Sales tax proposal a way for legislators to pass the buck


POSTED: Friday, April 10, 2009

For years, Hawaii's county governments sought authorization to raise revenue through means other than property taxes and for years, the state Legislature flatly turned them down.

This time, however, lawmakers have surprisingly decided to move ahead a bill that would give counties permission to levy a retail sales tax.

The sudden change of heart comes with a catch. Lawmakers, most prominently the Senate money committee led by Donna Kim, want to pinch the counties' shares of the hotel room tax to help balance the state's budget. In exchange, legislators would deign to loosen, to a small degree, their rigid hold on taxing power.

Thanks, but no thanks, said the Hawaii Council of Mayors, who see through the legislative largesse. The mayors aren't so politically naive that they don't recognize that underlying the bill's seemingly high-minded language about “;innovative approaches to local problems”; and “;self-sufficiency”; is merely legislative buck-passing on raising taxes.

The measure generously offers the counties — which do not have agencies able to collect sales taxes — the help of the state Department of Taxation to do the work for them. This also comes with a catch: a 5 percent skim off the top of revenues, ostensibly to cover the department's costs.

Honolulu taxpayers know how that would go. Since 2005 when lawmakers allowed the city a 0.5 percent increase of the state general excise tax to pay for a transit project, the state has been scooping 10 percent of collections to pay for administrative expenses. In the first three years, more than $40 million has been funneled from the transit fund, far less than the state's handling fee. As a result, city taxpayers are putting more than their share into the state's coffers and legislators have repeatedly rejected the city's appeals to give back the money.

The transit tax further illustrates that what the Legislature giveth, it can certainly take away. With the state short of funds, Kim's committee had proposed to swipe $150 million of the city's $300 million transit money to help fill the budget gap. Fortunately, city officials, construction unions and developers objected loudly enough to put that bill on hold.

Lawmakers, however, still covet the counties' portions of the hotel room tax, which is distributed to local governments to help pay for services, such as law enforcement, fire and ocean safety, that the state does not provide.

County officials have relied on receiving those funds to draw up their budgets and for legislators to take the money at this date would leave their financial plans in disarray.