Tax-relief proposals may lose support
By Derrick DePledge and Gordon Y.K. Pang
Advertiser Capitol Bureau
The state Council on Revenues has upgraded Hawai'i's economic forecast for this year but predicted slower revenue growth in the future, narrowing the chances the state Legislature will agree to an expensive tax relief package this session.
Some of the ideas that made a key deadline at the state Legislature and are moving this session would: • Reserve a portion of state fuel tax revenues paid in Honolulu to pay for a fixed-rail mass-transit system. • Authorize the Department of Education to increase the price of school lunches to allow the state to recover up to half the cost of providing the service, instead of one-third. • Provide immunity from prosecution for leaving an unharmed newborn at a hospital, fire station or police station within 72 hours of birth. • Provide a paper record for electronic voting. • Allow voting by mail. • Increase spending on early childhood education. • Increase the minimum wage. • Prohibit discrimination in housing matters based on sexual orientation or gender identity. • Create an investment tax credit for developers of a motor-sports facility at Kalaeloa. • Establish graduated licensing requirements for younger drivers. • Remove vehicles from drivers convicted of driving under the influence of intoxicants three times within five years.
Although targeted tax cuts —such as increasing the earned income tax credit for the working poor — are still possible, state lawmakers said that new spending for education and drug control and a potential tax increase to pay for transportation may be higher priorities. Collective bargaining costs for state workers, which may not be fully known this session, could also influence decisions on spending.
THE FIRST CUT
The Council on Revenues announced yesterday that it is now expecting the state to finish the fiscal year, which ends in June, with 10 percent growth in revenue, up from a previous forecast of 8.8 percent. The more optimistic forecast translates to about $36 million to $40 million more for the state's general fund.
But for the 2006 and 2007 budget years, the council is projecting revenue increases of 5 percent and 4.9 percent, which are down from previous forecasts of 5.3 percent and 5.7 percent.
Jack Suyderhoud, the council's vice chairman, said the state's economic growth appears strong but he is skeptical it can continue at an accelerated pace. He noted that the state has had several unexpected, one-time increases in revenues that helped boost collections this year, including $29 million in previously disputed franchise taxes that were recorded in February.
Even if the demand for tourism — the heart of Hawai'i's economy — continues to grow, the state could be reaching its visitor capacity. "Our panel of experts is telling us that we're starting to approach a limit in terms of how many visitors we can accommodate in Hawai'i," Suyderhoud said.
The economic forecast was greeted with caution by state lawmakers.
Not much leeway
An increase in money available this year would give lawmakers more immediate options, yet the slower growth estimates in future years may make some reluctant to commit to new spending that would inflate the budget.
"It doesn't give us much leeway," said Sen. Brian Taniguchi, D-10th (Manoa, McCully), the chairman of the Senate Ways and Means Committee.
At the state Capitol yesterday, lawmakers worked into the evening on hundreds of bills to prepare for tomorrow's first crossover — the initial deadline for legislation to move between the House and the Senate.
House lawmakers agreed to a draft, two-year $8.9 billion general fund budget, which now goes to the Senate. Lawmakers also kept alive a range of tax relief options, along with new incentives for affordable housing and a county tax surcharge of up to 1 percent to fund public transportation.
The draft budget contains spending increases for public education and drug control that were not part of Gov. Linda Lingle's budget plan, and lawmakers, in interviews and floor speeches, indicated that those two areas would be priorities as negotiations moved forward. The Legislature passed education reform and drug control packages last session, and lawmakers said they do not want to retreat.
"We want to take care of those areas first and we'll see what happens from there," said House Majority Leader Marcus Oshiro, D-39th (Wahiawa).
House omissions
The House did not provide money for Lingle's proposal to raise the standard income tax deduction and give food and medical tax credits to lower-income families. But lawmakers moved out other tax vehicles that would raise the standard deduction, provide an earned income tax credit, or expand tax brackets to help the middle class, so none of the tax relief ideas are dead.
"We need to look at the financial picture before we actually move on any of these bills," Taniguchi said.
Linda Smith, Lingle's senior policy adviser, said the economic forecast means the state has to remain fiscally prudent but she believes there is enough room for the governor's modest tax relief. "We'd really like them to reconsider," Smith said.
Lowell Kalapa, president of the Tax Foundation of Hawai'i, also said that the more optimistic revenue projections this year could help lawmakers with tough budget decisions. "They'll have more money to work with, perhaps the elusive tax reform or tax relief that they've been talking about is a little bit more within reach for them," he said.
Housing funds
The Senate, meanwhile, pushed ahead with new bond money for the renovation and construction of low-income housing, while the House advanced a housing bill that gives general excise tax exemptions to developers of low-income rental housing and gives counties more flexibility in dealing with land-use issues that pertain to low-income rental projects.
The House would also boost the Rental Housing Trust Fund not just through a direct infusion from general funds, but by requiring that 10 percent of excise taxes collected on residential rentals go into the fund and by increasing the percentage share of conveyance taxes that are placed into the fund from 25 percent to 50 percent.
While the House passed the county tax surcharge for transportation, the Senate killed proposals to create a state transit authority and adopt a state general excise tax increase for transit that hinged on Honolulu's approval of a transportation plan by 2006.
Tax relief, affordable housing and transportation were identified as the top issues when the session began in January, but lawmakers are also working on other legislation that could have sweeping impact.
Lawmakers are considering new limits on political campaign contributions — and may exempt labor unions — as well as additional public financing for political candidates. Bills are moving that would expand a state sex offender registry and require more felons to submit DNA samples, along with giving police greater powers to conduct electronic surveillance.
Senate Minority Leader Fred Hemmings, R-25th (Kailua, Waimanalo, Hawai'i Kai), speaking of the sex offender, DNA and electronic surveillance measures, said lawmakers were "moving in the right direction."
Reach Derrick DePledge at 525-8070 or ddepledge@honoluluadvertiser.com.
