Excise tax
hike will die,
foes predict

They cite the narrow margin
by which the tax hike
passed the House

By Craig Gima and Pat Omandam

Star-Bulletin

Even in defeat, opponents of a general excise tax increase in the House are claiming victory.

The tax package that includes raising the general excise tax to 4.5 percent and cutting personal income taxes from 25 to 35 percent passed the House last night in a close 27-24 vote with 12 Democrats voting with Republicans against the bill.

But the measure still has to go to be approved by the Senate. Opponents predicted a tax increase will not be in any bill that restructure's Hawaii's tax system. "It's dead," Rep. Quentin Kawananakoa (R, Nuuanu) said after the vote.

"It will have a tough time passing the final vote," said Rep. Michael White (D, Lahaina) who voted against the tax measure.

White said there was a lot of last-minute pressure to vote for the measure and some who voted yes did so just to keep the tax package alive.

Rep. Dennis Arakaki (D, Kalihi Valley), who voted for the tax package, agreed with opponents that the close vote indicates the tax increase is dead.

"I think they (the opponents) are right," he said.

"There are too many other options that will be more palatable in the long run," White said.

Among the options is a bill to impose an unspecified general excise tax on formerly exempt activities such as health plans, hospitals, cemeteries, shipping, life-insurance policies, and court awards.

Many Democrats and some Republicans who voted against the tax increase voted for the bill to broaden the general excise tax base.

"Our tax system should be fair," said Rep. Ed Case (D, Manoa). Case said many of the exemptions are outdated and should be reviewed.

But Rep. Barbara Marumoto (R, Waialae Iki) said the tax on formerly exempt activities will be passed on to consumers in the form of higher shipping rates, health insurance premiums, and other services.

"This measure will also raise the cost of living," she said.

On the other side of the Capitol, Senators wrestled with how to pay for their proposals to stimulate the economy by cutting personal and business taxes.

Public school teachers and union members in the gallery applauded floor speeches made by Republicans and dissident Democrats opposed to a plan to cut vacation pay, salaries and holidays for state workers.

Minority Floor Leader Sam Slom (R, Hawaii Kai) chastised the majority leadership for using public workers as pawns in a political game, especially after the Democratic Party squandered what was a $600 million surplus in the state general fund in less than 10 years.

Slom said senators have other options to shrink government besides the recommendations from the Economic Revitalization Task Force, and leadership is needed to take them.

"Everybody has to do with less, now state government must do so," Slom said.

Sen. Randall Iwase (D, Mililani) insisted the bill is flawed because the Legislature cannot cut salaries of collective bargaining agreements as well as their own pay without violating the state Constitution.

Instead, Iwase called on Senate President Norman Mizuguchi (D, Aiea) to get the public unions back to the table to discuss cuts that avoid layoffs.

Other options include a payroll lag, a freeze on mainland travel and purchases, as well as re-opening the legislative budget to see if cuts can be made there, Iwase said.

"We don't need this bill," Iwase said. "We shouldn't have this bill on our desks."

Nevertheless, the Senate passed the measure with 15 votes. Ways and Means Co-chairwoman Rosalyn H. Baker (D, West Maui-Lanai) said there will be difficult times with difficult choices if the state is to get its house in order and live within its means. Co-chairwoman Carol Fukunaga (D, Ala Moana) added everyone must work together in the next few months.

Senate Vice President Andrew Levin (D, Kau-South Kona) said lawmakers are not here to sidestep problems, but to address them head-on, popular or otherwise. No one intends to do anything unconstitutional, he said.

"Playing to the crowd is not going to get the job done," Levin responded.

Democrats who voted against the tax package including a general excise tax increase were Case, White, Rep. Hermina Morita (East Maui-North Kauai), Rep. David Tarnes (North Kona-South Kohala), Rep. Lei Ahu Isa (Alewa Heights-Nuuanu, Rep. Michael White (Lahaina-Molokai-Lanai), Rep. Scott Saiki (Moiliili-McCully-Ala Wai), Rep. K. Mark Takai (Waimalu-Waiau-Newtown), Rep. Roy Takumi (Pearl City - Waipahu), Rep. David Stegmaier (Kalama Valley-Hawaii Kai), Rep. Kenneth Hiraki (Kakaako-Downtown Honolulu), Rep. Dwight Takamine (North Hilo-Hamakua), and Rep. David Morihara (Puunene-Paia-Makawao).

Meanwhile, the Senate yesterday passed a measure that includes a provision for a special Legislative session this July, as well as a bill that sweeps 185 state special and revolving funds into the general fund, although it is intended as a vehicle bill to give lawmakers options later in the legislative session.

Sen. Norman Sakamoto (D, Moanalua) said previous lawmakers established each of these funds for a public purpose, and lawmakers shouldn't use the money now to offset the budget shortfall.

"We're breaking the faith if we do this, Mr. President," Sakamoto said.

Members also passed a measure creating an emergency rainy day fund. Baker said the measure affirms the legislature's attempt to ensure the state's economic problems won't happen again.

Slom countered any surplus of money should be returned to the taxpayers who paid for it.

Here are major bills that the House and Senate passed yesterday:

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Cayetano says no special session needed

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Major bills

HOUSE

Economic revitalization (HB 2568, HD1): Raises the general excise tax from 4.0 percent to 4.5 percent; reduces personal income tax rates as much as 35 percent in three years; establishes a low-income tax credit; imposes a use tax for services that are performed outside of the state but consumed in-state.

Tax on nonprofits (HB 2399, HD2): Imposes an unspecified general excise tax on 13 previously exempt classifications of nonprofit organizations, such as hospitals and cemeteries, and activities, such as life insurance death benefits.

Land use (HB 2558, HD1): State Land Use Commission made responsible for conducting boundary change proceedings; county land-use plans shall be consistent with state plans but may be more restrictive.

SENATE

Salary cuts and other takeaways (SB 2222, SD1): Imposes unspecified across-the-board salary reductions for all state employees; drops number of state holidays from 13 to 10; reduces state workers' vacation time; provides severance pay - as much as 36 weeks of pay for senior workers - and one year of health and life insurance for laid-off state employees.

Special session (SB2922, SD1): Calls for a legislative special session in July to address budget and tax issues after the Council on Revenues issues its forecast in May.

Tourism-related taxes (SB 2201, SD2): Raises the hotel room tax from 6 percent to 11.5 percent but exempts transient accommodations from the excise tax, now at 4.0 percent; also imposes the 11.5 percent room tax on time-share rental units; establishes tourism special fund.

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Other key bills

SENATE

Major bills the Senate sent to the House yesterday:

FEE INCREASES

Judiciary (SB 721, SD1): Increases various Judiciary fees, including the probate administration fee from $30 to $150.

Parks and schools (SB 2363, SD1): Imposes unspecified fees for parking at state parks and camping at state parks, for daily public-school bus transportation and student athletic activities.

Towing (SB 2185, SD2): Increases towing fees; adds a surcharge of $25 for difficult hookups.

BUDGET CUTS AND FUND TRANSFERS

OHA budget (SB 1638, SD1): Reduces the general-fund appropriation for the Office of Hawaiian Affairs 1998-99 budget by an unspecified percent.

Raid on special funds (SB 2292, SD1): Transfers excess funds from several special funds to the general fund.

TAX BREAKS

Advertising (SB 2259, SD1): Grants small businesses a tax credit for advertising.

Drugs and prosthetic devices (SB 2258, SD2): Exempts from the general excise and use taxes the sale of prescription drugs, prosthetic devices and "tangible personal property" to health-care facilities.

Fund-raisers for schools (SB 3070, SD1): Exempts from the general excise tax fund-raisers by registered nonprofits for public schools or health and human services.

Job training (SB 3258, SD2): Creates a tax credit for technology training or job creation.

Meal deduction (SB 2450): Increases the deduction for meals and entertainment to 80 percent as a way to help businesses.

Renovation (SB 2260, SD1): Provides a 50 percent tax credit of the total planning costs associated with renovating a home or business.

GOVERNMENT OPERATIONS

Consolidation (SB 3129, SD2): Consolidates the Budget and personnel departments into a new Administration Department.

Consolidation (SB 3076, SD1): Creates a contracts office within the Human Services Department to provide centralized administering of purchase-of-service contracts for the Human Services and Health departments.

Local preference (SB 2501, SD2): Increases the local preference for bidders on state contracts from 7 percent to 15 percent, which means an isle contractor can submit a bid that's 15 percent higher than that of a mainland bidder and still get the contract; applies local preference to subcontractors, too.

Open government (SB 2983, SD2): Attaches the Office of Information Practices to the Judiciary for administrative purposes; requires that the state Supreme Court appoint OIP's director instead of the governor.

Secrecy (SB 2915): Allows state boards to hold closed meetings to discuss the solicitation and acceptance of private donations.

STATE WORK FORCE

Early retirement incentive (SB 2336, SD1): Offers retirement incentives for state and county employees - based on age and years of service - except for educators as a way to trim the state budget.

Salary overpayments (SB 2776, SD2): Requires state workers who have received salary overpayments to be paid on an after-the-fact basis rather than on a "predictive" basis. State's salary overpayments exceed $2.5 million.

Salary payments (SB 2777, SD1): Allows the state to pay all new employees by electronic funds transfer, and to pay new workers on an after-the-fact basis to prevent salary overpayments.

Vacancies (SB 2263, SD1): Requires the transfer of all vacant general-funded positions to "vacancy pools" where 50 percent of the positions would be abolished with the funds lapsing to the general fund; remaining positions to be reallocated by the governor and the chief justice; prohibits creation of new exempt positions.

Judges retirement benefits (SB 588, SD1): Requires that judges serve at least 10 years and attain the age of 55 before they are eligible to receive retirement benefits.

BISHOP ESTATE

Charitable trusts (SB 3037): Requires that compensation for trustees of the Bishop Estate and other charitable trusts be limited to a reasonable amount; disputes over what is reasonable to be settled in court.

BUSINESS

Job reference liability (SB 3088, SD1): Gives "qualified immunity" from lawsuits to employers if they provide job performance information about a current or former worker to a prospective employer.

Small-business advocate (SB 2923, SD1): Gives the state ombudsman the additional responsibility of being an advocate for small business.

ECONOMIC REVITALIZATION

Tax reform (SB 2215, SD1): Reduces income taxes, corporate and franchise taxes; exempts from excise tax food for home consumption and exported services; subjects imported services to the excise tax; repeals food tax credit.

ELECTIONS

Campaign-contribution whistle-blowers (SB 2246, SD2): Imposes a civil fine on anyone who retaliates against someone who reports illegal campaign contributions.

'Clean' election (SB 2399, SD2): Establishes a pilot program for "clean elections" for governor and lieutenant governor in 2002; requires participating candidates to comply with expenditure limits and raise no private contributions except for seed money and minimum qualifying contributions; funds to come from the Hawaii election campaign fund.

Elections by mail (SB 2121, SD1): Permits special county, state and federal elections to be held by mail.

HEALTH

Cigarette fines (SB 2849, SD1): Increases the fines for selling cigarettes to minors from a maximum of $100 to a flat $500, increases the minimum fine for subsequent offenses from $100 to $500 and the maximum fine for subsequent offenses from $1,000 to $2,000.

Hawaiian medicine (SB 1946, SD1): Allows native Hawaiian healers to practice medicine without a license.

HUMAN SERVICES

Child protection (SB 2987, SD2): Makes child safety the priority for Child Protective Services, rather than on family reunification.

Human services fund (SB 2746, SD2): Creates a human services special fund that would be funded by a voluntary check-off channeling a portion of a person's tax refund to human services.

LAND USE

Land Use Commission (SB 2063, SD2): Renames the state Land Use Commission the state Planning Commission; gives the state panel sole authority in conservation and agricultural districts; gives the counties sole authority in urban and rural districts and sole authority over zoning matters.

PUBLIC SAFETY

Criminal history checks (SB 2667, SD2): Allows counties to require criminal history checks on current or prospective employees who are or will be working closely with children.

Prisons (SB 3220, SD1): Establishes a planning commission so that Kau residents can have a voice in any state plans for a prison in their Big Island district.

Sexual assault (SB 2736, SD1): Creates a felony sex offense for an adult to have sex with a minor under the age of 18 if the adult is more than 5 years older.

Wiretapping (SB 2400, SD1): Makes wiretapping and electronic surveillance easier in Hawaii by making state law conform to federal statutes.

HOUSE

Key measures the House sent the Senate:

FEE INCREASES

Child-care facilities (HB 3030, HD2): Allows the Human Services Department to charge as much as $100 for licensing fees for group child-care centers; allows the department to privatize the administration of child-care services.

Documents (HB 2865, HD2): Raises fees for certified copies of vital records from $10 to $11; adds divorce certificates to the increased charges; increases marriage license fee from $25 to $40, of which $10 goes to the cash-strapped general fund.

Harbor use (HB 3489, HD2): Allows the Transportation Department to charge vessels for using state commercial harbor facilities or property if they are engaged in any business other than commercial fishing.

Hunting licenses (HB 2957, HD2): Increases the fee for a duplicate hunting license from 50 cents to 50 percent of the current cost of a resident license.

Insurance-related charges (HB 3106, HD2): Doubles insurance-related fees - one goes as high as $2,000 - for such things as certificates of authority and licenses for services; stipulates that one-half of all fees and penalties be credited to the cash-strapped general fund.

FUND TRANSFER

Special funds (HB 1533, HD2): Authorizes more than $7.7 million in transfers to the general fund from five special funds, two of which have not yet had the amounts specified.

TAX BREAKS

Travel agents (HB 2749, HD1): Reduces the general excise tax on airline ticket commissions to 0.5 percent, gives an unspecified excise tax reduction to taxi services and real estate agents.

GOVERNMENT OPERATIONS

Efficiency (HB 2567, HD2): Establishes a government efficiency task force to eliminate state and county duplication of services.

Maritime authority (HB 2998, HD2): Creates a temporary Hawaii Maritime Authority to explore whether a permanent commission should be created to run isles' harbors and ports.

Privatization (HB 3199, HD2): Allows state and counties to enter into privatization contracts in which services can be provided more cheaply and efficiently than by a government entity.

Regulation (HB 2557, HD2): Requires agencies to take no more than 90 days to review and act on requests for permits and licenses.

Streamlining (HB 2566, HD2): Establishes seven-member panels to supervise implementation of plans for streamlining state budget, accounting and procurement systems and public-private competition for government services.

STATE WORK FORCE

Civil-service positions (HB 2552, HD1): Requires that vacant civil-service posts not be filled unless the governor or chief justice determines that the positions are critical.

Health fund (HB 3071, HD1): Discontinues state and county contributions to the public employees' health fund for beneficiaries as of July 1, 1999; state workers to pay for beneficiaries' coverage.

Payroll (HB 3429, HD1): Establishes a pilot program to privatize the processing of the state payroll.

Retirement benefits (HB 144, HD2): Eliminates overtime compensation from the calculation of retirement benefits for state workers who become members of the state retirement fund, beginning July 1; also states that overtime is not to be used in calculating a member's contribution to the annuity savings fund.

ABORTION

Partial-birth abortions (HB 2973, HD2): Prohibits partial-birth abortions after the 19th week of pregnancy; exposes doctors who perform the procedure to civil action and having their medical licenses revoked.

BUSINESS

Cigarette tax stamp (HB 3065, HD2): Requires cigarette packs to carry a tax stamp to curb black-market sales; delays raising the cigarette tax from 4 cents to 5 cents a cigarette to June 30, 1999.

Employment practices (HB 3528, HD1): Allows employers to consider the criminal convictions of present or potential employees without threat of employment discrimination suits.

ECONOMIC DEVELOPMENT

Aquaculture (HB 3625, HD3): Creates an aquaculture program with the Agriculture Department; removes agricultural development from the Department of Business, Economic Development and Tourism.

Sports complex (HB 2549, HD1): Provides for a sports training complex to lure professional teams from the mainland and abroad; waives taxes for 10 years.

ELECTIONS

Campaign contributions (HB 1160, HD1): Includes political parties and their national affiliates under contribution limits set for political action committees and individuals, meaning the amount parties can give is reduced from $50,000 to $6,000. Republican gubernatorial candidate Linda Lingle blames Gov. Ben Cayetano for the bill ue8 and says it is directed at hurting her campaign.

Election eligibility (HB 2529, HD1): Proposes an amendment requiring a legislative candidate to be a qualified voter in the district he or she is seeking prior to filing nomination papers.

LAND USE

Waiahole Ditch (HB 2990, HD2): Establishes a revolving fund for the acquisition and operation of the Waiahole Ditch water system.

PUBLIC SAFETY

Criminal trespass (HB 2355, HD1): Allows police to issue written orders requiring trespassers to not return to any business or private property for as long as a year.

Drivers license revocation (HB 3082, HD1): Requires motorists who habitually drive while under the influence of drugs or alcohol who are facing a new charge of DUI to have their licenses subject to revocation.

DNA test (HB 2786, HD2): Requires a defendant convicted of a sexual or violent offense to provide blood samples for DNA analysis.

HIV test (HB 1595, HD1): Allows sexual-assault victims to require the accused to submit to an HIV test; allows victims to get the test results.

Prisons (HB 3033, HD2): Authorizes Gov. Cayetano to enter into private contracts for the construction of a state prison and allows the state to lease and/or purchase the facility.

TOURISM

Hotel room tax (HB 2554, HD2): Raises the hotel room tax from 6 percent to 11.5 percent including covering the proposed excise tax of 4.5 percent; exempts the rental of hotel rooms from the excise tax; provides funds for counties, tourism marketing and the state convention center from the room tax; increases the tax credit for TV and motion-picture filming to 11.5 percent.

Waikiki environmental studies (HB 3255, HD1): Requires that when the environmental assessment process for Waikiki developments is duplicative that the county's ordinances, not the state's, shall prevail; but stricter state laws shall govern when there is no duplication.

TRANSPORTATION

Ferry system (HB 2366, HD2): Authorizes, using a private-public partnership, an intra-island ferry system from Leeward Oahu to downtown Honolulu.

UNIVERSITY OF HAWAII

Autonomy (HB 2560, HD2): Restructures the University of Hawaii into a quasi-public corporation, allowing it to own and manage lands, funds and resources.

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Mike Yuen, Star-Bulletin