Senate OKs higher excise tax to pay for education

By Lynda Arakawa and Gordon Y.K. Pang
Advertiser Capitol Bureau

The Senate yesterday passed its version of the $7.9 billion general fund budget for the next two years, including a controversial measure to increase the general excise tax to pay for education amid a partisan debate on what it takes to improve the public schools.

Yesterday was the 48th day of the 60-day session.

The measures were among hundreds of bills approved by the House and Senate and sent back to their originating houses, a critical process that keeps the measures alive as the Legislature works toward its scheduled adjournment on May 1.

Because the House and Senate passed different versions of most of the measures, the bills will go to joint House-Senate conference committees to reconcile the differences. The conference committee versions must then be approved by both houses before they are sent to the governor,

Senators voted 18-7 to approve the Senate's version of House Bill 510, which would increase the 4 percent general excise tax to 4.5 percent to raise money for education initiatives. All five Republicans and two Democrats voted against it.

The extra revenue from the 4.5 percent tax would raise about $120 million annually for education initiatives. The bill also would provide tax credits for low-income families.

The House Democratic leadership has objections to the measure, and Gov. Linda Lingle's administration opposes any tax or fee increases.

Ways and Means Committee Chairman Brian Taniguchi, D-10th (Manoa, McCully), called the bill the "Invest in Our Children Act of 2003."

"I realize that this is a tax increase, and it will have an impact," he said. "However, I believe that providing adequate resources for public education is so important that I'm fully prepared to accept whatever criticism of me that may follow. ... There's no good time for a tax increase, but there couldn't be a better or more necessary time to invest in our children."

Republicans readily disagreed, saying a tax increase would hurt the economy, thereby leading to lower revenues. They also said money will not solve education problems.

"We're not talking about the children, we're not talking about education — we use them as excuses for everything we do," said Sen. Sam Slom, R-8th (Kahala, Hawai'i Kai). "We don't demand accountability, we don't demand changes and improvements in leadership. We just say, 'Give us more money, give us more money, give us more money,' and that is what this bill is doing."

Slom said the approval of the general excise tax increase would "complete a trifecta" of tax hike measures that total more than $400 million a year.

That includes the $10 monthly long-term-care tax and a measure to allow the counties to levy a 1 percent retail sales tax in exchange for giving up their share of hotel room-tax revenues.

Both the House and Senate advanced the long-term-care tax, which would provide taxpayers long-term-care cash benefits of $70 a day for up to a year. The plan also provides a tax credit for those who have private long-term-care insurance policies.

In what was perhaps one of the toughest public criticisms of the governor from a Democrat, Taniguchi took issue with Lingle's proposed cuts in education programs to help balance the budget.

"By now it should be apparent that the governor does not believe that education is her priority," Taniguchi said during his floor speech on the budget bill. "She has turned her back on the children."

"While I sincerely believe the governor is trying her best, I cannot agree with her approach to the budget. She needs to stop trying to legislate through the media."

While the budget for the next two years starting July 1 won unanimous approval, Taniguchi's remarks prompted Republicans to rush to the governor's defense.

"The problem is not money, it is indeed governance," said Senate Minority Leader Fred Hemmings, R-25th (Kailua, Waimanalo, Hawai'i Kai). "And I applaud the governor for saying, 'Enough already, we cannot throw more money at a broken program. We have to fix it.'"

The Senate also revived Lingle's proposal to close what some said are loopholes in the high-tech tax credit law known as Act 221.

Senators voted 17-8 to amend House Bill 1225 to limit eligibility for those tax credits, including removing language in the act that says it will "be liberally construed." The amendments also include changing the existing 20 percent refundable credit on research activities to a nonrefundable credit applicable only to increased research activities.

Senate Majority Leader Colleen Hanabusa, D-21st (Nanakuli, Makaha), who introduced the amendment, said while Act 221 has brought significant benefits to the state, it must be amended to make sure it is used as the Legislature intended. She said companies would still benefit with the proposed amendments.

Hanabusa, noting that support for the amendment was largely driven by the state's tight finances, said the changes would save the state about $55 million.

At the end of a long day in House chambers, representatives voted unanimously to approve House Bill 1307, which would appropriate about $9.5 million from the general fund and several special funds and transfer it to the Office of Hawaiian Affairs for payments owed in ceded land revenues.

In a rare move designed to expedite the payment, leaders from both parties agreed to accept the Senate's version of the bill and send it to Lingle for her signature.

Other bills approved yesterday in the Senate would:

• Place a question on the 2004 ballot asking voters if the state constitution should be amended to give lawmakers the authority to establish regional boards of education.
• Extend the hotel construction and remodeling tax credit to 2004 for hotels dedicating 10 percent of occupied space to the promotion and sale of Hawai'i products.

Bills approved in the House would:

• Require a child to be 5 years old on or before Sept. 1 of a school year to enter kindergarten.
• Give the developers of the Ko Olina Resort up to $75 million in tax credits spread out over 10 years for "attractions and educational facilities." Also approved was a blank credit for a motor sports recreation facility at Kalaeloa.
• Raise the standard deduction for income taxes by an unspecified amount.
• Raid an unspecified amount from the Hawai'i Tobacco Settlement Special Fund and put it in the general fund.
• Make permanent the law establishing mental health insurance parity.
• Divide the law enforcement and corrections functions of the Department of Public Safety into two separate agencies.
• Set rules relating to electric "personal assistive mobility" devices, also known as Segways.
• Establish an executive salary commission to determine the pay for the governor and other top officials.
• Establish a renewable energy tax credit for systems installed after June 30, 2003, but only if tax collections are higher than 7.5 percent of the general fund revenues collected over two years.

Reach Lynda Arakawa at larakawa@honoluluadvertiser.com and Gordon Y.K. Pang at gpang@honoluluadvertiser.com. Or reach either at 525-8070.