State House and Senate lawmakers advanced a menu of tax options yesterday to generate revenue to help balance the budget.
Approaching the midway point of their 60-day session, lawmakers exchanged dozens of bills between chambers to meet a procedural deadline tomorrow, including several that would raise taxes and restrict tax exemptions and credits. The revenue options could be used with the savings from expected cuts to state spending to help close a projected two-year budget deficit of $700 million.
The alternatives that have emerged so far at the Legislature are substantially different from the deficit-reduction plan outlined by Gov. Neil Abercrombie. But, like the governor, lawmakers believe a combination of new revenue, state spending cuts and labor savings in contract talks with public-sector labor unions will be necessary to reduce the deficit.
The Council on Revenues is expected to update its revenue forecast tomorrow, so lawmakers will have a better deficit estimate as they complete their budget drafts over the next several weeks.
"We’re trying to do it in the most limited approach possible," said House Majority Leader Blake Oshiro (D, Halawa-Aiea). "We’re trying to make sure that we don’t have any broad-based tax impact, because we do realize that this is still yet a somewhat fragile economy. But nonetheless, we still must balance the budget."
MEASURE FOR MEASURE
Bills moving between chambers at the state Legislature:
» HB 795: Caps the amount of transient accommodations tax money distributed to counties at the lesser of 44.8 percent of all TAT received (current rate) or $102 million, the amount collected for the counties in the 2010 fiscal year.
» SB 175: Transfers jurisdiction of medical marijuana laws to the Department of Health from the Department of Public Safety.
Senate President Shan Tsutsui (D, Wailuku-Kahului) said lawmakers wanted to keep as many options as possible on the table. "In the end I think we’ll have a package that’s a combination of a number of things," he said.
In the House, lawmakers approved nearly two dozen bills that would raise more than $600 million over two years to reduce the deficit.
The bills include a pension tax and a repeal of a state income tax deduction on higher-income taxpayers, along with a temporary cap on itemized deductions. The largest source of new revenue would come from a bill that would suspend general excise tax exemptions on several business activities and impose a GET on those activities over the next few years.
The House and Senate also approved bills that would divert money from the state’s hurricane relief fund to help with the deficit, leaving enough in the fund to help purchase reinsurance if private insurers flee the state after a hurricane. The Senate also has a bill to use money from the state’s rainy day fund to finance essential state programs.
Rep. Pono Chong (D, Maunawili-Kaneohe) said the bill suspending the GET exemptions and imposing the tax on businesses activities is a major part of the House’s deficit-reduction plan but is also an issue of fairness. Some lawmakers — and several of the businesses being targeted — have complained that it would cause hardship. Key senators also have doubts about the idea.
But Chong said most businesses have to pay the general excise tax. "They don’t get a thousand dollars or tens of millions of dollars of exemptions," he said.
House Republicans objected to many of the tax options, arguing that lawmakers should look to cut spending first before adding new burdens on residents.
Rep. Barbara Marumoto (R, Kalani Valley-Diamond Head) warned that the pension tax, in particular, would be difficult on seniors. While the tax would be applied only to higher-income taxpayers, Marumoto and other Republicans said the threshold would likely be lowered in the future if lawmakers follow tax policy experts who believe pensions should be taxed like other retirement income.
"I think seniors are quaking in the boots," she said.
House Republicans also tried — unsuccessfully — to ensure that revenue from proposed increases in the vehicle registration fee and the vehicle weight tax and a permanent extension of the rental car surcharge stays in the state’s highway fund. In the past, lawmakers have diverted money from the highway fund to help balance the budget, which has contributed to the fund’s depletion.
"The people of Hawaii elect us to be truthful with them," said Rep. George Fontaine (R, Makena-Kihei). "When we pass tax increases but are not willing to commit to using these funds for their intended purpose, we are not being honest with those who use our roads and highways."
The House also voted to extend a 5 percent salary reduction on lawmakers for another two years and to add the salary freeze to executive and judicial branch officials.
While the emphasis was on tax-related proposals, lawmakers also moved out several bills that would make substantive changes to public policy.
The House approved a bill that would require instant runoff voting in county elections when there is no primary or runoff possibility, such as in recent special elections for Honolulu City Council vacancies. Instant runoff voting allows voters to rank their candidate preferences, a process that produces a winner when no candidate receives a majority after the first ballots are counted.
In the Senate, senators backed a bill that prohibits larger businesses from distributing single-use plastic checkout bags to customers because of the potential hazard to the environment.
The Senate also agreed on a bill that would transfer oversight of the state’s medical marijuana program to the state Department of Health from the Department of Public Safety. Some medical-marijuana advocates believe the Department of Public Safety has taken a law enforcement — rather than a health care — approach to the issue.
Senators approved a constitutional amendment that would ask voters whether the state attorney general should be elected instead of appointed by the governor, subject to the advice and consent of the Senate. Attorney general elections would be nonpartisan, and the attorney general would serve a four-year term.
Senators also moved a bill that would recognize native Hawaiians as an indigenous people with the right to self-government, a state version of a federal recognition bill sponsored by U.S. Sen. Daniel Akaka (D-Hawaii) that has stalled in Congress over the past decade. A separate state bill would create a process for Hawaiians to establish a first nation governing council and a roll of Hawaiian constituents.
State Senate Majority Leader Brickwood Galuteria (D, Downtown-Waikiki) said that while federal recognition for Hawaiians might be stalled, state recognition is both necessary and achievable.
Senate Minority Leader Sam Slom (R, Diamond Head-Hawaii Kai) said state recognition seeks to do "what the Akaka Bill was not able to do for nearly 12 years."
Slom said the concept of Hawaiian recognition is divisive and should be put to a vote of all Hawaii residents.
Correction: The bill would increase the vehicle weight tax by 1 cent to 1.75 cents per pound up to 4,000 pounds. An earlier version of the story incorrectly said the weight tax would go up by $1 per pound.