony submitted would have noticed a multitude of warnings from business owners that they could not survive such an extreme wage increase. Here is just a sample from some of the testimony submitted:

    >> “These increases along with the state of Hawaii requirement of mandatory healthcare coverage would surely put an end to all three of our restaurants. We are happy to provide healthcare to our full time staff, and are happy to offer liveable wages to our staff. We are creative in the ways we compensate our staff as all small business owners must be in order to survive during a global pandemic. This bill as currently written would surely cause us to shutter our doors.” ~ Alan Wiltshire; vice president operations, Shorefyre/Skybox Taphouse.

    >> “Please understand that not all businesses can just raise our prices immediately in order to pay for the wage increases. Many companies such as mine sign contracts with other businesses, government entities and nonprofits, and these contracts are anywhere from one year to three years. […] Companies cannot survive by running at a loss for a whole year because you have mandated we pay higher wages in the same year the bill was introduced! You are shooting us in the foot!” ~ Suzanne Zeng, small business owner.

    >> “Rents increased, food cost increased and our profit margins are dropping year by year. Due to the high inflation, we had no other option to increase our scoop prices to $6.50 with the result that our sales have gone down. We simply have less people buying gelato from us, as the prices are perceived to be too high. With COVID, all of Hawaii’s small businesses are in jeopardy.[…]. Adding more legislative stress on small businesses by increasing labor cost will be detrimental to our businesses and livelihood. It is not a good time to increase minimum wage and as it will kill a lot of small businesses and restaurants.” ~ Dirk Koeppenkastrop, IL Gelato Hawaii.

    In our own testimony on SB2018, the Grassroot Institute pointed to a new report from the National Bureau of Economic Research that debunks the notion that minimum-wage legislation has no effect on jobs.

    In a meta-analysis of recent research, the agency found that, regardless of how researchers interpreted data to support a particular position in the minimum-wage debate, there is a clearly negative effect on employment associated with minimum-wage increases: Across all studies, 78.9% of estimated employment elasticities were negative.

    Courtesy of Marginal Revolution University

    But the Legislature doesn’t need to rely on studies to tell them what will happen. It’s there in the testimony — and in a survey conducted by the Chamber of Commerce of Hawaii.

    If the wage goes to $15 or more, nearly half of businesses polled said they will have to reduce staff. If the wage goes to $18, almost 70% said they will reduce staff and 28% will have to lay off half their staff. At $18 an hour, about one-third of businesses said they will have to close entirely.

    The data is clear. This bill might help a few workers, but it will cost jobs and it will close local businesses, especially small businesses that have been barely hanging on after the last few years.

    Those who advocate for minimum-wage hikes are well-intentioned in their effort to help working families, but the minimum wage is the wrong tool for the job. Research demonstrates that wage hikes do nothing to reduce poverty, but simply redistribute wealth among low-income earners, with the counterintuitive effect of increasing the proportion of poor families.

    What the minimum wage hike will do is raise costs, close businesses and put people out of work. All of these will contribute to increasing Hawaii’s high cost of living further.

    Hawaii deserves a real and honest discussion of the minimum wage and the effects of an extreme wage hike. Instead, our Legislature is trying to push through a bill without engaging in debate.

    I implore our representatives in the House to give this proposal the consideration it deserves — and listen to the many local business owners and employers who are trying to warn them.
    _____________

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

    The Future of Blankety Blank

    Tom Yamachika
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    The Future of Blankety Blank

    Now that our Legislature is in session again and pondering several bills including some tax increases, we wanted to re-examine a tactic that has surfaced in recent years that has been applied to appropriation and tax bills – or could be applied to any bill with important numbers in them.

    The tactic?  Blank out all of the important numbers.  So a bill could give someone a credit of blank percent, or change the tax rate on a tax to a blank rate.  Three years ago, we wrote about this tactic and pointed to a bill that changed the income tax to:

    “If the taxable income is:    The tax shall be:

    Over $6,600 but not over $9,600                  ___% of excess over $6,600

    Over $9,600 but not over $28,800                $___ plus ___% of excess over $9,600

    Over $28,800 but not over $38,400              $___ plus ___% of excess over $28,800….”

    And so on.  That bill, HB 1190 SD1 (2019), had fifty-seven blanks in it.

    We’ve seen that bills, even tax increase bills, usually don’t have blanks in them when they are introduced, but committee chairs amend the bills to add the blanks at some time between the bill’s second and third reading.  The blanks tend to stick around during subsequent hearings, and finally get filled in Conference Committee – when no public input is allowed.

    In 2019, when our previous article was written, we pointed out that the Hawaii Constitution requires that bills pass three readings in each house on separate days, and that the intent behind that provision was “the opportunity for full debate in the open before committees and in each House, during the course of which the purposes of the measures, and their meaning, scope, and probable effect, and the validity of the alleged facts and arguments given in their support can be fully examined, and if false or unsound, can be exposed, before any action of consequence is taken thereon.”

    Late last year, our supreme court dealt a blow to the then-commonly used legislative tactic that we called “gut and replace.”  The court held that when a bill is amended in a way that is not germane to its original form, then the count for hearings has to start over; if it doesn’t, the resulting law can be struck down.

    We were wondering in 2019, and are still wondering now, whether the same reasoning can apply to a Blankety Blank. 

    The Legislature sometimes uses “short form” bills, bills that have all of the constitutionally required elements but contain no substance.  When they do, the committee hearing the bill amends the bill to fill in the substance and recommits it to the same committee so it can hold a hearing on the bill now that there is material in it that the public can comment on.  We think that the same should be required of Blankety Blanks.  A bill that has more holes than a Swiss cheese may be legally sufficient but it’s impossible for the public to make any intelligent comments about it if it’s full of blanks.  Without knowing the numbers, for example, the bill we quoted above could be a tax hike or a tax cut.  Wouldn’t the public’s comments be different depending on which it was?

    Maybe, just maybe, somebody needs to take a Blankety Blank bill that happens to become law and vigorously challenge it in court.  Now that our supreme court has the League of Women Voters decision on the books, that kind of challenge can’t be laughed off as easily as it might have been.

    Okay, lawmakers.  Want to pass one of these bills?

    Go ahead, make my day!

    Hoppe’s for Home and the Range

    Robert Kay
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    Hoppe’s for Home and the Range

    Gun cleaning products and lubricants are not necessarily the sexiest topic in the world. But boy are they an important factor to maintaining your collection. Hoppe’s, which has been in this business since 1903, has a lineup that includes everything from bore cleaners to gun grease.

    Obviously you’ll want them in your range bag, in your loading room (or wherever you clean your guns) and on your workbench. Maybe even some lubricant in the bathroom cabinet.

    You’ll want these in your range bag. I mostly use the lubricating oil and the gun grease (for my AKs) but the CLP comes in handy when you need to clean something thoroughly. You can also apply it to the head of the boresnake prior to cleaning at the end of the day. The CLP will prevent rust from forming, leaving behind a lasting coat of protection.

    So where am I going with this?

    Naturally I’m going to lubricate my Sig 220 before I try to blow out the X-ring.

    After shooting I’ll put some Hoppe’s #9 on the bore snake and pull it through the barrel before I go home.

    Last but not least, I highly recommend the their cleaning pad which has a soft acrylic surface (for absorption) and a vinyl bottom to protect my table from spills and scratches. You can throw it in the washing machine too. Pictured here is the CLP and #9 bore cleaner. At left is Hoppe’s nifty Silicone Cloth which is pre-treated with a silicone lubricant that polishes, cleans, and coats surfaces with a protective finish. It comes in a resealable bag or you can do what I did, put it in a sandwich bag.

    Note that this photo is for “demonstration purposes” only. You’re not really supposed to clean your guns where you’ll be eating. So kids, don’t try this on the kitchen or dining room table.

    That evening I’ll roll out the nifty little Hoppe’s gun mat where I’ll field strip and clean my Sig.

    Let me count the ways I use Hoppe’s 9 lubricating oil around the house. What’s really handy is the needle nose application tip. The oil has high-viscosity properties that are long lasting and do not cause the stuff to harden or gum up. Perfect for garden tools that we tend to ignore often need a regular lube.

    However, we’re only scratching the surface. As the expression goes, charity begins at home.

    When you acquire Hoppe’s lubricants you’re essentially getting a home lubrication kit. Through the following photos I’ve tried to illustrate how this manifests itself.

    Let’s not forget those locks and deadbolts. I admit that I don’t nearly pay enough attention to this. Who does? It’s amazing what a little lube will do and who knows, it’s probably good for your feng shui.

    Some examples that come to mind: lubing and maintaining padlocks, deadbolts, pruning shears, pliers, hair clippers and of course my Dillon 550 reloader.

    Those hair clippers need attention (according to the instructions) every time you use them. I douse mine with CLP to remove the gunk and follow up with a stiff brushing. The CLIP both lubricates and cleans. Perfect for these little items. I usually put this stuff in a bottle with a needle nose applicator but for the purposes of this article, I’m using the standard container so you can see how the product is being used.

    What struck me as I began to research this article was the realization how handy Hoppe’s lubricants are around the house and garden.

    Last but not least, you can circle back and use Hoppe’s for your reloading gear.

    Down in the loading room there’s always something that needs attention. In this instance I’m using Hoppe’s gun grease which is designed to protect firearms from rust and corrosion but is perfect to lube my Dillon 550. And you’re right it needs to be wiped down afterwards. I’ll get that later….

    Minimum-wage bill is wrong tool for the job

    Grassroot Institute
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    Minimum-wage bill is wrong tool for the job

    The following testimony was submitted by the Grassroot Institute of Hawaii on Jan. 26, 2022, to the Hawaii Senate Committee on Ways and Means, which was to meet Jan. 27, 2022, to consider increasing Hawaii’s mandatory minimum wage to $18 an hour by 2026.
    ______________

    Dear Chair and Committee members:

    The Grassroot Institute of Hawaii would like to offer its comments on the portion of SB2018, which proposes increasing Hawaii’s mandatory minimum wage to $18 an hour by 2026.

    The Grassroot Institute of Hawaii is concerned about the possible effect of this legislation on Hawaii’s economy, especially as local businesses struggle to recover from the COVID-19 lockdowns.

    The proposed wage increase represents a 78% increase in the minimum wage in less than four years. For many local businesses — especially smaller businesses and those with thin margins — nearly doubling personnel costs would be a recipe for disaster and nearly guarantee their closure.

    There is no real mystery to what will happen if this increase is passed. We urge the committee to listen to the testimony of the many businesses who have made it clear that this bill would mean closing their doors or raising their prices. In one stroke, this legislation would contribute to raising the cost of living in Hawaii, destroying local businesses and putting more people out of work.

    There is ample research data to indicate that this bill, if enacted, would fail in its intent to help lift the state’s working families out of poverty. Recent years have seen a glut of research demonstrating that far from helping low-wage employees, minimum-wage hikes are more likely to increase their economic burden as businesses cut hours, turn to technology or even cut jobs in order to mitigate the higher costs.

    A 2021 analysis of minimum-wage research from the National Bureau of Economic Research debunks the claim that minimum-wage hikes do not reduce employment. On the contrary, the NBER meta-analysis found that, regardless of how researchers interpreted data to support a particular position in the minimum-wage debate, there is a clearly negative effect on employment associated with minimum-wage increases: Across all studies, 78.9% of estimated employment elasticities were negative.

    The impact of wage increases was especially hard on the teens, young adults and the less educated. And in studies of directly affected workers, the negative employment effects were even more obvious.[1]

    For example, in August 2018, a University of Washington study found that increasing Seattle’s minimum wage from $11 to $13 an hour resulted in both the loss of about 5,000 jobs and an average cut in pay for the remaining employees of about $125 a month, thanks to a cut in their job hours of more than 9%.[2]

    Proponents of a minimum-wage hike often point to a few highly limited surveys that suggest raising the minimum wage can be economically neutral, but as the newest research from NBER demonstrates, the data demonstrates that the opposite is true. Study after study shows that when a municipality drastically raises its legal minimum wage, low-wage employees suffer.

    In 2010, researchers from the National Bureau of Economic Research and the Federal Reserve Board compiled the results of 53 scholarly studies into a book, “Minimum Wages,” and concluded there is “no compelling evidence that minimum wages on net help poor or low-income families, and some evidence that minimum wages adversely affect these families, and increase poverty.”[3]

    Examining the idea that higher minimum wages will reduce poverty, those same researchers found that the opposite was true. While some low-wage workers do make more money, the gains are offset by loss of employment or hours for other workers. The researchers found that a minimum-wage hike increases the proportion of poor families by simply redistributing wealth among low-income earners.[4]

    Because the number of families that fall into poverty from a minimum-wage increase slightly outstrips the number of families that escape poverty from the minimum-wage increase, the state is likely to see a slight increase in the number of families living in poverty following a minimum-wage hike.  This is a further demonstration of why minimum-wage hikes are the wrong tool to address poverty.

    The minimum-wage debate is often framed as a fight between businesses and employees. In truth, raising the legal minimum wage can hurt both. Employment declines as businesses find ways to cope with the increased cost. Some stop hiring, some turn to automation and some demand more work from the employees that stay.

    For businesses that already have to contend with low margins and high risks, even a moderate increase in the minimum wage can be sufficient to drive them out of business.

    In 2017, Dara Lee Luca of Mathematica Policy Research and Michael Luca of Harvard Business School looked at restaurant closings in San Francisco after the minimum wage was raised to $13 an hour. The pair found that the higher minimum wage led to the death of many mid-range restaurants, as well as fewer new restaurant openings. For every dollar that the San Francisco minimum wage went up, there was a 4% to 10% increase in the likelihood of restaurant closings.[5]

    The Grassroot Institute of Hawaii prefers policies that would strengthen our state’s economy and benefit both businesses and employees. This bill, however, may have a negative effect on employment in general. Not only would companies in Hawaii likely be forced to lay off workers or cut hours or benefits in order to afford increased wages, they also likely would slow or even stop new hiring.

    If we want to establish our state as a desirable place to do business, we cannot continue to treat company profits as an endless funding source for the state’s social initiatives.

    It is not fair to assume that Hawaii’s employers are intentionally underpaying their employees or to assume that the government is more capable of addressing the payroll limitations of a business than the business owner is.

    Policymakers are focusing on raising the minimum wage in the effort to make the state more affordable, but the minimum wage is a poor tool for that purpose. They should focus instead on policies that increase our purchasing power — that is, lower the cost of living — and make our state more prosperous as a whole.

    A combination of tax relief and a reduction in the obstacles that the state places in the way of business and entrepreneurship would be the best way to move forward, to improve both our economy and the plight of low-wage workers.

    In contrast, this proposed minimum-wage bill, SB2018, would more likely hurt than help Hawaii’s businesses and low-income working families.

    Thank you for the opportunity to submit our testimony.

    Sincerely,

    Joe Kent
    Executive vice president
    Grassroot Institute of Hawaii
    ______________

    [1] David Neumark and Peter Shirley, “Myth or Measurement: What Does the New Minimum Wage Research Say About Minimum Wages and Job Loss in the United States?” NBER Working Paper 28388, National Bureau of Economic Research, Cambridge, Mass., May 2021.

    [2] Ekaterina Jardim, et al., “Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle,” NBER Working Paper 23532, National Bureau of Economic Research, Cambridge, Mass., May 2018, https://www.nber.org/papers/w23532.

    [3] David Neumark and William L. Wascher, “Minimum Wages,” The MIT Press, Cambridge, Mass., August 2010.

    [4] David Neumark and Wiliam Wascher, “Do Minimum Wages Fight Poverty?” NBER Working Paper Series, Working Paper 6217, National Bureau of Economic Research, Cambridge, Mass., August 1997.

    [5] Dara Lee Luca and Michael Luca, “Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit,” Harvard Business School NOM Unit Working Paper No. 17-088, April 2017 (revised August 2018).

    Fee-Only Consulting on Long Term Care Insurance: What if the company that issued my policy fails?

    Guest Contributor
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    Fee-Only Consulting on Long Term Care Insurance: What if the company that issued my policy fails?

    by John H. Robinson

    The LTC insurance market has been in turmoil for more than a decade as insurance companies have come to the grim realization that the policies they issued in the 1990s and early 2000s were badly mispriced and that the proclivity of policyholders to make claims was grossly underestimated.

    The resulting charges to the insurance companies have run into the billions of dollars and have caused many of the largest LTCI carriers to either exit the business or stop issuing new contracts. To stem the financial hemorrhaging, most of these companies have lobbied/begged state insurance regulators to allow premium increases ranging from 50%-400%(!) of the initial premium in order to stay solvent.

    Such increases are a bitter pill for policyholders because many purchased the policies based upon the insurance salesman’s representation that their premiums would be fixed as long as the policy remained in force. As they have discovered, the contracts have a clause that permits the insurance companies to apply for premium hikes if they mispriced their products.

    Long Term Care Insurance Consulting as My Fee-Only Side-Hustle

    I have been providing fee-only consulting guidance to clients regarding the dreaded premium increase notifications for years.It has almost become a cottage industry for me since an article I wrote in 2020 went viral.   In most cases, the most palatable option is to accept no increase or a small increase in return for a reduction in benefits – most commonly by negotiating  a reduction/elimination of the inflation rider, reducing the daily benefit amount, or shortening the benefit period. 

    These concessions are often a better option than terminating the policies and writing off the years of premiums paid. Typically, the contracts are still far less expensive than if they were to apply for coverage with a different carrier today, and, in many instances, the policyholders were originally sold more LTC coverage than was necessary for their objectives.

    Most recently, however, I have received calls expressing concern not just about premium increases, but also about the possibility of the insurance carriers failing.  Most of these calls are arising from news pertaining to GE spinoff, Genworth, which, for many years, was the largest issuer of long term care insurance in the U.S. Genworth’s financial woes are well documented, and there is some anxiety among policyholders about the company’s future, particularly in the wake of the collapse of the company’s proposed $2.7 billion acquisition by China Oceanwide.  In September 2021, leading insurance company rating company A.M. Best lowered the its  financial strength rating for Genworth to C++ “Marginal.” Analytical website Macroaxis.com assigns a 51% probability of failure for the company in 2022.  That is obviously a bit unsettling for policy holders.

    Consumer Protection Against Insurance Company Bankruptcy

    So what happens if Genworth (or any other long term care insurance company) fails?  Long term care insurance, like life insurance (and other forms of consumer insurance), is regulated at the state level and is overseen by each state’s Insurance Commissioner. Each state has its own Guaranty Associations that are designed to support policyholders in the event of carrier failure.

    Although the limits of coverage may vary from state to state, most states have adopted limits that are consistent with the National Association of Insurance Commissioners’ (NAIC) model. For long term care insurance, the NAIC limit is $300,000 in LTC policy benefits. Policyholders may check their own state’s guaranty association laws at the following link>

    State Insurance Guaranty Associations Laws and Limits

    Hawaii Life & Disability Insurance Guranty Association  – Frequently Asked Questions

    Too Big to Fail?

    As a practical matter, Long Term Care insurance company failures have been rare. In 2017, Penn Treaty, an smaller LTC player with 76,000 policyholders, fell into receivership and liquidation with assets of $468 million against liabilities of $4.6 billion!

    In 2009, Conseco, a carrier with 140,000 policyholders, met a similar fate. At the end of the day, policyholders can take some modicum of comfort in knowing the limits of their state’s guaranty association benefits. The decision to terminate a policy into which thousands or even tens of thousands of dollars of premium have been paid is never an easy one.

    The potential failure of Genworth, however, presents a very different challenge for the the state guaranty funds.  Genworth dominated the long term care insurance space and there is good reason for consumers (and state insurance commissioners) to worry about the solvency of the insurance guaranty funds. 

    If you are looking for a reason as to why the state insurance commissioners seem to rubber stamp massive premium increase requests from Genworth, the potential financial ramifications of the company’s failure are likely the answer.  Although, in theory, one would think that the insurance commissioners should be protecting the interest of policy holders who paid premiums for many years, apparently the financial consequence of allowing Genworth to fail outweigh the interests of individual consumers.

    Fortunately, there is some small solace for some Genworth policy holders.  A class action lawsuit – Skochin v. Genworth – offers policy holders two fully-paid up options that exempt them from future premium increases and still provide a (very) modest amount of ongoing coverage.

    RELATED READING

    What Happens When an Insurance Company Fails? (National Organization of Life & Health Insurance Guaranty Associations (NOLHGA))

    Your Future Aches and Pains Are Killing GE (Bloomberg)

    Options for Dealing with Rising Long-Term Care Insurance Premiums (Kiplinger)

    Long-term care insurance safety net has huge holes (Benefits Pro)

    John H. Robinson is the owner/founder of Financial Planning Hawaii and a co-founder of software-maker Nest Egg Guru. For more information visit Fee-OnlyPlanningHawaii.com.

    Spotlight on Retirement Income

    Tom Yamachika
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    Spotlight on Retirement Income

    This week we continue our series on the recommendations made by the Hawaii Tax Review Commission.

    “Hawai‘i taxation of retirement income is neither fair nor equitable,” they say.  “The exemption of large portions of retirement income impairs tax adequacy.”  Their recommendations:  “Tax pension and other retirement income uniformly. Exempt a base amount of pension income initially. Continue to exempt Social Security benefits from income tax.”

    Hawaii taxation of pension income is somewhat of a mixed bag.  Our income tax law has an exemption for “compensation received in the form of a pension for past services” that has been on our books since Act 169 of 1953.  When individual retirement accounts and self-employed retirement plans gained popularity in the 1970s, our Department of Taxation issued Tax Information Release 53-77 (1977), saying that it was limiting the pension exclusion to “plans fully funded by the employer,” on the theory that if the employee contributed to the retirement plan, the employee was in effect buying an annuity for himself or herself, and taxation would then follow the rules for annuities.  Thus our tax laws allow employer-funded pensions to escape tax, while fully taxing 401(k) plans, IRAs, and other retirement vehicles that are funded through the employees’ choices.

    The Tax Review Commission slammed this distinction, saying that there is no economic justification for this.  It was also clearly troubled by the sheer amount of pension benefits escaping the state income tax every year, which topped $4 billion in 2019:

    (Tax Review Commission Report, p. 20.)  The Commission pointed out that Tax Review Commissions from prior years also struggled with this issue and recommended change.

    Implementing the recommendation, however, has been a heavy lift politically.  In 2014, then-Governor Neil Abercrombie became the first elected Democratic governor in Hawaii to be defeated in his bid for re-election.  Honolulu Magazine cited his proposal to tax pensions as one of the nine reasons for his defeat.  The Honolulu Star-Advertiser reported broad-based public opposition to the idea, even though it had been recommended by the Tax Review Commissions in 2003 and 2007.  As the director of AARP Hawaii said at the time:  “I think there is really deep concern, right across the board. … And it’s not that they’re just saying, ‘I don’t think this is a good idea.’ They are saying, ‘I think this is a terrible idea.’”  Many seniors at the time expressed the view that they spent many years planning for their retirement and saw their pensions as a contract that the state wanted to disturb at a time when they were on fixed incomes and facing increased costs for health care or long-term care.  The proposal to tax pensions did not pass, but voters still sent Gov. Abercrombie to the exit.

    Current politicians, fearing a similar fate at the ballot box, are expected to be wary when confronting this issue.  In that respect it might not matter that our current treatment of pensions might be illogical, inconsistent, or uneconomic.  Many voters have seen it as a sacred cow, and it is going to be very difficult to change.

    Persecution of short-term rentals is shortsighted

    Grassroot Institute
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    Persecution of short-term rentals is shortsighted

    By Keli’i Akina

    Based on how short-term vacation rentals are so often portrayed, I wouldn’t blame you if you thought their owners were all terrible people, with no aloha for their neighbors or Hawaii.

    Mostly they are just local folks who are renting out a room to make some extra money. But more likely you have heard they are heartless rich people living on the mainland, turning away local renters in favor of tourist dollars.

    They are blamed for Hawaii’s lack of affordable housing and high rents, and for hosting unruly visitors who take up all the street parking, party late into the night and generally are callous about community norms.

    No wonder they are the target of so much acrimony. Despite the fact that short-term rentals have become an important part of our tourist economy, local officials continue to try to regulate them out of existence, as if that would solve all the problems they are being blamed for.

    On Oahu, for example, the Honolulu City Council is considering Bill 41, which initially sought to limit “short term” rentals to no less than 180 days — almost half a year — as well as increase fees and fines, and compel some condo owners to operate their units as hotel rooms, among other changes.

    Mayor Rick Blangiardi, whose administration introduced the bill, has said he wants to shut down short-term rentals altogether.

    To the point of 180 days, after significant pushback from rental owners, the Council on Thursday amended the bill to make it 90 days, but that is still unreasonably stretching the definition of “short term.”

    In any case, what the mayor and most of the City Council do not seem to realize is that shutting down short-term rentals means hurting ordinary people who are just trying to make a living in a state that is increasingly expensive and unfriendly to small-business owners.

    If enacted, Bill 41 will hurt people like Ed Jones and Peggy Aurand, my guests this week on my “Hawaii Together”program on ThinkTech Hawaii.

    Ed and Peggy are not profiteers or faceless corporate managers. They are people who have lived in Hawaii for years and depend on their short-term rentals to make ends meet.

    Peggy has a four-bedroom home that has been in her family for 50 years. Now that she is retired, she counts on the income from renting out rooms to supplement her Social Security checks.

    “I figure if I went with the long-term rental thing, long-term rental rates are a lot lower than short-term rental rates. Usually, I can get people here for a week. If I followed Bill 41, I could make $7,000 in a year. I can’t do that. I wouldn’t be able to pay my taxes. I wouldn’t be able to pay the expenses of running this house and I’d have to sell it,” Peggy told me.

    Ed is in a similar situation. His two rental rooms help pay his bills, but they won’t if Bill 41 becomes law.

    “If I’m forced to do the two six-month leases, I might as well just say, ‘I’m just going to rent it long-term,’ and that would bring me probably $7,000 to $8,000 a month for that particular house because it sleeps a lot of people. But that’s still barely enough to pay the taxes and keep the place running and keep it well-repaired and looking good from the street,” Ed explained.

    Ed and Peggy are just doing what they have to do to afford to live in Hawaii. In this case, that means renting out space in their homes to tourists or people making short visits.

    Moreover, their business helps the local economy. Peggy said that between the money she spends to keep her rental maintained, the amount her renters spend at local businesses and the $55,000 a year she pays in taxes, the impact on Hawaii’s economy “for one little old lady’s house” adds up to about $625,000.

    “Multiply me times 4,000, and you’ve got in excess of $2 billion a year,” she added.

    Both Ed and Peggy said they pay all their taxes and make every effort to comply with local nuisance laws — which, they hastened to emphasize, are supposed to apply to everyone, not just short-term rentals.

    But, they said, instead of being welcomed as a valuable component of the local tourism industry and Hawaii’s economy overall, short-term rentals are used by politicians as a convenient scapegoat.

    “If there’s a problem with affordable housing,” said Peggy, “they blame the vacation rentals. If there’s a problem with noise in the neighborhood, they blame the vacation rentals.”

    She continued: “I have a situation in my neighborhood where I have noise from 1 a.m. to 4 a.m. I have drunks in the middle of the street, in the middle of the night, throwing trash in my yard. We have naked trespassers invading people’s houses. The parking is so bad that rescue vehicles can’t get down the street. Nine people died at this place in 2021. And no, … it isn’t a vacation rental. It’s a beach park, and guess who put it in place? The City and County of Honolulu.”

    As for their impact on the local housing market, Ed said he has yet to see any evidence that banning short-term rentals would make any difference.

    “I think most affordable rental projects are feel-good, look-good things that politicians put on the table to get elected, and once they get elected, they face reality and it gets too expensive,” he said. “I think there have been more cancellations of affordable rentals in that department than there have been people buying houses that are otherwise vacation rentals. Mine is not an affordable rental house anyway.”

    Ed said he is hoping that “folks in the City Council, in DPP [the Department of Planning and Permitting] and in the proponent groups will gather around the table and talk about what we do and the benefit that it has for the community as a whole.

    “We believe that we’re part of the solution when it comes to affordable housing, not the problem. I’m at a loss because no one has provided me with any kind of evidence at all that renting rooms has a negative impact on the community.”

    The good news is that the Honolulu City Council did scale back the prohibitive reach of Bill 41, which will now be given a public hearing.

    For people like Ed and Peggy, what happens next may determine whether they will be able to continue living in Hawaii or become another story about locals who were forced to leave because of Hawaii’s bad economic policies.

    Isn’t it time we stopped pursuing policies that chase people out of our state and start embracing policies that make it possible for them to stay?
    ___________

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

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