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Wednesday, October 22, 2014         

OUR VIEW: STATE BUDGET


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Legislature must resist piling on with tax hikes


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On this, at least, everyone can agree: Hawaii residents desperately want to put the recession behind them.

But on Thursday, the Council on Revenues made that more difficult. The state now expects revenue growth of 2.5 percent for this fical year, down from the 3 percent the council had predicted. Things look a little rosier for the coming biennium, with revenue growth raised about 1 percentage point over its earlier forecast. But the bottom line is still dire: In total, the council's new projection could expand the two-year budget deficit by about $266 million, to nearly $1 billion.

This only underscores what most experts have long suspected: The economic recovery is still far too tenuous to warrant a change in what should be a moderately austere course for state government. Even without the volatility in the prices wreaking havoc on our petroleum-dependent islands, Hawaii's economic drivers are still under duress.

Hikes in taxes and fees should be constrained so that they put the least possible additional burden on business — especially for small business and entrepreneurs, usually the first to start hiring after a downturn. The only way to make that possible is to tamp down any new spending that policymakers aren't compelled to make right now.

That's why taxpayers should take some encouragement in seeing the state House Finance Committee's version of the state budget, which curbs some of Abercrombie's spending plans.

A lot of questions still need resolving as legislators and the administration move into the sausage-making phase of budgeting. For example, the legislative and executive branches will need to settle whether a federal court ruling compels the state to increase the health benefits offered to Micronesian migrants, under the Compact of Free Association that enables the migrants to come to the U.S. This, in truth, is a federal obligation, and Hawaii's congressional delegation must make it financially so.

But in general it's good to see that the House is taking a hard-line approach to the state's fiscal obligations going forward, rejecting, for starters, any plans to shoulder 60 percent of the health care premiums for public employee unions. After this year, the cost-sharing split was due to lapse back to a 50-50 level; for the short term at least, that's where it should stay.

Bills to curb generous benefits for unionized public workers and their spouses, such as Medicare Part B reimbursements, should move ahead. So should the common-sense measure to disallow overtime pay in the calculation toward pension benefits.

And while Abercrombie says he would seek a 5 percent labor savings in contract talks with public labor unions to save about $88 million a year, House lawmakers are wise, if they're eyeing frugality, in refusing to accept a specific dollar figure at this early stage in negotiations.

As for revenue increases, the Legislature should bolster the governor's resolve against broad-based tax hikes such as the general excise tax. Some of the other options, such as raising some user fees and adding a tax to pension income above a certain threshold, would pose less of a threat to the economic recovery.

Lawmakers should be open to lowering the threshold to yield more revenue. The current plan is to tax pensions of individuals with total federal adjusted gross income exceeding $100,000 annually, or couples making more than $200,000 a year. That would affect only about 1 percent of the households but it also would produce only about $17 million.

A plan that taps more pensioners would be more palatable if a sunset date is imposed, one that would end the tax in 2014, when Abercrombie and many lawmakers will be up for reelection. By that time, the administration should have time to find ways of making government more efficient, restructuring its bureaucracy. Extending the tax beyond that point should be harder to justify, particularly if it becomes an election-year issue.

The sunnier aspect of the Council on Revenues projection is that in 2012 and 2013, the state can anticipate growth increases of 11 percent and 6 percent, respectively. That's a good omen for a future in which the state can afford to loosen its belt a notch. For now, though, the belt-tightening continues in earnest, through more rough months ahead.






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