Options considered for balancing state budget

The Maui News
January 17, 2010

By CHRIS HAMILTON, Staff Writer

WAILUKU - As the Legislature readies to begin grappling Wednesday with an anticipated $1.2 billion deficit - and a state constitutional requirement to balance the budget in 60 work days - Maui County's nine-person contingent is looking at wide-ranging solutions from raising the general excise tax by 1 percent to raiding emergency funds.

While the all-Democrat delegation may not agree on every idea to fix the fiscal year 2011 budget, one solution has more traction than others. The three senators and six representatives clearly disagree with Republican Gov. Linda Lingle's plan to divert the counties' revenue stream from the transient accommodations tax, or hotel room tax, as part of a plan she announced last month to cut the state deficit by $178.3 million.

Mayor Charmaine Tavares has said that withholding Maui County's share of TAT would add $18 million to an anticipated $50 million county shortfall. The county fiscal year 2011 budget process begins March 22.

Rep. Angus McKelvey, D-West Maui-north Kihei, said he would be "the most vociferous and outspoken opponent" of the plan to seize the counties' TAT.

"It would be so damaging to Maui's economy," he said. "It would be devastating."

Rep. Mele Carroll, D-East Maui-Molokai-Lanai-Kahoolawe, shares McKelvey's sentiments about the hotel room tax. The former Maui County legislative liaison said she understands how much impact losing the TAT would have on the county's $564 million annual budget.

Carroll said the proposal is absolutely unfair, since the state reaps the benefits of tourism, but would then take away much of the county's ability to pay for the roads and other infrastructure visitors need.

Then again, Lingle understands Maui Nui's economics as well, as a former Maui County mayor. But she has taken the approach that businesses and families are teetering on the brink of financial collapse and has opposed increasing the burden on taxpayers, instead looking to a hiring freeze, state worker furloughs and salary cuts, dramatic government spending reductions and debt restructuring to fix the deficit.

Sen. J. Kalani English, D-Upcountry-East Maui-Lanai-Molokai-Kahoolawe, agreed that taking the TAT would be unfair to the counties, but he didn't completely rule it out either.

"I don't like the idea of taking the TAT without at least a period of adjustment," English said. "A year before it takes effect. Otherwise, the counties will be forced to then just shift the responsibility to the property owners."

McKelvey said he supports raising revenue from a variety of sources.

"If everyone shares in the pain and we spread it as thin as we can, then we will all survive, instead of just having one group or segment take a huge hit," he said.

The Maui Chamber of Commerce has also come out against proposals that could negatively affect business. Those include the proposal to increase the general excise tax (GET), which is Hawaii's version of a sales tax, and boost employers' share of the unemployment insurance tax.

Last session, the state Senate voted to increase the GET by 1 percentage point, a 25 percent increase over the current rate. Hawaii's general excise tax is 4.71 percent in Honolulu and 4.16 percent on the Neighbor Islands. The national average for sales taxes is 6 percent.

However, the House did not pass its version of the GET increase, which was estimated to raise an additional $500 million annually. English said they could soften the blow to Hawaii residents, and home in on visitors instead, by providing a state tax return deduction for food and other basic need purchases.

"I would support rounding it up to 5 percent and then looking elsewhere at other revenue drivers, such as the barrel tax (state tax on crude oil)," McKelvey said.

McKelvey said he would again support gaming as a possible source of new revenue, such as licensing casinos in a limited geographical area where they could be regulated and kept apart from other communities.

Rep. Joe Souki, D-Kahakuloa-Wailuku-Waikapu, said he favors raising the general excise tax by 1 percentage point for five years and dropping the personal income tax several percentage points. He said the state is bankrupt and we must stop the bleeding.

Rep. Joe Bertram III, D-South Maui, said it was time to look at raising taxes, either the general excise tax or the personal income tax, to keep state government functioning.

"We can cut and cut and cut, and Lingle has done quite a lot of that already," he said. "But there has to be some kind of revenue coming in. That's just how government runs."

Sen. Roz Baker, D-West Maui-South Maui, also said she would be open to a temporary increase in the general excise tax, perhaps offset by an increase in the standard deduction or a food tax credit.

Baker said the Legislature also needs to look at tapping the Rainy Day Fund and the Hurricane Relief Fund.

English said he opposes the latter ideas. The state needs cash reserves to maintain its high bond rating so it can borrow money at lower interest rates, he said.

Sen. Shan Tsutsui, D-Kahakuloa-Wailuku-Waikapu-Kahului-Paia, said he opposes a general excise tax increase - if it doesn't have rebates or exemptions.

The Ways and Means Committee vice chairman also said he doubts any new capital improvement projects will get funded this year. However, maybe shelved projects, those with completed designs and land entitlements, will finally get going in order to help stimulate the economy, he said.

"I think touching the GET is a last resort," said Rep. Kyle Yamashita, D-Upcountry, who sits on the House Finance Committee and is vice chairman of the Labor and Public Employment Committee. "I think at the end of the day, it will be a combination of budget cuts and some revenue increase. There are bills out there to deal with the problems, and I will probably co-introduce a few. I do not necessarily want to, but I may have to.

"It's a $1.2 billion-plus deficit, so at the end of the day, we will have to look at more cuts."

He said he would like to focus on downsizing government while maintaining Hawaii's social and business safety nets. The challenge is that during last year's session, the Legislature grabbed the low-hanging fruit, such as not filling job openings, and will have to make more difficult choices this time around, Yamashita said.

Baker said she was alarmed that, in addition to education, important parts of the state's safety net for the most vulnerable members of society were being cut.

"It just goes on and on," she said. "We're not doing these obligations that government needs to do."

They won't be able to balance the budget again with only a 10 percent overall tax increase, Yamashita said. However, he said he will do his best to minimize the pain for business, small business in particular.

That means probably holding the employers' unemployment insurance contribution to perhaps twofold or threefold rather than as much as the 10 times increase the tax rate would undergo without legislative intervention.

The current rates sunset this year when Act 1010 expires, he said. When the "tax holiday" ends, smallest businesses will go from paying nothing to $180 a year toward unemployment insurance, he said as an example.

"It's not the largest tax that employers pay, but it will affect those that are on the edge of survival," Yamashita said.

Rep. Gil Keith-Agaran, D-Wailuku-Kahului-Paia, said everything is on the table.

"But it should not be viewed simply as a zero-sum game pitting public workers against taxpayers, or education versus social services," Keith-Agaran said. "We are going to have to set priorities."

* Chris Hamilton can be reached at chamilton@mauinews.com. Staff writers Claudine San Nicolas and Ilima Loomis contributed to this story.

Original article URL: http://www.mauinews.com/page/content.detail/id/527734.html

Return to Sen. English Home Page - KalaniEnglish.com

 

 

 

 

 

 

Home Bills and Resolutions About Senator English Committees Community Profiles Newsletter Archive News Archive Capitol Web Site Media Photos

Connect with Senator English

OUR DISTRICT