Senate offers option to counties: 0.5% tax surcharge for transit

By Derrick DePledge and Gordon Y.K, Pang
Advertiser Capitol Bureau

The state Senate voted yesterday to give Honolulu and Neighbor Island counties the option of adding a 0.5 percent surcharge on the state's 4 percent general excise tax to pay for transportation, laying down its marker for negotiations with the state House of Representatives, which has already approved a 1 percent surcharge.

A tax increase, which would likely be used by Honolulu to pay for a rail project, is among the biggest decisions facing state lawmakers as the session reaches its endgame over the next three weeks.

Yesterday was among the busiest days of the session, as Senate and House lawmakers prepared bills for tomorrow's second crossover, when legislation moves between the two chambers before it goes to conference committee.

The Senate passed its version of the state budget, which, like the House, adds more money for public education and drug treatment than Gov. Linda Lingle has proposed. Senate and House lawmakers also agreed to keep alive discussions on tax relief as they await word on collective bargaining negotiations with the state's white-collar workers, which may help determine whether there is enough money for tax breaks this session.

Democrats who control the Legislature turned back Republican attempts to repeal the state's bottle law and to give Lingle the authority to kill a cap on gasoline prices scheduled to take effect in September.

While lawmakers debated dozens of bills yesterday — covering topics from affordable housing to the minimum wage — a tax increase for transportation could have the most impact on residents and businesses. The general excise tax is charged on all goods and services, and a 0.5 percent or 1 percent surcharge could generate $150 million to $300 million a year for transportation.

U.S. Rep. Neil Abercrombie, D-Hawai'i, has told state and city lawmakers that he would pull his support for federal money for a Honolulu rail project without a tax increase, so a transit project may hinge on what happens this session.

Negotiations between the Senate and House will focus on the surcharge, but the Senate has also voted to give counties the choice of raising fuel taxes and motor-vehicle taxes to pay for rail. The Senate also approved a tax credit of between $10 and $50, which would be paid for through the surcharge, to ease some of the punch of the tax increase on consumers.

"I think we provide them with a base amount of money through the surcharge as well as some other options," said state Sen. Brian Taniguchi, D-10th (Manoa, McCully), the chairman of the Senate Ways and Means Committee.

Honolulu Mayor Mufi Hannemann favors a 1 percent surcharge and Taniguchi said he would likely meet with city officials before talks with the House.

State House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo, Wilhelmina Rise), said he expects House and Senate leaders to iron out their differences because of the urgency. "We have to be open because we want something," he said.

Tax relief, which many believed was on the ropes, will now depend on the state's financial picture at the end of session.

Three different tax relief proposals, aimed mostly at lower and middle income workers, remain under consideration.

Both the Senate and House have approved a state earned income tax credit for low-wage workers eligible for a federal credit. The House voted yesterday to use federal welfare money to pay for some of the credit.

Both chambers have also approved an increase in the standard income-tax deduction for those taxpayers who do not itemize their deductions, a priority for Lingle. And lawmakers have backed a bill that seeks to lower income taxes for a large number of families by expanding income tax brackets, although the proposal has the least chance of the three.

Another area where House and Senate lawmakers must work out their differences is affordable housing.

After Democrats and the Lingle administration raised concerns about rising home costs and shrinking inventory before the session, both chambers have come up with elaborate packages that take different approaches. The House plan appears to focus more on providing homes for those on the lower end of the income spectrum while the Senate proposal looks at encouraging development of a broader range of housing.

One key difference is in the approaches to the conveyance tax, the tax imposed on the transfer of property. The House plan calls for increasing the amount of conveyance taxes that have to be paid by people who purchase homes that cost $600,000 or more, or those who buy second homes or investments regardless of price. The Senate version does not increase the rate of conveyance taxes for affordable housing, but increases the share of the tax now dedicated to the Rental Housing Trust Fund from 25 percent to 50 percent.

Republicans in both the Senate and the House, meanwhile, tried unsuccessfully yesterday to get the bottle law repealed. State Rep. Barbara Marumoto, R-19th (Kaimuki, Kahala, Wai'alae Iki), called the current nickel redemption law "a convoluted, dysfunctional bottle bill program" that is unnecessary since the city is moving ahead with plans to establish curbside recycling.

While that attempt failed, the House approved a bill that would provide tax credits and grants for retailers and others who set up redemption centers at retail outlets.

The House also moved out a bill which raises the state's minimum wage from $6.25 an hour to $6.75 next January and $7.25 in 2007. The governor has indicated she would support an increase of up to $7 but only if employers can be allowed to pay substantially less to workers who earn tips. The draft that moved out of the House yesterday, however, does not increase the tip credit.

Also advancing out of the Senate yesterday was a bill that increases the cigarette tax from from the current 7 cents per cigarette to 9 cents in July 2006, 11 cents in 2007 and 13 cents in 2008. A bulk of the money would go toward health promotion and disease prevention programs and the Hawai'i tobacco prevention and control trust fund.

The House voted to require businesses that sell cigarettes to obtain tobacco permits from the state Department of Taxation. The bill is designed to allow for better enforcement of tobacco laws.

Reach Derrick DePledge at ddepledge@honoluluadvertiser.com or 525-8070. Reach Gordon Y.K. Pang at gpang@honoluluadvertiser.com or 525-8070.