Even flush, state leaders must be careful with tax money

THE ISSUE A boost in revenues gives the governor and legislators room for tax cuts and increased spending.

A POLITICIAN'S dream of handing out tax cuts and at the same time increasing government spending in an election year might well become reality as Hawaii's revenues are projected to exceed expectations.

As they prepare for the legislative session that begins in January, Governor Lingle and state lawmakers see a flush economy providing that rare opportunity.

Prudence would dictate some restraint, but having deferred improvements and trimmed back important projects during lean years, officials should line up spending priorities with an emphasis on education and school repairs.

Moreover, as residents face unyielding increases in the costs of food, clothing, health care and shelter while wages fail to keep pace, tax cuts would lighten the burden.

The governor, in outlining a supplemental budget proposal for the coming year, has proposed to return to taxpayers as much as $300 million, or about half of the revenue the state expects to collect. Though she has not put down firm plans, she would likely renew her goal to raise the standard income tax deduction and to shift tax brackets to lower rates.

While legislative leaders are reserving judgment, there has been talk about tax cuts. However, lawmakers also want to consider using revenues to make up for deficiencies, particularly in school repairs and maintenance that have accrued in years past.

Senate President Robert Bunda says he believes many taxpayers would give up tax cuts if the money is used to pare the half-billion dollars in deferred school revamps.

Be that as it may, some tax assistance is badly needed, especially on Oahu where home values have soared, sending property taxes through the roof, and as an excise tax surcharge to pay for a transit project looms.

Reductions should be aimed at lower income people and the working poor who have been priced out of the housing market and can't afford to rent, much less buy, a decent place to live. The governor and lawmakers should consider an earned income tax credit, a strategy several other states have adopted. Hawaii's current income tax on the working poor is among the nation's highest.

As in the past, spending for education will be a point of contention. Lingle has proposed $50 million for capital improvements, less than half of the $160 million the Department of Education has requested. In addition, she wants nearly $3 million to start up new charter schools, something legislators have opposed because of problems at some existing charter schools.

The governor's budget plan serves as prelude to 2006 when all House members, half the Senate and Lingle herself will face voters. Though she still has no Democratic challenger, the governor and legislators are fully aware that today's revenue boom can easily go bust. That and the nature of politics should keep spending in line.