Pro-consumer Legislature shifted burden to business

By John Duchemin
Advertiser Staff Writer

Byron Yoshino shares the state Legislature's worries about the rising cost of prescription drugs. A pharmacist, Yoshino sells medicine every day to customers who can barely afford it.

"While the concept is good, our experience is when the state gets involved, they don't understand the mechanics," Yoshino said. "How are they going to get lower prices? And if they do, how will those be passed on to the consumer? Pharmacists could end up getting hit with an unfair cost burden."

Despite pharmacists' concerns, House Bill 2834 to create the "Hawai'i Rx Program" now sits on Gov. Ben Cayetano's desk — along with more than a dozen other House and Senate bills that, if not vetoed, could have major effects on Hawai'i businesses.

Several of these election-year bills had star power: Legislators voted to impose a cap on gasoline prices; prohibit excessive health insurance rates; require a deposit on bottles and cans, with a refund for recycling; and slap a 40 percent tax increase on cigarettes.

But behind this screen of high-profile legislation, lawmakers in the 2002 session pushed through several less well-known bills — like the Hawai'i Rx Program — that have generated debate over whether they are good for Hawai'i businesses struggling to break out of the post-Sept. 11 economic slump. These bills include a measure that would let private schools get government bonds for building and renovation, and tax credits designed to stimulate construction.

Opinions are mixed as to whether the collection of legislation will have a positive effect — or merely weigh down businesses further as they sweat out the downturn.

Critics hope for vetoes

Critics say the session produced more harm than good for business, despite legislators' and Cayetano's stated intent of giving the economy a kick-start. Legislators overrode concerns expressed by business lobbyists — from the Chamber of Commerce of Hawaii to retailers, health insurers and major pharmaceutical and tobacco companies — to pass many bills intended to be pro-consumer.

These bills could cause businesses to feel unduly burdened, said Lowell Kalapa, president of the Tax Foundation of Hawaii.

"From an overall viewpoint, many of the actions taken by this year's Legislature reflect a complete lack of understanding of what makes the economy grow," said Kalapa, whose group has long pushed for lower tax burdens and reduced red tape. "I believe when many of these laws go into effect, national and international observers will find that Hawai'i is an even worse place to do business. Government meddling will have a negative drag on any and all efforts to improve the economic outlook."

The Chamber of Commerce, which opposed the bottle bill, health insurance rate bill and gas-price cap, is now focusing on damage control — either lobbying Cayetano for vetoes or preparing for the next legislative session, said chamber president Jim Tollefson.

"The bottle and gas bills have an implementation delay, so we'll continue to work with the Legislature to see if we can make some compromises on those two bills," Tollefson said.

Several members of the Democratic majority said lawmakers had to balance legitimate consumer concerns with desires to improve the economic climate.

Sen. David Ige, D-17th (Waimalu, Pearl City, Pacific Palisades), said the legislative session was a "mixed bag" for business, with the construction industry benefiting from the tax credits and hundreds of millions of dollars in appropriations for school repair, but with other sectors likely to feel pain if some bills become law.

"Clearly, there was a focus on certain sectors of the economy like the construction industry; there's a very strong belief that getting construction projects on line gets people back to work and fuels activity," said Ige, who is vice chairman of the Committee on Economic Development and Technology. "But other than that it's kind of a mixed bag.

"Certainly if you talk to retailers about the bottle bill, for instance, those people are very concerned about the impact. And clearly if you look at gas price caps, that definitely sends a very anti-business signal to a lot of different people.

"My view of things is overall positive. It could it have been better, yes; but it could have been a lot worse."

Cheaper drugs help hospitals

Ige said the Hawai'i Rx Program bill is an example of the Legislature's balancing consumer and business concerns. While the proposed drug-purchasing program drew opposition from the pharmaceutical industry and worried pharmacists, it was supported by a broad coalition of unions, retiree groups and consumer advocates.

Also supporting the bill were hospitals, who said lower drug costs would only improve the business climate for healthcare providers. Rising drug and other healthcare costs have combined with lower federal Medicaid reimbursements to produce multi-million-dollar losses at Hawai'i hospitals, which have cut hundreds of jobs and closed several programs in recent years.

"The higher those costs, the more people who can't afford them — and the more people that hospitals treat, uncompensated, on an emergency basis," said Rich Meiers, president and CEO of the Hawai'i Healthcare Association, which represents hospitals.

"So anything we can do to bring down the costs of pharmaceuticals, particularly for the elderly, we're all for."

Tax breaks benefit builders

Another set of bills drawing mixed reviews were three proposed tax credits. Lawmakers voted to extend a 4 percent home construction and renovation tax credit, which would last until July 1, 2003. They also voted to provide a 4 percent credit for commercial construction and renovation between 2003 and 2006, and approved a $75 million tax break for private developers who invest in visitor attractions and educational facilities at the 642-acre Ko Olina Resort & Marina in Kapolei. Developer Jeff Stone wants to build an aquarium and marine science education center at the site.

The construction industry supported the tax credits and stands to benefit from them.

"Tax credits will encourage the hotels and commercial owners of buildings to generate some activity," said Mike Singlehurst, president of the Maui Contractors Association. "Once that's generated, it's going to trickle down to everyone — the contractors, the subcontractors, their employees."

But the proposed breaks have gotten a lukewarm reception at Washington Place; Cayetano has said he may veto both the commercial construction credit and the Ko Olina bill. Critics including the Tax Foundation's Kalapa said the tax credits don't draw new investment — they just benefit people who have already committed to projects, meanwhile shifting the tax burden to everyone else.

Private schools stand to gain

Also controversial is a plan to let private schools —including religious or church-run schools — take out special purpose government bonds for construction.

The bill drew opposition from the Hawai'i State Teachers Association, which opposes public financial support for private education and said the bill would blur the separation of church and state.

Supporters said the bonds would help stimulate private-school construction, which in turn would add momentum to the contracting industry.

Schools would benefit from lower interest rates — the tax-exempt government-backed bonds pay a rate about 2 percentage points lower than normal bonds, said Robert Witt, executive director of the Hawaii Association of Independent Schools, in testimony to the House Finance Committee.

The bonds would likely help the smaller private schools more than Iolani, Punahou and other big schools, said Errol Christian, director of the Hawaii Catholic Conference, the policy arm of the Roman Catholic Church in Hawai'i and its 44 elementary and high schools. Under the legislation, small schools could pool together to get a larger bond, which could then finance many construction projects.

"This really helps a lot of the small, outlying schools that have been in need of construction, because the final bill would be a lot less," Christian said. "You're talking possibly of tens of thousands of dollars in savings. That could be the difference between going ahead with the project or waiting until later."

If Cayetano approves the bond bill, voters would still have a chance to say yes or no during the November elections. The bill requires voter approval of an amendment to the state constitution, which now bars the use of special purpose revenue bonds for private schools.