$100 rebates to Hawaii taxpayers imperiled at Legislature

Hawaii taxpayers might not want to think much about how they might spend the $100 gift Gov. David Ige proposed in January.

Two bills in the Legislature that would authorize delivery of Ige’s envisioned $100 rebates or credits to every local taxpayer and each of their dependents haven’t gone anywhere, and prospects of enactment appear dim if not dead.

The reason appears to be either a failure by Ige’s administration to navigate federal provisions for spending coronavirus relief aid or an unwillingness by key lawmakers to grant the rebates, which would amount to $400 for a family of four.

“Basically, nobody wants to take responsibility for this,” said Colin Moore, director of the University of Hawaii’s Public Policy Center.

On the one hand, the state Department of Budget and Finance is challenged with presenting a way to avoid a federal provision under which the state would have to repay any amount of federal coronavirus aid tied to state tax cuts.

Ige’s proposed rebates, which the governor announced Jan. 24 during his State of the State speech, would cost an estimated $110 million amid a budget picture where state tax revenues are expected to produce a roughly $1 billion surplus.

Budget and Finance officials let lawmakers know in early February that the department would work with key legislators to ensure that money for proposed tax rebates would not trigger the federal payback provision. But so far, no specific plan has been presented.

Sen. Donovan Dela Cruz, chair of the Senate Ways and Means Committee, said recently that he intends to indefinitely defer a Senate bill that would provide the rebates because Ige’s administration hasn’t offered up a plan to comply with federal coronavirus aid spending restrictions.

“They didn’t provide how we are going to meet the federal regulations,” said Dela Cruz (D, Wahiawa-­Whitmore-Mililani Mauka).

The Ways and Means Committee held a hearing Feb. 2 on Senate Bill 3100 and received written testimony from Budget and Finance explaining the applicable federal regulations.

A Budget and Finance representative said Feb. 25 that department officials had talked with the Senate committee as well as with the House Finance Committee about the repayment provision and intend to work out a plan later “once bills being considered for passage firm up.”

However, SB 3100 has been held with no prospect for a handoff to the House before Thursday’s deadline. And the companion measure to SB 3100 offered by Ige, House Bill 2132, didn’t even receive a public hearing after being referred to the House committees on Economic Development and Finance.

Moore said it seems like lawmakers could advance the bills while awaiting a detailed plan from the administration for navigating the federal spending issue.

“It’s really not like they’re up against a time pressure to move (the bills) along,” he said. “There’s still plenty of time to amend the bills and work out details with Budget and Finance.”

In January following Ige’s speech, House Speaker Scott Saiki and Senate President Ron Kouchi said they would consider the governor’s tax refund proposal.

Moore said it could be there is a genuine problem with overcoming the federal provision, as opposed to lawmakers, in an election year, not wanting to give taxpayers rebates.

The rebates, though modest, are popular with the public and would boost spending in the local economy that benefits businesses and workers. Moore said the plan from Ige probably got the most publicity and is the thing most remembered from the governor’s speech.

“It was the headline of the speech,” he said. “This is not a good answer to give constituents.”

According to Budget and Finance, the federal American Rescue Plan Act restricts states from using federal coronavirus recovery funds to directly or indirectly offset a reduction in net tax revenue resulting from a change in law, regulation or administrative interpretation between March 3, 2021, and the end of a fiscal year in which the funds are spent.

The agency said in its testimony on SB 3100 that if the state cuts taxes during this period, it must demonstrate how it paid for the tax cuts from a source other than the federal aid. This could be achieved by enacting policies that raise revenue, by cutting spending or by using revenue produced from an enlarged economy.

If the Federal government determines that its coronavirus aid was used for tax cuts, that sum would need to be repaid to the U.S. Treasury.

A Budget and Finance representative did not comment on the predicament of the two bills or describe any plan it has to satisfy the federal policy.

Ige, in his written testimony on the Senate bill, encouraged passage of the legislation and delivering $100 checks.

“As we determine how we can best help Hawaii’s people and our economy recover from the effects of a protracted pandemic, I believe that SB 3100 gives us an opportunity to offer relief to taxpayers and their families while also injecting $110 million back into our economy,” he said. “In this way, we can give a boost to both working families and our local economy. Given the state’s recent revenue projections, I think it is important that we return some of that revenue to taxpayers.”