Gas tax holiday
proposed on Maui

The mayor favors suspending the
county's per-gallon bite of 18 cents

With gas prices approaching $4 a gallon on most parts of his island, Maui Mayor Alan Arakawa is proposing a two-month suspension of the county's 18-cents-per-gallon gas tax.

Arakawa submitted the request to the County Council yesterday.

He said two months should be enough time for gas prices to stabilize and for the state's gasoline price cap to either prove itself or be discontinued.

"What our people need is less expensive fuel, and they need relief now," Arakawa said in a news release.

Arakawa said the two-month tax holiday would cost the county about $2.1 million that could be offset by unanticipated revenues from real property tax collections and the county's portion of transient accommodation taxes. He also identified the availability of $5.1 million in county funds already set aside as "rainy day" funds.

There was no immediate response from the Council.

As the damage from Hurricane Katrina sent energy prices to record highs across the country, other states explored similar "tax holiday" proposals.

Earlier this month, Georgia lawmakers suspended the state's 7.5-cents-a-gallon gas tax and its 4 percent sales tax on gasoline until Oct. 1.

In Hawaii, Republicans have long called for a reduction in taxes to lower the cost of gasoline.

According to the American Petroleum Institute, taxes add about 60 cents to the cost of a gallon of gas in Hawaii -- the second-highest rate in the nation behind New York's 63 cents.

Island gas costs include 18.4 cents in federal taxes, 16 cents in state fuel taxes, the 4 percent general excise tax and county taxes, which vary by island with Maui's rate of 18 cents being the highest. Honolulu's taxes are 16.5 cents, Kauai's are 13 cents and the Big Island's, 8.8 cents.

Gov. Linda Lingle, in her weekly radio show yesterday, said she was exploring the possibility of suspending the 4 percent general excise tax on gasoline. Lingle has said she would not want to suspend state fuel taxes because those dollars are matched by the federal government 4-to-1 when used for transportation projects.

Senate Minority Leader Fred Hemmings (R, Lanikai-Waimanalo) also called for a moratorium on gas taxes.

House Majority Leader Marcus Oshiro (D, Wahiawa-Poamoho) said eliminating the general excise tax on gas could have a major impact on the state treasury.

"We are always open to ideas, but this is one that needs to be reviewed thoroughly because of the loss of tax revenue," Oshiro said. "I'm concerned that the governor has casually offered such a tax cut before studying the matter, and I hope she is not unfairly raising expectations of the public."

He said he hopes the gas price cap law will be given a chance to work, and he is confident it will help bring down the cost of gas for consumers.

Bill Brennan, press secretary for Honolulu Mayor Mufi Hannemann, said the administration is concerned about rising gas prices but it is not ready to follow Arakawa's lead.

"Suspension of the county's share of the gasoline taxes is not something that we would consider doing right now," Brennan said. The administration plans to monitor the gas price cap "to see where this is going and what impact that it has."

Kauai Mayor Bryan Baptiste said he had not reviewed Arakawa's proposal and could not comment on it.

"We're having discussions on what the county can do to help provide relief for the situation our residents face with rising gas prices," Baptiste said yesterday.

The county also is studying transportation alternatives, he said, such as the Kauai Bus. Due to an increase in ridership and interest, county officials said are expecting to shift routes and schedules to accommodate more riders.

Hawaii County Managing Director Dixie Kaetsu said Mayor Harry Kim's administration has not considered such a tax holiday, and the need for it might be decreasing with the cost of gas expected to go down next week under new price caps set by the Public Utilities Commission.

"We have not looked at that," she said. "We're already stretched pretty thin to make that (8.8 cents) do all the things we need to do."

The administration's Office of Information and Complaints has not informed her of any special influx of complaints about gasoline prices, Kaetsu said.

Gas cap drops but
relief not certain

Retail economics could keep
prices high for a while yet

New gasoline price caps for next week are 50 cents lower than current price ceilings, but there could be some lag time before motorists see a similar decrease at the pump, analysts say.

Just as there is a lag before prices max out when the price cap increases, a similar delay should be expected when the caps are set lower, said Jack Suyderhoud, a professor of business economics at the University of Hawaii.

"If consumers go hoping that the price is coming down immediately on Monday, they're probably not going to see that," Suyderhoud said. "If the prior patterns of price lags hold true, then they may not see it happening immediately at the beginning of the week."

The new prices caps were set by the Public Utilities Commission yesterday, using a base-line price of $2.09 a gallon, which represents an average of spot prices from the past five business days in the Gulf Coast, New York and Los Angeles.

The new base line is 50 cents lower than that used for current price caps, reflecting the nationwide decline in gas prices following recovery efforts in the Gulf Coast from Hurricane Katrina.

If wholesalers charge up to the cap and dealers maintain traditional markups, prices next week for regular unleaded would be about $3.10 a gallon on Oahu, $3.26 on Maui, $3.21 on Kauai, $3.18 in Hilo and $3.20 in Kona.

This week, Hawaii's prices have soared to the highest in the country, topping out yesterday at $3.46 a gallon for regular unleaded, according to AAA's Fuel Gauge report. That statewide average was 16 cents higher than the next-highest site, Washington, D.C., and 52 cents higher than yesterday's national average, AAA said.

Consumer behavior is likely to be a key factor in determining how quickly prices come down in Hawaii.

Retailers are now filling their tanks with gasoline priced under the current caps. If consumers put off buying gas expecting the price to go down when the new caps begin, some retailers will have to carry the supply of higher-priced gas into the week.

"There might be a lot of stations with expensive gas in the tanks, and they might not be terribly inclined to lower the price until later in the week," Suyderhoud said.

However, if a retailer has to buy more gas at the beginning of the week, the savings realized under the new price caps could be passed along immediately, creating competition that might force other stations to lower their costs.

"They can lower prices in order to get people into the stations, or they can just hold on to their inventory," Suyderhoud said. "I just don't know which of those is going to play out. Maybe you'll see a bit of both."

Similar situations have occurred since the law took effect Sept. 1, leading to a variety of prices at stations. Some prices varied as much as 37 cents between stations within a 1-mile radius of each other on Oahu.

Barney Robinson, who operates two Chevron stations on Oahu, said it highlights the problems caused by the gas cap for dealers.

"There are going to be situations when we're forced to sell gas lower than what we bought it for," Robinson said.

Supporters of the "gas cap" say the law has given consumers more choices than ever before.

"Now that we can get the information out there, we can actually empower people to shop around and find the best deals in their community," said House Majority Leader Marcus Oshiro (D, Wahiawa-Poamoho).

He said customers putting off their gas buying to wait for better prices would be no different from department store shoppers waiting for certain items to go on sale.

Robinson said he is happy to be able to pass along savings to consumers, but added that the price controls are creating uncertainty.

"What it does do is create supply issues that is all new territory to us," Robinson said. "Prior to the gas cap, we had fairly predictable, fairly reliable sales, and we knew what to expect. Now we don't know what to expect.

"It's challenging to try to keep the inventory on hand to meet the new volatile demand that is caused by the gas cap."

GAS CAP HELP How to contact the state about Hawaii's gas cap law: Public Utilities Commission www.hawaii.gov/budget/puc/gaspricecaps Commerce and Consumer Affairs www.gascap.hawaii.gov Hotlines for consumers: 586-2769, on Oahu; (800) 830-4295, toll-free, from neighbor islands. Business, Economic Development & Tourism www.hawaii.gov/dbedt/ert/gasoline/gasoline.html Hotline for owners and operators of gas stations: 586-2752 E-mail: gasoline@dbedt.hawaii.gov AAA Fuel Gauge Report: www.fuelgaugereport.com