House hopes to woo
Senate on tax hike

The House stays with
an excise tax hike spurned by
senators earlier

By Craig Gima and Pat Omandam
Star-Bulletin

Wearing bright yellow buttons that said "Rally the Economy, ERTF Yes," House leaders managed to rally enough votes to pass a package of personal income tax cuts combined with a general excise tax increase for the second time this session.

But the battle over how to revitalize the economy with tax cuts will continue in conference committee.

The 28-23 House vote sets up a showdown with the Senate which passed a budget 25-0 with smaller personal income tax cuts, but no general excise tax increase.

House Finance Chairman Calvin Say (D, Palolo) said the key to persuading the Senate to support increasing the general excise tax from 4 percent to 4.5 percent is to educate the public that the House package will mean an overall tax savings of $568 million over the next three years.

"We'll try our very best with the support of the administration and the task force members and the public at large. They really gotta understand that there's a tremendous amount of savings in regard to the personal income tax," Say said.

But Senate leaders were adamant in defense of their budget and its personal income tax cuts of $150 to $200 million over three years.

"We believe the budget before us is in tune with the overwhelming sentiment -- not only just in this body but in the community -- that a tax increase is a wrong approach, and this is the wrong time for such an increase," said Ways and Means Co-Chairwoman Rosalyn Baker (D, Lahaina).

Republicans in the House proposed a floor amendment to take the excise tax increase out of the tax package, but the amendment was defeated 38-13 when only one Democrat, Rep. Ed Case (D, Manoa) voted with the minority party.

Case said an excise tax increase will siphon money from the private sector that pays for the social programs funded by government.

"Without true economic revitalization, the private economic actions that pay for those programs will continue to falter and those programs will surely die," he said.

A general excise tax increase "isn't a bright idea when your economy isn't working well because people are not spending," said Rep. Galen Fox (R, Waikiki).

But Say pleaded with lawmakers to pass the tax package to help revitalize the economy.

"I'm doing it for the minority leader's son, for my two sons," he said. "If I can create them opportunities in the next decade for them to have the opportunity of living in the state of Hawaii."

Supporters of the House plan said the tax increase must be considered as part of a package that will put more money in consumers' pockets and encourage spending.

"It will help our economy and benefit our people in the long term," said Rep. Felipe Abinsay (D, Kalihi-Moanalua)

Republicans were joined by 11 Democrats in voting against the measure.

Senate lawmakers touted their version of the state budget as "fiscally sound." Baker said the budget builds on the Senate's philosophy to broaden the state's economic base, create new jobs and instill accountability in education.

It also maintains essential public services, while it reduces the cost and size of government.

And it does so by not raising the general excise tax as the House has proposed, Baker said.

"They cut funds out of education, they cut funds out of direct services to people, they cut peoples' jobs, and yet they still raise taxes," Baker said.

Budget cuts: The Senate proposal also cuts $275 million from the two-year budget passed last year; the House proposed $229 million in cuts.

The Senate eliminates 437 currently filled jobs and eliminates 987 vacant positions. An extra 172 employees would be paid from special funds instead of general funds.

Senators approved by a vote of 22-3 a severance and retirement incentive package that gives up to 13 weeks of severance pay to laid off employees, while offering an additional year of service credit to workers who are close or ready for retirement who face layoffs.

Sen. Norman Sakamoto (D, Moanalua-Salt Lake) said the last time the state offered early retirement, there was an unanticipated cost of rehiring state workers who took the early out.

"Neither the private sector nor government safety nets can be expected to support the 400-plus employees that may be effected," Baker said.

The Senate budget and severance plan and House tax package are just a few of hundreds of bills that will be going to conference committee in the final weeks of the Legislature.

The House and Senate will try and work out the differences between the two bills.

Land use: In the House, a bill to give the counties more say in land use decisions and reduce the role of the state Land Use Commission generated opposition from representatives who argued it would lessen environmental protections and lessen public input.

"This isn't land use reform, this is land use violation," argued Rep. Cynthia Thielen (R, Kailua).

But Fox said the counties are capable of making land use decisions and change is long overdue.

Say said the measure would create a land use approval process that is quicker and better for business while still maintaining public participation.

Judges' pay: Rep. Terrance Tom (D, Kaneohe) argued for a measure to give judges an undetermined pay raise.

"It is wrong to deny these important public servants a pay raise," Tom said. He noted judges have not had a raise since 1990.

But Rep. Bob McDermott (R, Salt Lake-Aiea), noting the tight budget, said, "There is no way we should be giving raises to anyone."

Workers comp: Other measures headed for conference from the Senate include a bill that bans stress-related claims from workers compensation due to job discipline.

It passed the Senate by a 15-10 vote.

Sen. Randall Iwase (D, Mililani) again warned the bill is narrowly drawn and doesn't address other stress-related claims such as job demotion, lack of promotion or job transfer.

Industry officials have told Iwase workers comp premiums will go up as a result of the plan. Both he and Sakamoto urged colleagues to rework the bill in conference.

"The court ruled we should fix it, so I believe we should just fix it -- no games, just fix it correctly," Sakamoto said.

Sen. Brian Kanno (D, Ewa Beach), however, said the Hawaii Supreme Court ruled the Legislature can amend state law to exclude injuries resulting from disciplinary actions. But it didn't discuss other personnel action, he said.

Hotel room tax increase: The Senate by a 23-0 vote also passed a bill that increases the hotel room tax to 11.5 percent. The measure also makes time-share properties subject to the tax -- which Sen. Sam Slom (R, Hawaii Kai) says is unconstitutional.

Iwase is worried a bill on information technology -- which also includes tax credits for learning, job creation and technology training, and established a Hawaii tourism authority -- may be too narrow in title and could be challenged in court. But Senate leadership believes otherwise. Baker said high technology and tourism are two forces driving the economy that are linked.

In an unanimous vote, the Senate passed a measure that, among other things, provides tax relief to individuals, extends the energy tax credits, increases deductions for entertainment expenses and allows a tax credit for technology training and job creation.

Against GET hike The 23 House members who voted against a general excise tax increase from 4 percent to 4.5 percent during second crossover were: Republicans Quentin Kawananakoa (Nuuanu), Barbara Marumoto (Waialae Iki), Sam Aiona (Makiki-Tantalus), Bob McDermott (Foster Village), Mark Moses (Ewa-Kunia), Cynthia Thielen (Kailua-Kaneohe Bay Drive), Colleen Meyer (Laie-Kahaluu), David Pendleton (Maunawili-Kaneohe), Paul Whalen (South Kona-North Kona), Chris Halford (Makena-Kihei), Gene Ward (Hahaione Valley) and Galen Fox (Waikiki). Democrats Ed Case (Manoa), Hermina Morita (East Maui-North Kauai), David Stegmaier (Hawaii Kai), David Tarnas (Kailua-Kona), Lei Ahu Isa (Puunui), Scott Saiki (Moiliili-McCully), Mark Takai (Newtown), Roy Takumi (Pearl City), Kenneth Hiraki (Kakaako), Dwight Takamine (North Hamakua-North Hilo) and David Morihara (Puunene-Kula).