Tax-reform
proposals debated

Agreeing on about a dozen
fiscal bills is all that is left, says
House Finance Chairman Say

By Mike Yuen
Star-Bulletin

House and Senate negotiators are close to agreeing on a tax relief plan for isle residents, but they're far apart on determining what tax exemptions and credits should be granted as economy-boosting business incentives, says House Finance Chairman Calvin Say.

Say's assessment came late last night during a break in private deliberations between House and Senate conferees that continued early today.

With conferees on Saturday agreeing on a supplemental budget that cuts $151 million from the state's current two-year spending plan, negotiations have moved on to about a dozen fiscal-related bills.

If agreements on the measures can be reached today, the already twice extended legislative session could adjourn Wednesday, eight days behind schedule. The Hawaii Constitution requires that bills be in their final form for 48 hours before final votes are taken.

During the weekend, both sides exchanged revised tax reform proposals, said Say (D, Palolo), who did not provide any details.

Faced with the Senate's refusal to consider an increase in the general excise tax as part of any plan to boost the isles' economy, the House dropped its proposal to raise the excise tax from 4.0 percent to 4.5 percent.

With the tax increase, the House's plan provided greater tax relief -- as much as a 35 percent reduction in tax rates over three years -- than the Senate's. The Senate plan stressed government downsizing and offered tax breaks, such as for lifetime learning and technology training.

"I lost the battle over the 0.5 (tax increase)," Say said. It would have helped to provide a $265 million "windfall" for taxpayers, he maintained.

The $151 million cut from the two-year budget gives lawmakers the room to offer an 8 percent to 10 percent cut in personal income taxes, Say added. That's modest assistance, Say said.

The co-chairwomen of the Senate Ways and Means Committee, Rosalyn Baker (D, Lahaina) and Carol Fukunaga (D, Makiki), were unavailable for comment last night.

During previous public conference committee discussions, Say expressed concerns that the Senate's tax incentives would cost tens of millions of dollars that the state would have a hard time paying.

But Baker countered that the Senate's tax credits and exemptions aren't actually a loss since they haven't been offered. She pointed to Gov. Ben Cayetano's hotel renovation tax break, which the Legislature approved last year. Although it is on the books, no one has yet taken advantage of it, so there's been no loss, Baker said.

Say said he's been getting telephone and fax messages saying that more should have been cut from the state budget. But, he noted, earlier when he proposed his cuts, there was a flurry of messages insisting that particular programs be spared from the budget ax.

"So I am caught between a rock and a hard place at this juncture," Say remarked.

The $151 million in budget cuts is a far cry from the $229 million that the House wanted slashed and the Senate's $275 million reduction.

Say said the University of Hawaii and the Education and Public Safety departments were hit the least. Harder hit were smaller departments, he said.

In the end, the Senate backed off from its stated position to impose deep cuts to two key programs -- the federally mandated Felix decree on mental health special education services for students in the statewide public-school system, and the QUEST health services program for low-income families.

Baker said Saturday that the Senate always intended to fund both programs "at an appropriate level."

"We just wanted to verify the numbers," Baker explained. "With regard to Felix, we wanted to make sure that both the Department of Education and the Department of Health moved forward together; that you didn't have one set of bureaucracy here and another set of bureaucracy there and the kids getting lost in the middle. ... I think our point was made."

Budget highlights Key elements of the budget bill that House and Senate conferees approved: Cuts $151 million from the current two-year budget. Lays off workers, but the number was still being tallied yesterday as the budget bill was being proofread. Keeps vacant positions on the books but reduces the funding for those positions by 20 percent to 60 percent. Cuts only $1.5 million from QUEST, which provides health services for the needy, instead of the $23 million that the Senate was seeking. Provides $15.6 million to the Health Department but nothing to the Education Department for federally ordered mental health services for special-education students in public schools. Maintains Department of Education funding at its current level, instead of imposing drastic cuts -- such as laying off 437 administrators and support personnel -- that the Senate wanted. Doesn't allocate any pay raises for workers in the Hawaii Government Employees Association union and the blue-collar United Public Workers union. Doesn't provide any funding for the relatively generous severance and early retirement packages that the Senate wanted to use to get people to leave state government. Eliminates the Senate-inspired budget provision that would have withheld $5 million from the operator of the Hawaii Convention Center, Spectacor Management Corp., if noise and traffic complaints weren't resolved. Restores $2.2 million for the planning and design of a Big Island prison that the Senate didn't want to fund. Provides $1.8 million in general funds to move government offices to the new state building in the second city of Kapolei; the Senate didn't want to fund the move. --Mike Yuen, Star-Bulletin