Lawmakers rejected the governor's tax proposals
POSTED: 1:30 a.m. HST, May 8, 2011
LAST UPDATED: 2:25 a.m. HST, May 8, 2011
Gov. Neil Abercrombie loves to invoke a lesson on negotiating he learned from former state Senate President Richard "Dickie" Wong: No one leaves the room; and no one punches anybody.
But Wong, Capitol observers remember, was also known to deploy one of the dark arts: bundle things together as leverage to move the other side closer to what you want.
Abercrombie sided with House Speaker Calvin Say when the speaker used that strategy this session in negotiations on a pension tax — bundling it with several other tax adjustments to help balance the budget after the state Senate balked.
When the Senate refused to budge on a pension tax under any circumstances — and then enforced a procedural deadline on dozens of other unrelated bills that had been held up during the impasse — the result was that many bills that would have likely advanced were instead left on the negotiating table.
"My point was that we shouldn't leave things on the table. People are not interested in dugout lineups and personality clashes, nor should they be," Abercrombie said Friday night after a swearing-in and reception for his Cabinet at Washington Place.
"That's not what we're paid to do."
The pension tax had been Abercrombie's primary source of new revenue to help close the state's projected two-year $1.3 billion budget deficit. Not only did lawmakers refuse to pass a pension tax — even one directed at higher-income retirees, like in the House version — but they also rejected the governor's call for a soda tax, an increase in the liquor tax, a higher tax rate on time shares and the elimination of state Medicare Part B reimbursements for retired public workers and their spouses.
Lawmakers did agree with the governor on the repeal of a state income tax deduction, but only on higher-income taxpayers, not all taxpayers who itemize, as the governor had proposed.
Senators, holding the line they took in conference committee negotiations, also declined Abercrombie's request last week to save bills that would have paid legal claims against the state, covered state security costs at the Asia-Pacific Economic Cooperation conference, and continued to allow the University of Hawaii medical school to use a portion of tobacco settlement money for operating expenses.
Abercrombie, in his initial review of the session, believes lawmakers followed through with some of the structural change he has called for by reducing benefits for future public workers in the Employees' Retirement System. He also cited the passage of civil unions, the structure for an appointed school board and mortgage foreclosure reform as successes.
Abercrombie's identity and skill set before he was elected governor last year was as a legislator — with four decades of experience at the state, county and federal levels — so some observers were surprised he was not more successful in his first session as chief executive.
Abercrombie said he is taking the long view.
"The fact that we did not succeed to the degree I would have liked in getting a greater contribution from those who have the capacity to give it, in the immediate, doesn't bother me," the governor said. "The discussion is out there. We're in the game now. And we've defined where we need to go."
Majority Democrats in the House and Senate showed they would not roll over for a Democratic governor after eight years under Gov. Linda Lingle, a Republican.
Speaker Say (D, St. Louis Heights-Wilhelmina Rise-Palolo Valley) said House Democrats felt an obligation to keep many of Abercrombie's ideas, such as the pension tax, alive in some form for as long as possible.
"But at the end of the day, we were listening to the public testimony, which made it so controversial on some of these measures," he said.
Abercrombie said during his State of the State address in January that he was open to other ideas to close the deficit, but some lawmakers were confused — given the governor's campaign promise not to raise the general excise tax — when he sent mixed signals for weeks over whether he would agree to a GET increase if the Legislature gave him a bill.
Abercrombie waited until late March — after several senators were moving to draft a GET hike — to firmly take it off the table and endorse a House proposal to temporarily suspend GET exemptions on business activities as the main revenue option to balance the budget.
"It's hard when you're the governor," said state Senate President Shan Tsutsui (D, Wailuku-Kahului). "We're pulling at you all the time in different directions. At some point he had to start choosing some of his policies and either supporting stuff or not supporting stuff."
Abercrombie, after making strong arguments for a pension tax and the end to Medicare Part B reimbursements as a matter of equity, appeared to lose some steam after mischaracterizing key points of the proposals at several public events.
"He should have incorporated some of his campaign strategy on getting the message out and being consistent on message and connecting with the people on a continuous basis," said state Rep. Marcus Oshiro (D, Wahiawa), chairman of the House Finance Committee.
"They lost control of the message. If they stayed on point of fairness, of equity, of fair treatment, I think he could have gotten some traction."
Abercrombie said a pension tax is possible next session once more people understand that other retirement income is already taxed. The governor believes that income from traditional defined-benefit pension plans should be treated the same.
The governor had particular scorn for the AARP, whose activists led the fight against a pension tax in any form.
"People are going to catch on to what the AARP is pretty soon, and I'm going to help them do that," Abercrombie said. "I mean, the AARP is a business. It's essentially a front for insurance companies."
Barbara Kim Stanton, the state director of AARP Hawaii, said the pension tax proposal was flawed, and raised constitutional questions about whether it would diminish accrued benefits for retired public workers. The interest group continued to oppose the bill after it was amended to cover only higher-income retirees because many seniors feared it would be expanded to others in the future.
"When you look at it, if it's a bad bill, it's a bad bill," she said.
Abercrombie has told his Cabinet that the end of session and the start of the new fiscal year in July mark the real beginning of his administration's chance to reorganize government and work on priorities such as renewable energy and work force housing.
For the first several months of his term, the governor has been working to implement a budget adopted under Lingle. The new budget and financial plan now before him gives his administration significant flexibility to make the cuts and changes he thinks are necessary to achieve savings and improve efficiency.
"This wasn't going to happen overnight, but if you compare where we are today to the last few years, you will see a real change," Lt. Gov. Brian Schatz said in an e-mail.
Republicans have praised Abercrombie and House leaders for resisting a GET increase, and the Senate for rejecting a pension tax, but still believe Democrats relied too much on new revenue and not enough on spending cuts to balance the budget.
Some of the activists at the core of Abercrombie's political support during the campaign last year — social-service advocates, environmentalists and progressives — were disappointed with the governor and majority Democrats in the Legislature this session.
The Rev. Bob Nakata, a former state senator, said lawmakers should have approved a GET increase to help adequately finance state programs decimated by budget cuts during the recession.
Nakata described the budget and financial plan lawmakers sent to Abercrombie as a "bloody mess" that may fall short.
Robert Harris, director of the Sierra Club Hawaii chapter, said it was stunning that bills to shift some money from a barrel tax to alternative energy programs and to impose a fee on single-use plastic bags to discourage consumer use and help protect the environment appeared to be casualties of conference committee tactics.
"The budget crisis seemed to suck the air out of the room and a lot of other bills didn't seem to get attention," he said. "More so, it seemed like the fight over the pension tax meant that a lot of different bills that were quite good and even revenue-producing died."