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The Honolulu Advertiser
Posted on: Wednesday, March 24, 2010

Mayor says he'd review state finances before tax hike

By Derrick DePledge
Advertiser Government Writer

Hawaii news photo - The Honolulu Advertiser

Mufi Hannemann spoke to the audience at the Grass Roots Rally at the Blaisdell Exhibition Hall yesterday.

NORMAN SHAPIRO | The Honolulu Advertiser

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Honolulu Mayor Mufi Hannemann said yesterday he would do a comprehensive audit of state finances if elected governor, claiming there is an "unclear picture" that makes it difficult to determine whether a broad-based tax increase is necessary to balance the state budget.

State lawmakers are looking at a combination of targeted tax increases, transfers from special funds, and state program cuts to close a $1.2 billion deficit through June 2011. Labor unions and social-service providers have urged lawmakers to enact a temporary increase in the general-excise tax, the state's largest source of revenue, but state House and Senate leaders are reluctant.

"I don't want to commit to say that I'm ready to go the GET route until I really know what the finances are," Hannemann said last night at a rally for his potential campaign in the Democratic primary for governor at the Neal Blaisdell Center.

"They're always constantly changing what the shortfall is, what the deficit is. I want to get an accurate picture of it."

Hundreds of union workers and social-service providers many carrying signs with a simple message: "GET" were at the state Capitol yesterday, along with dozens of anti-tax demonstrators ideologically aligned with the conservative tea party movement.

The House draft of the budget does not rely on a GET increase to close the deficit, and state Sen. Donna Mercado Kim, D-14th (Hālawa, Moanalua, Kamehameha Heights), the chairwoman of the Senate Ways and Means Committee, said she does not plan to pursue a GET hike to balance the Senate version.

The next governor will have to implement the budget approved by lawmakers for fiscal year 2011 and, if state revenues do not rebound, may be faced with a choice of tax increases or spending cuts to contain the deficit in the future.

Hannemann said he did a similar review of city finances before he agreed to raise sewer fees. "I think that needs to be done. It's going to be a bipartisan group of Democrats and Republicans. I'm going to open up the books, just like I did at the county level," he said.

The state Council of Revenues sets the revenue estimates that are used by the governor and lawmakers when drafting the budget. But the mayor said it is not enough to rely solely on the council's quarterly projections.

"I'm not afraid to go down the tax or enhanced revenue option, but I've got to be clear that we've done all we can and, most of all, that we have an accurate assessment of where we are financially," he said.

Former congressman Neil Abercrombie, Hannemann's potential rival in the Democratic primary, said he would look first at whether state spending matches Hawai'i's values and priorities before raising taxes.

"I don't think we should raise taxes except as a last resort," he said in a statement. "There must first be serious discussions on how we use our existing revenues in a way that matches our values and priorities, including education, health and human services."

Lt. Gov. James "Duke" Aiona, the leading Republican candidate for governor, opposes a broad-based tax increase and believes lawmakers should cut inefficiencies and spend within the state's means to ensure economic recovery.

"We are already one of the most heavily taxed states in the nation, and our residents are facing rising housing costs, property taxes, electricity bills, gasoline prices, and water and sewer fees," Aiona said in a statement.

"Raising the general excise tax up to 25 percent would force many working families and small businesses into financial hardship when the budget shortfall can be closed by implementing common sense, responsible savings."

Hannemann, at the rally, chided Abercrombie for resigning and costing the state nearly $1 million for a May special election to fill out the remainder of his term in Congress. He also faulted Gov. Linda Lingle for using school repair money to help pay for the special election.

The mayor said Abercrombie was "missing in action" on the historic U.S. House vote on health care reform on Sunday, a bill majority Democrats narrowly passed.

The mayor said he would formally declare his political intentions by the state Democratic convention in late May. He has until July to officially file paperwork.

A special election to replace him as mayor would likely be held in conjunction with the September primary.

Abercrombie's advisers note that Hannemann will have to resign in the middle of his four-year term to run for governor. The former congressman has said the mayor is jeopardizing the rail project by leaving early.

"The people of Hawai'i need a straight-forward answer now from Mufi Hannemann," said Laurie Au, Abercrombie's campaign spokeswoman.