Editorials
Wednesday, May 13, 1998

Cayetano wins limited
income-tax relief

GOVERNOR Cayetano watched in frustration as the Legislature abandoned the key feature of his economic revitalization program, the proposed increase in the general excise tax, which was supposed to partially offset cuts in personal and corporate income-tax rates.

In the end the governor had his way in some respects, demanding and getting larger reductions in personal income taxes than the legislators had agreed to, by refusing to agree to another extension of the session.

The result is a reduction in personal income-tax rates that is estimated to produce $752 million in savings in four years. Proposed reductions in corporate income-tax rates, business tax credits and exemptions were dropped. This gives Cayetano a basis for claiming in his campaign for re-election that he did something to ease the burdens of Hawaii residents and to revitalize the economy. But the extent of tax relief will be modest and the impact on the economy doubtful.

Not that the excise tax increase would necessarily have been any better. It would have permitted larger income-tax cuts but taken some of the money back to avert drastic reductions in spending on state programs. Many people were unpersuaded that this was the way to go.

House Finance Chairman Calvin Say explains that the income-tax cuts are possible because of savings from recalculations on state workers' pension costs, reimbursements from overpayments to the state workers' health fund, surpluses in several special funds and increases in fees.

Say didn't mention major cuts in funding of state programs. Evidently there will be few or none. Although waste in government programs must be addressed, wholesale cuts to match major tax reduction would have been counterproductive, especially at a time when more residents need assistance.

The need to balance the state operating budget made this legislative session a painful one as lawmakers struggled to find ways to provide tax relief while maintaining essential state programs. It isn't surprising that the resulting balancing act achieved no dramatic breakthroughs.

Given the constitutional restraints, the idea that the Legislature could quickly turn the economy around through tax relief was never realistic. But even these modest measures are welcome. The current 10 percent top income-tax rate is too high, and too many people have been paying it.

Workplace legislation

LEGISLATION aimed at improving efficiency in county and state governments fell woefully short in this year's session but may at least prevent further deterioration in the coming year. Lawmakers intent on achieving a leaner government and an improved business climate should begin working immediately on improvements for enactment in the 1999 session.

A state Supreme Court decision early last year seriously hampered counties and the state from contracting out government services to private companies. Last year's Legislature refused to address the issue, and legislation enacted this year may be little more than a placebo. Private companies may enter into short-term government contracts but will be discouraged from investing resources needed for a long-term commitment.

Under the bill, contracts would be subject to a "managed competition" process aimed at comparing the cost of services presently performed by government employees with that proposed to be performed by private companies. The concern is that public employee unions will carry as much if not more influence into the decision-making as the clout they exerted in the Legislature. If so they may block all privatization proposals.

A compromise measure aimed at addressing problems in the workplace created by another Supreme Court decision also is inadequate. The high court ruled that an employee may be eligible for workers compensation if the employee's stress was caused by a suspension, firing or other disciplinary action.

The Legislature approved a bill that would relieve employers from making payments to nonunion employees if the discipline was imposed in good faith. If the compensation was sought by a union employee, the employer would be required to show "just cause." That is a higher standard used in most union contracts, which cover all city and county civil-service jobs and much of Hawaii's private sector.

Problems created in the government and business workplaces by the court rulings will continue until legislators address them effectively. Unfortunately, that did not happen in the session just concluded, and legislators should be under no illusion that they laid these issues to rest.

City reorganization

THE new majority on the City Council is receptive to Jeremy Harris' reorganization plan but its one-vote margin isn't enough to place amendments to the City Charter on the ballot. On 5-4 votes, the Council's Policy Committee approved the mayor's plans to merge the Department of Planning with Land Utilization, to combine the Budget and Finance departments, and exempt deputy directors from civil service requirements.

However, it takes six Council votes to place amendments on the ballot, which leaves the majority one vote short on each question. The deadline to obtain the needed sixth vote is Aug. 5. In view of the heated atmosphere on the Council and the four-member minority's hostility toward Harris, it's quite possible that the proposed amendments will die.

That would set back the cause of streamlining city government. No alternate proposals are on the table. The question then would be who would take the blame the next time Harris and the Council members face the voters.

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