Most Cayetano
initiatives alive

But plans for civil service
reform and a value tax on cars
have been diminished

By Pat Omandam
Star-Bulletin

Opposition to Gov. Ben Cayetano's plan to raise taxes on vehicles is simple: People want the same level of services, but they don't want higher taxes, says Rep. Brian Schatz.

"People recognize that any kind of tax increase proposal was really dead on arrival," said Schatz (D, Manoa), who is in his first term as a state representative and the youngest lawmaker this session at age 26.

With the state House and Senate today ready to swap their extensive list of bills, most of the initiatives proposed in Cayetano's package remain alive.

But some, such as the governor's civil service reform and initiatives to raise state revenue through a proposed value tax on automobiles and a higher surcharge on rental cars, have gone through the legislative rinse cycle and shrunk.

Others -- such as a measure that removes overtime from calculation of government employee retirement benefits -- have been hung up for another session, although it could have saved millions of dollars in state retirement payments.

Officials are optimistic

Nevertheless, state officials remain optimistic about many of the nearly 500 bills listed in the governor's package. State Tax Director Ray Kamikawa said almost all of the governor's tax bills, meant to offset revenue lost from proposed tax cuts, are alive in some form.

Among those, he said, are Cayetano initiatives that allow a portion of the hotel room tax to be used for the environment, a 50 percent cut in corporate and franchise tax rates, income tax credits for new high-tech industries, a tax credit for hotel renovations and an exemption of exported services from the 4 percent general excise tax.

Stalled tax bills

Tax bills that have stalled include a cut in the personal income tax and a double deduction for employer costs for prepaid health care insurance.

"I guess they're being cautious with a lot of these tax bills because of the revenue lost associated with some of the tax cuts, in light of the fact that they're not looking to any revenue raising bills and coupled with the fact tax collections have not been that stellar of late," Kamikawa said.

He believes the value tax on cars is being challenged because it was a progressive addition to the current vehicle weight tax, instead of in place of it.

Cayetano said recently that he doesn't see a problem in increasing the surcharge on rental cars from $2 to $3, arguing that the burden falls on tourists, not residents. Other states charge double or higher than what is being proposed, and lawmakers need to see what the rates are for the rest of the country, he said.

Senate rejection

The auto tax proposals could raise an estimated $199 million annually. But the Senate rejected the measures, while the House reduced the proposed value, or ad valorem, tax to 0.5 percent for cars valued less than $50,000 and 1 percent for cars worth more than $50,000.

The amended bill also says the money raised from the value tax would go to the counties, not the state general fund as Cayetano envisioned.

Other administration bills that have stalled this year are measures on domestic partnerships and death with dignity. A bill that would end the current civil service system next year remains alive, although the House amended it by calling only for a task force study.

Reserving judgment

Despite the changes, the governor said he is reserving judgment on the Legislature until later in the session. The administration was facing the same problems at this time last year, he said, but what emerged at session's end was one of the biggest tax cuts in the state's history.

Cayetano added that people are looking for the state to make changes, and it would be disappointing if he can't do that.

"What we need to do now is to shoot for the next higher level, and that is to increase productivity and create an environment here that's going to inspire and expand our capacity to be innovative."

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