State should share
By Mufi Hannemann
money with countiesMAYOR Harris has proposed hikes in real property tax rates, higher user fees and a host of other revenue-generating ideas to address a projected $130 million deficit in the city budget for the upcoming fiscal year.
As the City Council begins its review of the budget in earnest, budget chairman John Henry Felix and I have asked city agencies to trim another 2 percent from their expected expenditures. We have also asked for an immediate administrative hiring freeze, with the exception of employees in public health and safety.
Notwithstanding these moves, what's still missing is a comprehensive and targeted strategy to seek more financial support from state government. I, for one, believe that the state should be more forthcoming in directing tax revenues to the counties, for justifiable reasons.
Fundamental is the matter of fairness. The state has exempted itself from paying county property taxes, but has not exempted the counties from paying state general excise taxes.
Providing an exemption to the counties for the GET would restore a measure of reciprocity between the jurisdictions. No other state in the nation imposes a general excise tax or sales tax on local governments.
A GET exemption, if enacted, could save the city of Honolulu $10-15 million a year, based on the operating and capital expenditures subject to this tax.
Although the GET is imposed on businesses selling to the counties, the reality is different.The tax is passed onto consumers by businesses, meaning the counties pay the tax on their purchases of goods and services. The end result is that the state is deriving tax revenues from the counties. We also speculate that all or some of the savings from the exemptions could be expended by the counties for public programs and projects.
The argument that county purchases should not be exempt because state purchases are not ignores the actual benefit to the state.
The state, of course, collects much more than it pays in general excise taxes. In addition, there is an added margin (i.e. the 4 percent GET businesses pay on every $1.04 they collect) that the state collects from businesses. The state still collects more than it pays.
Another way the state could help the counties is by providing grants-in-aid or allowing the counties to apply for grants-in-aid from the state to compensate for shortfalls. Long before the TAT, such grants were a source of state assistance for the counties.
Here's another idea: Give the counties a share of the tobacco settlement. The state will receive a billion-dollar windfall from the tobacco companies over the next few years.
Enforcement and the education of our young people about the dangers of tobacco are major thrusts of the settlement. Inasmuch as agencies such as the police department, prosecuting attorney and liquor commission could be at the forefront of enforcement, and that some counties have enacted smoking ban ordinances, a strong case could be made that local government should receive its fair share of the settlement money.
These are substantive proposals that not only divert revenues from state to county coffers, but create more equity in the distribution of tax revenues, direct money to the sources of that income, and establish more accountability in government.
Mufi Hannemann is chairman of the
Honolulu City Council.
