The September 11th attack
Showdown likely over bill for tax credits
By Kevin Dayton and Lynda Arakawa
Advertiser Capitol Bureau
Gov. Ben Cayetano and the Legislature are about to clash again over a bill granting tax credits for hotel construction, yet another indication that the unified sense of purpose that led to the special session to shore up Hawai'i's economy has all but disappeared.
Cayetano said yesterday he has "strong disagreement" with the bill, a signal he is likely to veto it.
He contends the measure offers a bigger and potentially costlier tax credit to hotel owners and a significantly smaller one to homeowners, who would get a break on remodeling and construction.
"That subsidy is coming from the rest of the taxpayers, and everyone has to try and consider whether that's a fair situation," Cayetano said. "I personally don't think it is."
If Cayetano does veto the bill, House Speaker Calvin Say said he probably would discuss an override with House and Senate Democrats.
"I don't know why his thoughts are like that, because most of the industry is very much in back of what this proposal is all about," Say said.
There was also public grumbling among Democrats and Republicans who appeared frustrated that the promises of unity and cooperation in the days after the Sept. 11 terrorist attacks had given way to familiar political gridlock.
Senate Minority Leader Sam Slom, R-8th (Wai'alae Iki, Hawai'i Kai), said that after three days the Legislature has done nothing to help most people and businesses in the state.
"We spent 13 hours in the hearing yesterday, and I am dismayed and I am saddened because in fact there was no unity, there was very little openness and there certainly were no solutions," Slom said.
The House and Senate gave preliminary approval to 15 bills in floor votes yesterday, including the tax credit that Cayetano had criticized. Cayetano had called lawmakers back into a special session this week and next to try to cope with the abrupt economic slump following the Sept. 11 terrorist attacks.
While Democrats and Republicans have stressed that they are united in their efforts to help the tourism industry and displaced workers, the House and Senate floor sessions yesterday featured quarrels between Democrats who want to advance the 15 bills and Republicans who object to parts of the measures or want to advance their own proposals.
The 19 House Republicans forced floor votes on three amendments they wanted to make to the Democrats' bills. All failed.
A frustrated Senate Education Committee Chairman Norman Sakamoto, D-16th (Moanalua, Salt Lake), resorted to shouting at Senate Republicans, complaining that they were simultaneously demanding tax cuts and more government spending.
"You cannot have it both ways, so cut it out!" Sakamoto bellowed on the Senate floor.
Credit favors business
Cayetano warned of his likely veto of House Bill 8 and Senate Bill 8, which would offer tax credits to homeowners and hotel owners to encourage them to build or renovate.
The bill offers a 4 percent tax credit for residential property, to a maximum of $10,000. For hotels the credit would be 10 percent with no maximum. The credit could be applied to reduce the amount of income taxes owed.
"For the life of me, I can't figure out why they think it's fair to give the hotel industry a 10 percent tax credit and the average Joe on the street only 4 percent," Cayetano said.
Representatives of businesses including Outrigger Enterprises and Ko Olina Resort & Marina told lawmakers that increasing the tax credit could stimulate the economy and the construction industry.
Developers said a current tax credit merely offsets the 4 percent excise tax imposed by the state on construction projects, while a larger credit would help stimulate construction.
Lawmakers initially considered boosting the hotel credit to 6 percent, then increased it to 10 percent at the urging of House Republicans and Senate Tourism and Intergovernmental Affairs Committee Chairwoman Donna Mercado Kim, according to Say.
Kim, D-15th (Kalihi Valley, 'Aiea), said she is hoping the hotel industry will persuade Cayetano not to veto.
"This is money and projects that we need and don't have right now, so we're really not going to lose anything, we're really going to gain from it," she said.
On the likelihood of an override if the governor does veto the bill, Kim said: "Depending on the timing, and if we're in session and if we can override it, then I'm certainly going to ask my colleagues that we look at it, or if we're in session then we can maybe come forward with another bill. But I'm not sure what is going to satisfy the governor."
Cayetano and lawmakers quarreled over similar tax credits in 1999, and Cayetano vetoed a larger tax credit last year. He later signed the smaller 4 percent hotel tax credit into law.
Tax officials estimate that measure costs the state about $2 million a year in revenue.
"If somebody pops up and says, 'Listen, I've got a billion-dollar project and I want to come in,' I might take another look," Cayetano said. "But right now I don't think it's fair."
'Business as usual'
In floor sessions yesterday, Senate Minority Floor Leader Fred Hemmings, R-25th (Kailua, Wai-
manalo), proposed an amendment to double the $2 million appropriation for emergency shelter and food for the needy. The amendment failed 7-13, with the three Republicans and dissident Democrats voting for it.
Hemmings criticized the measures approved on second reading yesterday, calling them "business as usual, benefiting the same old-boy network."
A similar amendment also failed in the House, where Democrats said they want to limit spending until they get a better picture of how the state's finances will be affected by the economic crisis.
House Republicans forced floor votes on proposals to eliminate the 4 percent excise tax on food and to establish a "tax holiday" when shoppers would not have to pay the excise tax on any goods.
Both proposals failed, along with a Republican effort to block a bill giving sweeping emergency powers to the governor to cope with economic emergencies.
The bill gives Cayetano authority to suspend laws and rules that affect businesses and to waive rents and concession charges.
Republicans said the bill would give Cayetano too much power, but Democrats replied the governor already has similar powers to cope with natural disasters, and the measure simply extends those powers to economic emergencies.
The Associated Press contributed to this report.
Reach Kevin Dayton 525-8070 at kdayton@honoluluadvertiser.com. Reach Lynda Arakawa at larakawa@honoluluadvertiser.com or 525-8070.
