We’re about halfway through the "temporary" general excise tax surcharge that is funding the construction of Honolulu’s heavy rail project.
Despite an agreement that the extra tax would expire at the end of 2022, we are now being told that the surcharge is needed to cover projected shortfalls, and it may even be extended to cover general operations of the rail.
One argument for using the surcharge is that tourists pay about a third of the tax. The surcharge, however, just like the general excise tax (GET) it’s hinged on, is a regressive tax. We’ve heard this before, but what does this mean?
Before I answer that, let’s look at the makeup of some of our residents, as sourced in the 2013 Hawaii Data Book:
» For the years 2008 to 2012, about 37 percent of households on Oahu made an average of less than $50,000.
» In 2012, approximately 46 percent of occupied homes on Oahu were rented, and about 47 percent of those renters paid more than 35 percent of their household income in rent.
It’s also been estimated that the rail surcharge costs each of us $200 per year. For a family of five, that adds up to $1,000 per year or about $7,000 since the surcharge went into effect, according to the Tax Foundation of Hawaii.
A regressive tax is one that is applied uniformly and therefore takes a higher percentage of low incomes than high ones. The surcharge is a tax paid on all basic necessities — food, clothing, rent and medical services — in addition to just about everything else. For some people, paying the extra tax means they have to cut back on eating out, forgo entertainment or take a "stay-cation" rather than travel off island.
For many others, however, the choices are much more difficult:
» Not replacing worn clothing for mom or dad so that new clothing for a growing child can be purchased.
» Making the choice between McDonald’s for the fifth time this week versus buying fresh produce at a farmers’ market.
» Not joining the local YMCA, which has wonderful programs for kids and families, because even the reduced monthly dues for low-income residents are out of reach.
» Deciding what to give up in order to have a child’s birthday party or a special gift for Christmas.
» How to add another $10 to the pot for a rental security deposit when last pay period’s funds have already been spent.
These are very real impacts of the GET and surcharge that too many people are facing today.
Rather than extend the surcharge, the Honolulu Authority for Rapid Transportation and the city should be looking for more ways to reduce expenditures. That should include overhead in the annual operating budget.
Do we need three people handling change orders (total salaries almost $300,000) in addition to three contracts officers (total salaries $266,000)?
Is it reasonable to have 4.5 human resource specialist positions at a cost of about $391,000, including taxes and benefits, to handle 139 employees?
Have the recommendations for efficiency made by the city auditor in his December 2013 report been implemented?
For example, one recommendation was to reduce reliance on the use of consultants for "public involvement."
It’s worth noting that the auditor cautioned against potential violations of employer- independent contractor rules that "could result in unintended liabilities … and other risks that may impact overhead rates and other costs."
In addition, the Honolulu City Council must do its part in looking at every line of the operating and capital improvement budgets for potential cost reductions rather than simply acting as a rubber stamp.
Given our current problems with homelessness and high cost of living in general, the extension of the surcharge shouldn’t even be an option.
