Budget stifled stimulus efforts
• Key business bills that Legislature passed
By Sean Hao
Advertiser Staff Writer
Both Democrats and Republicans began the 2003 legislative session promising to improve Hawai'i's business climate, but lawmakers said budget constraints prevented them in the end from doing more to stimulate the state economy.
Lawmakers ran into lower-than-anticipated tax revenues and uncertainty over the fallout from war and the severe acute respiratory syndrome (SARS) on the state's key tourism industry. Just balancing the budget became a challenge, legislators said, and several tax incentives and measures aimed at stimulating business fell by the wayside.
Still, the majority Democrats pointed to several new initiatives aimed at improving the economy, including tax credits for Ko Olina Resort and the hotel industry as well as economic relief to airport concessionaires still suffering from a drop in business after Sept. 11, 2001.
Lawmakers also approved $8 million in additional spending on tourism marketing to respond to a decline in travel resulting from world conflicts, terrorist attacks and the outbreak of SARS.
Sen. Carol Fukunaga, D-11th (Makiki, Pawa'a), said more could have been done to stimulate Hawai'i's film, biotechnology and other industries, but with tax collections falling short of projections, basic services such as health, human services and education received more focus.
"Business and economic development were sort of not at the top of the agenda this year what with the revenues shortfall," said Fukunaga, chairwoman of the economic development committee. "With the war and SARS and everything else, the priority from an economic standpoint has been to stabilize the hotel and visitor industries to make sure they don't let us down."
Among these measures was a bill to provide economic relief for airport concessionaires by giving them breaks on rent until gross receipts return to pre-Sept. 11 levels. Republicans sought an amendment to allow the attorney general leeway in negotiations. The governor has threatened to veto the bill.
"For sure there are bumps up from time to time, but business hasn't returned to pre-9-11 levels," said Hawaii Greeters President Peter Fithian. "But we think the long-term opportunity is there that's why we want to stay around."
Senate Republicans said little was accomplished during the session to address key issues repeatedly raised by businesses, particularly high taxes and burdensome regulations.
"The good thing is it could have been worse," said Sen. Fred Hemmings, R-25th (Kailua, Waimanalo, Hawai'i Kai). "The bad thing is it's still pretty bad."
Republicans contend the state could counter its anti-business image by lowering taxes, cutting the size of government by using private contractors and eliminating duplicated state and county services.
Instead, as GOP leaders see it, the Legislature placed even more burdens on business.
Republicans and some business leaders specifically object to bills creating a long-term care tax and tax credit, allowing 10 days of sick leave for family purposes and requiring businesses to offer employees lunch breaks.
In at least one case, however, the Republicans could not solely blame the Democrats.
Republican Gov. Linda Lingle, who rode into office on a pro-business platform, allowed the family leave bill to pass into law without her signature despite business opposition.
The bill permits employees at businesses with 100 or more workers to use 10 days of accrued sick leave for family purposes.
"This was a tough call for me," Lingle said. "Ultimately, I decided to allow this bill to become law because of the values it reflects, and my belief that it will not be overly burdensome to the nearly 700 businesses that potentially are affected by it.
"The other 29,300 businesses in the state will not be covered under this law."
Whether Lingle will veto the long-term care tax is still unclear, but she has said she doesn't support it.
Lingle estimated the long-term care tax will divert $100 million a year out of the economy and into a fund that will grow to $1.3 billion in 10 years. Taxpayers would get a one-year, long-term care benefit of $70 a day and a $120 annual tax credit. Proponents contend the bill prepares the state for an eventual onslaught of needs for the elderly.
While critics contend little was done this session to reduce unnecessary regulations, Lingle has said reforms will come from her 16 department heads who can move to cut regulations and provide better service. And, despite her battles with the Democrats, the Legislature approved all Lingle's agency nominees.
That wholesale approval appears to provide little encouragement to the business sector, some of whom sought comfort in what didn't pass.
Among the legislation that failed were bills requiring a new owner of a business to retain at least half of a company's former employees and another that would have curtailed efforts to privatize government services. Also failing were efforts to raise the general excise tax, increase the conveyance tax and delay the expiration of state estate taxes.
Legislators also blocked administration efforts to cut back on Act 221, the state's technology investment and research tax credit programs. Lingle said such a move would free up $55 million for other programs over a two-year period. Representatives of the technology industry were split in their support of the changes.
Rep. Scott Saiki, D-22nd (McCully, Pawa'a), said the most significant action taken during the session was balancing the state budget without curtailing Act 221 or raising taxes.
"What we didn't do was also good and what we didn't do this year was raise taxes," he said. "I think that's significant."
As for more substantive changes, Saiki said the Legislature would wait for Lingle to provide leadership on tackling such issues as reducing the size of state government.
Jim Tollefson, president of the Chamber of Commerce of Hawai'i, said he hopes key issues such as high health care and workers compensation costs will be addressed in the next legislative session.
For now, he's thankful the Legislature did not raise taxes or significantly hike government fees.
"We're really very pleased that we were able to hold the line on the status quo," Tollefson said. "I think that's the bottom line given today's environment."
Reach Sean Hao at 525-8093 or shao@honoluluadvertiser.com.
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Key business bills that Legislature passed
SB 837: Increases reporting requirements for statewide workforce development training programs.
HB 285: Requires every administrative rule conforms to its related statute and automatically repeals administrative rules when their related statute or ordinance is repealed.
SB 931: Entitles domestic violence, sexual assault, and stalking victims up to 30 days paid or unpaid employment leave.
HB 29: Requires employers to provide employees at least a 30-minute lunch break for eight hours of work unless a collective bargaining agreement provides other meal provisions.
HB 1088: Establishes a long-term-care income tax of $120 a year, which would increase to $276 a year by the end of 2011. Those who pay the tax for 10 years would be eligible for the full $70-a-day cash benefit for up to one year. The cash benefit would grow to $83.58 per day in 2013. The bill would also create a tax credit of up to $120 a year for five years and a credit of up to $180 a year for the following five years for people who pay the tax and purchase a long-term-care insurance policy.
HB 389: Allows an employee to use 10 days of accrued sick leave for family purposes.
SB 377: Establishes a 7.5 percent tax credit for 10 years on qualified development costs at the Ko Olina Marina and Resort beginning in 2005.
HB 1400: Extends the hotel construction and remodeling tax credit. Increases the nonrefundable tax credit to 8 percent for four years and 4 percent in the following four years.
SB 1462: Requires the Hawai'i Tourism Authority to establish a registry of groups or residents traveling out-of-state to market and promote Hawai'i. Allows the HTA to appoint a sports coordinator and appropriates $8 million from the tourism special fund for the HTA to respond to unstable market conditions.
SB 44: Provides economic relief for airport concessionaires by giving them breaks on their rent until gross receipts return to pre-Sept. 11 levels.
HB 1579: Requires the Department of Business, Economic Development and Tourism to "create a vision and develop a long-range plan" for economic diversification in the state.
