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Gov. David Ige on Tuesday vetoed bills that would have imposed the state’s corporate income tax on real estate investment trusts and required vacation rental platforms such as Airbnb and Expedia to collect taxes from operators of vacation rentals. Lawmakers estimated that those measures could have eventually brought in an extra $55 million annually in state revenue.
House Speaker Scott Saiki said the vetoes will not affect the state’s budget, citing an increase in Council on Revenues projections for this year.
Ige also vetoed a bill that would have reformed Hawaii’s civil asset forfeiture program, disappointing groups such as the Hawaii chapter of the American Civil Liberties Union and Drug Policy Forum of Hawaii, which in recent weeks urged Ige to allow the measure to become law.
Overall, Ige vetoed 18 of the 20 bills that he told the Legislature on June 24 that he intended to reject. He changed his mind on Senate Bill 33, which increases the annual cap on tax credits for the film and digital media industry to $50 million from $35 million, and Senate Bill 551, which clarifies that condominium associations can conduct nonjudicial foreclosures. He allowed both of those bills to become law without his signature.
Ige’s vetoes are final as the Legislature declined to hold a special veto override session Tuesday. Members of the House and Senate could not come to an agreement on measures they wanted to try to override, said Saiki.
Ige received particular pushback in recent weeks on his plans to veto the bill that would tax real estate investment trusts and the civil asset forfeiture bill. Supporters of those measures expressed disappointment after Ige’s final decisions on the bills.
Taxing REITs
State tax officials had estimated that taxing real estate investment trusts, also known as REITs, could generate about $9 million in extra revenue annually, but Ige said he was concerned that the tax could stifle economic development and deter investment capital.
REITs were created under federal law to allow small investors to buy into large commercial developments. The trusts have invested in major Hawaii developments, such as Ala Moana Center and the International Market Place. But critics say the state should require them to pay corporate income taxes on their earnings, rather than allowing that money to flow to out-of-state shareholders.
Members of Faith Action for Community Equity, an interfaith organization focused on social and economic justice issues, gathered outside of the governor’s ceremonial room on the fifth floor of the state Capitol as he announced his final veto decisions.
Catherine Graham, co-chairwoman of the group’s housing committee, told reporters afterward that taxing REITs was an equity and fairness issue.
“I feel like the people of Hawaii have spoken, the Legislature has spoken that the REITs are getting a free ride here in Hawaii and the people are paying for it,” said Graham. “We are getting very little from all the money that they are making, and that’s just a shame that the governor doesn’t see it that way.”
Seizing criminal assets
Lawmakers moved to reform Hawaii’s civil asset forfeiture program this year, which allows law enforcement to seize property and cash tied to certain crimes, such as drugs and gambling.
Law enforcement officials say the seizures help deter crime by, in part, making it unprofitable. However, critics have argued that the seizures trample due process rights and that the program is vulnerable to abuse.
The civil asset forfeiture bill would have required the state to return seized cash and property if ultimately there is no corresponding criminal conviction. The measure also would have limited seizures to crimes involving felonies.
Ige said Tuesday that there already are adequate protections within the program to protect against abuses. In particular, he noted the Department of the Attorney General reviews property seizures.
Ige also said that storing property for long periods of time while waiting for a final judgment in a related criminal case was a problem.
A state audit released last year found that in 26% of civil asset forfeiture cases closed in Hawaii during the 2015 fiscal year, there was never a corresponding criminal charge. In another 4% of cases, property was forfeited even though the underlying charge was ultimately dismissed.
State Rep. Joy San Buenaventura (D, Pahoa-Kalapana) released a statement after Ige’s veto saying that she introduced the bill to prevent the ongoing seizing and selling of assets from people who haven’t been convicted of a crime.
“If signed, this bill would have helped to show that people really are treated equally and fairly in Hawaii,” said Buenaventura.
Nikos Leverenz, board president of the Drug Policy Forum of Hawaii, said in a news release that Ige’s veto showed a “troubling disregard of the findings of (the) State Auditor and the reasoned judgment of the Legislature.”
“Today’s action by the Governor ensures that Hawaii will continue to have one of the worst asset forfeiture laws in the nation,” said Leverenz. “The Legislature should revisit reform next year.”
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