Lingle proposes tax breaks, housing incentives

By Gordon Y.K. Pang
Advertiser Capitol Bureau

From resurrecting the tax credit on food and medical expenses to increasing the funding for university scholarships, the ideas outlined in Gov. Linda Lingle's third State of the State address yesterday focused on the day-to-day pocketbook issues faced by Hawai'i residents.

In her State of the State address yesterday, Gov. Linda Lingle called her plan to raise the standard deduction on income taxes to help lower-wage earners "the single most significant thing the Legislature can do if they want to help those individuals and families who are living paycheck to paycheck." Richard Ambo • The Honolulu Advertiser

"The people have given us a couple years to get to know each other and now they want results," she said. "They want what they have paid for — elected officials who put the public first."

All told, the initiatives will cost the state about $75.9 million over the next two years, according to state budget director Georgina Kawamura. The administration is counting on a healthy rebound in the state's economy to help cover the cost.

Lingle renewed her plan to raise the standard deduction on income taxes to help lower-wage earners, calling it "the single-most significant thing the Legislature can do if they want to help those individuals and families who are living paycheck to paycheck."

The proposal calls for the individual deduction to increase from $1,500 to $2,500 and the deduction for married couples to be upped from $1,900 to $5,000. Some 27,000 workers and others receiving an income would no longer need to file returns because they would no longer earn enough to be taxed, while 78,000 other filers would pay less in taxes.

The governor also proposed a new food and medical services tax credit for individuals and families making less than $40,000 a year. Hawai'i taxpayers last saw a food tax credit in 1998.

Affordable housing

Lingle outlined her proposals to provide affordable housing, an issue also raised by legislative leaders. The governor's plan encourages developers by giving a tax credit of up to $4,000 for each of the first 2,500 affordable housing units completed by Dec. 31, 2007. Affordable housing units are defined as those that can be purchased or rented by households making up to 140 percent of median income.

Also to stimulate home development, Lingle proposed doubling the amount of conveyance tax now going to the Rental Housing Trust Fund from 25 percent to 50 percent. That would infuse an additional $2 million to $3 million into the fund, which is used to provide affordable rentals.

A third key component of Lingle's affordable housing program does not involve cash. She called for exempting affordable housing projects of 50 acres or less from needing to go to the Land Use Commission for approvals, a proposal that she contends could trim several years off the time it takes for a project to get off the ground. In a separate proposal, the governor wants to overhaul the LUC's role by making it focus more on broader and long-range planning issues while leaving oversight of individual projects to the counties.

Education

On education, Lingle proposed spending an additional $5 million on the state's Open Doors preschool program while using $20 million in federal welfare money to expand access to preschool for low-income families and improve school quality. The Senate will consider increasing Open Doors spending by $8 million. Lingle estimated that her proposal could help 3,000 children attend accredited pre-

Schools.

The governor also called for lifting a cap on new charter schools and creating a new statewide charter school district that could attract federal money. House and Senate Democrats have been skeptical about lifting the cap on new charter schools until financial and oversight problems are resolved. State Rep. Roy Takumi, D-36th (Pearl City, Palisades), the chairman of the House Education Committee, said yesterday that he is also apprehensive about moving forward on a charter school district until the schools are on more stable footing.

Lingle also gave the university some good news, saying she is proposing the largest infusion of additional funding in UH history, including $45 million for ongoing operations over the next two years, $80 million for repairs and $20 million to build a Hawaiian Language Building at UH-Hilo. The governor made good on her promise to give the new state scholarship fund a one-time allocation of $20 million — as part of the $45 million earmarked for operations.

Lingle proposed a two-pronged approach toward tackling the issue of long-term-care insurance. One proposal is to provide a refundable tax credit for those who purchase long-term-care insurance. The maximum amount of the credit would be $1,000 or 50 percent of the cost of the premium. The second proposal would give nonrefundable tax credits to employers who purchase long-term-care insurance for their employees.

Businesses

To help Hawai'i businesses, Lingle called for lowering the unemployment-insurance tax wage base for employers, in essence saving them about $196 million.

Under the proposal, the taxable wage base for unemployment insurance would drop from $32,300 to $7,000. Wages above the taxable wage base would not be subject to the tax. That would mean a business with an unemployment insurance tax rate of 4 percent would pay just $280 into the unemployment insurance fund for a worker earning $32,300 a year, compared with $1,293 under the current formula.

The governor, for a second straight year, proposed reforming the workers' compensation system, which she called "costly and ineffective."

Advertiser staff writers Beverly Creamer and Derrick DePledge contributed to this story. Reach Gordon Y.K. Pang at gpang@honoluluadvertiser.com.