Gov. Neil Abercrombie said yesterday that he does not support raising the general excise tax, the state’s largest source of revenue, to help close a $1.3 billion budget deficit.
Hawaii faces a projected two-year budget deficit of about $1.3 billion, with about a $200 million shortfall for the fiscal year that ends in June. Here is Gov. Neil Abercrombie’s plan to reduce the deficit this fiscal year:
>> Hurricane relief fund: $117 million
The governor’s comments, in a private meeting with state senators and in a series of interviews with reporters at the state Capitol, were intended to take a GET hike off the table and give state lawmakers guidance as they complete the budget in the final weeks of the session.
Abercrombie, who promised not to raise the general excise tax during his campaign last year, has spoken dismissively about a GET hike before but has also appeared to leave the possibility open if lawmakers think it is necessary.
State Senate leaders have considered a GET increase as an option, but House leaders have consistently opposed the idea.
“The budget can be balanced. The core services can be delivered. The jobs program can get under way. All without doing the GET,” Abercrombie said in an interview.
The governor said a GET increase is not needed financially and, politically, would create public turmoil as well as the perception lawmakers were being unfair to taxpayers.
“It won’t wash with people,” he said. “There’s other places you can go, and that you should go to. And everybody put something in, as I say, when the most vulnerable and those stuck in the middle are not being unduly burdened.”
Abercrombie and Kalbert Young, state budget director, said the administration is willing to consider a House proposal to temporarily suspend GET exemptions on certain business activities for a few years. The bill was the largest source of new revenue in the House’s budget plans, but the Senate Economic Development and Technology Committee held the bill last week.
Sen. David Ige (D, Aiea-Pearl City), chairman of the Senate Ways and Means Committee, has said that the bill is not part of the Senate’s budget plans.
Abercrombie said he does not view suspending GET exemptions as a tax increase. “That’s getting people who weren’t paying it to pay into it like everybody else. Some of them have enjoyed that, by the way, for a long, long, long, long time,” he said.
“And it’s about time that we say, ‘Well, I hope you got the benefit out of all of that stuff, because now you got to play like everybody else.’”
Young said the administration is willing to work with House and Senate leaders on a GET exemption bill in some form.
“We do think it has some merits in philosophy and concept,” Young said. “We are communicating to the Legislature, and we have been, that there’s some value in that bill.
“The governor is already on point — and on record, and solidified — that he is adamant against raising the general excise tax. But, short of that, we could be supportive of this suspension of the general excise tax exemptions in some form.”
Many of the business interests that would lose GET exemptions have told lawmakers it could cause financial hardship and discourage economic recovery.
Several key senators have said the exemptions were given to businesses to offset the pyramid effect of the GET, and have suggested that lifting the tax breaks could be counterproductive to the economy.
Senate Majority Leader Brickwood Galuteria (D, Downtown-Waikiki) said some senators still want to keep a GET increase on the table.
“Right now, we’re just trying to be as open-minded as possible and not take anything off the table,” he said.
Without a GET increase or the GET exemption bill, there are few other large revenue-generating options to pair with spending cuts to state programs to contain the deficit. Lawmakers could choose to seek more revenue from a pension tax or bring back the governor’s idea of a soda tax, but those proposals, even in limited form, have encountered overwhelming opposition from seniors and the beverage industry, respectively.
Lawmakers also may choose to set aside a higher amount for labor savings in contract talks between Abercrombie and public unions. House leaders, however, have been reluctant to adopt that strategy in the past because they do not want to be perceived as influencing collective bargaining.
The Abercrombie administration has suggested 5 percent labor savings — the equivalent to one furlough day a month for state workers — but several lawmakers think the target should be higher.
House Speaker Calvin Say (D, St. Louis Heights-Wilhelmina Rise-Palolo Valley) said that if the Senate refuses to pass a GET exemption bill, the House would likely gut and replace a Senate bill that is still alive and add the exemption language so the option would make it into conference committee.
“I truly believe it was a question of parity and equity for all businesses here in the state of Hawaii,” he said of Abercrombie moving toward the GET exemption bill.
Young said the administration would ask lawmakers to back its plan to close a roughly $200 million deficit for the fiscal year that ends in June. The administration wants to use the hurricane relief fund and the rainy day fund — which requires legislative approval — other special funds, and a 10 percent spending restriction on state departments to close the gap.