State Senate President Shan Tsutsui said yesterday that a general excise tax increase is an option to close the budget deficit.
“I think it’s still on the table. I think it has to be, because at this point we don’t know exactly what the revenue estimates will be after the next Council on Revenues meeting,” he said. “So we’re looking at worst-case scenarios.
“I think the GET will have to be an option.”
Senate leaders have privately polled their members and found support for an increase if necessary to balance the budget.
But House leaders remain skeptical, and Gov. Neil Abercrombie said last week that it was not under consideration.
Many business interests have also fought against the increase because of the broad application and regressive nature of the tax. The tax, the largest source of state revenue, has not been raised statewide since 1965, although a 0.5 percentage point surcharge was added on Oahu to help finance a rail project.
“I think there is at least an appetite to talk about it,” said Senate Majority Leader Brickwood Galuteria (D, Downtown-Waikiki), who polled senators about the idea. “In light of the fact that we could be looking at worse numbers than we thought, we need to keep everything going.
“So I appreciate what the governor has said thus far, but we want to maintain the options and keep it going.”
State Sen. David Ige (D, Aiea-Pearl City), chairman of the Senate Ways and Means Committee, plans to privately brief senators on the Senate’s two-year budget draft this weekend.
The committee will likely hold a public hearing on the budget early next week. Ige said the Senate would likely cut spending from the draft approved by the House last week. After the spending cuts are known, he said the committee would calculate the amount of new revenue that is needed.
Another factor, he said, is the amount of labor savings expected in negotiations between the governor and public employee unions.
“I think part of balancing is to cut the budget, part of balancing is looking at revenue enhancements and part of it is looking for labor savings,” he said.
Ige said he would look first at the revenue-generating options now available before turning to a GET increase.
The Senate Economic Development and Technology committee, for example, will hear a House bill today that temporarily suspends excise tax exemptions on certain business activities that many senators have previously opposed.
“We’re focused on the bills that are live,” Ige said.
Part of the challenge for senators is timing. Abercrombie has asked the state Council on Revenues to come back and update its revenue forecast in light of the potential impact of the Japanese tsunami and earthquake and the unrest in Africa and the Middle East, but the council might not return until mid-April.
Rather than predict what the council might do, the Senate could adopt a budget draft based on the council’s forecast this month, which put the deficit at nearly $1 billion. If the council were to lower the forecast and increase the deficit projection, House and Senate leaders could adjust the budget in conference committee.
If the Senate pursues a GET increase, it would likely include exemptions or tax credits to negate the effects of the tax on the poor.
Tsutsui said, along with an increase, senators might also have to think about taking hotel room tax revenue from the counties, an idea he has opposed. A proposal to swap tax money collected for the Honolulu rail project for general obligation bonds appears less likely given the push-back from the city.
County mayors have also vehemently opposed any appropriation of the transient accommodations tax and have expressed concerns over a cap on revenues at or near existing levels, saying the loss of any of the money would put undue burden on counties.
“The transient accommodations tax is based on tourists paying for city services that they use such as fire, police, lifeguards, parks, beaches, water, sewers and roads,” city Mayor Peter Carlisle told senators yesterday. “If the transient accommodations tax is taken by the state, then resident taxpayers will have to pay for services provided to tourists through either increased property taxes, increased user fees or decreased services.
“We all know that county taxpayers also pay state and federal taxes, so our constituents are your constituents as well.”
House Majority Leader Blake Oshiro (D, Halawa-Aiea) said the House remains skeptical of an excise tax increase. But he said he would prefer that senators, if they favor that, place it in a bill with a specific amount and explain how it would be used to balance the budget before conference committee negotiations late next month.
Adding an increase in conference committee could raise questions about transparency, since no public testimony is accepted in conference.
“It would have been our hope that there would be a bill, so that it will move through the public-hearing process, so that we can make sure that those in support as well as those in opposition will have the opportunity to be heard,” Oshiro said.
Star-Advertiser reporter B.J. Reyes contributed to this report.