$1 rebate mandated in face of deficit


POSTED: Sunday, February 01, 2009

Even as Hawaii's economy spirals downward and the state's budget runs short, the state is having to pay island residents an inconsequential $1 tax rebate.

Hawaii's Constitution requires that the government pay residents when there's a surplus in the state budget, although that surplus has long since disappeared.

And this tax refund won't be any kind of economic stimulus either. A $1-per-person rebate isn't going to create jobs or encourage consumer spending.

“;It's ironic that the refund comes as our economy is going down,”; said Lowell Kalapa, president of the Tax Foundation of Hawaii. “;Now we're in a pinch.”;

The state constitution requires that taxes be refunded whenever the state ends the year with more than 5 percent of the money collected for the general fund.

So even when tax collections are falling short, a tax rebate is still owed if the state's leaders don't spend enough.

“;It's time that we really examine and review that policy,”; said Rep. Marcus Oshiro, chairman of the House Finance Committee.

Oshiro (D, Wahiawa-Poamoho) has introduced a bill that calls for an amendment to the Hawaii Constitution repealing the required rebate.

The rebate, which can be claimed when residents fill out their annual Hawaii tax forms, also amounted to $1 per person last year for a cost to the state of about $1 million, Oshiro said. The biggest rebate was $125 in 1989, but most years it has been $1.

Most residents would prefer that the money be spent on schools and health care, said Rep. Isaac Choy (D, Manoa).

“;The rebate will never be big enough to make a difference to the people who get it,”; said Choy, a former chairman of the Tax Review Commission. “;We should have a constitutional amendment to repeal that.”;

The tax-refund idea was made law following the state's 1978 constitutional convention, when delegates felt there should be a check on the government's taxing and spending, Oshiro said.

But the rebate doesn't necessarily keep up with the times.

The state's balance at the end of the 2008 fiscal year was $331 million, but the state is short more than $75 million for this fiscal year, which ends June 30. Next year, the state is forecast to have a $315 million deficit unless government spending shrinks.

Hawaii's tax rebate is unique, although at least six other states - Maine, Ohio, Oregon, Colorado, Massachusetts and Missouri - have different mechanisms that force the government to give money back to the people, according to the National Conference of State Legislatures.

Another proposal pending before the Hawaii Legislature seeks an amendment to the state constitution that would automatically set aside money into emergency accounts when tax revenues are forecast to increase by more than 7 percent.

That way, the state could save money when times are good and spend it when the economy turns sour, said the bill's sponsor, Rep. Karl Rhoads (D, Kakaako-Downtown).

“;When the economy isn't doing so well, we have to cut everything like we are now,”; Rhoads said. “;You're better off in the long run if your spending doesn't go up and down as much.”;

Only four lawmakers voted “;no”; to the $1 rebate last year, all of them Republicans who argued that the tiny amount was an insult to taxpayers.