Shoring Up Water Transportation
On July 9, 2021, President Biden issued the “Executive Order on Promoting Competition in the American Economy.” There wasn’t much media coverage of it outside of the business press, because the order is lengthy and, rather than announcing new law, for the most part focuses on telling his agencies to enforce the laws that are already on the books relating to specific industries. One of the industries targeted by this order is maritime shipping. In 2000, the largest 10 shipping companies controlled 12% of the market. Since then, the shipping companies have gone on a merger and acquisition frenzy. Today, the largest 10 shipping companies have an 82% market share. The Executive Order focuses on one problem in the industry, “detention and demurrage” charges. Shipping companies impose these charges when goods land at the port but for whatever reason the goods can’t be offloaded right away. These fees can add up to hundreds of thousands of dollars, leading to complaints by shippers and truckers and, naturally, higher consumer prices for the goods that were transported. To combat this problem, the Executive Order directs the Federal Maritime Commission to “vigorously enforce the prohibition of unjust and unreasonable practices in the context of detention and demurrage pursuant to” existing shipping laws. That’s all. It might be helpful for us here in Hawaii, but we can’t help wondering if they are missing the forest for the trees here. Here in Hawaii, we are heavily dependent on water transportation to bring us all manner of consumer goods, building supplies, and everything else that we can’t manufacture. Thus, we are all too familiar with what happens when goods or people need to be transported over the high seas but there isn’t a lot of competition among shipping firms. There has been an ongoing debate about the need for section 27 of the Merchant Marine Act of 1920, also known as the Jones Act, as well as its older cousin the Passenger Vessel Services Act of 1886. These are laws whose primary purpose is to restrict competition. It’s a wonder that neither law is mentioned even once in the Executive Order. It’s also a wonder that the State of Hawaii, rather than trying to make it easier and cheaper to ship people and cargo, imposes General Excise Tax on shipping charges. In an earlier article in this space, we pointed out that the federal government prohibited state taxation of transportation by air. We, of course, were in denial and tried to tax air transportation anyway using a somewhat creative theory, leading to a major smackdown by the U.S. Supreme Court in 1983. We have since accepted the fact that we can’t tax air transportation. But we can and do tax other transportation. Why do we do that? Because we can, perhaps; because we can get some money by doing it, perhaps. We question whether that is sound social policy given how heavily we depend on transportation. Are we serious about trying to make sure that the cost of living for all of us in the Aloha State isn’t outrageously expensive? If so, then we should be vigorously encouraging our Congressional delegation to give us relief from the 80-year-old and 135-year-old cabotage laws, finding ways to restore competition among transportation companies, and getting our State tax laws out of the industry to help bring down our stratospheric cost of living.
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Land of the Free and the Home of the Brave?
Here in Hawaii, people like me often complain about lack of transparency, government overreach, and similar issues. But think about it. Does our government overreach? Yes. Why does it do that? Because we let them. Part of our culture here is to do anything we can to get along. Let things slide. Let bygones be bygones. And we get taken advantage of. Remember back in 2015 when the Foundation filed its “Stop the Skim” lawsuit against the State because the State was scooping 10% of the Honolulu Rail surcharge? The City & County of Honolulu was being hurt but didn’t take action. Other private businesses were being hurt but didn’t take action. When we filed suit, we faced court hearings where the State’s attorneys were sneering, “Judge, obviously there’s nothing here. This surcharge has been in place for a decade. Why hasn’t the City challenged it? Why hasn’t any other taxpayer challenged it? Why didn’t the Foundation challenge it in the last ten years if it was so bad?” The Foundation pressed ahead anyway. We lost the suit in 2019, but in 2017 lawmakers changed the amount of the surcharge skim from 10% to 1%. Taxpayers emerge victorious! Now, we are in the age of the pandemic, with the Governor flexing his emergency powers to suspend all kinds of laws on the books. One thing he did about a year ago, which we wrote about here, is that he completely stopped sharing the Transient Accommodations Tax with the counties even though the Hawaii Constitution and the law provided for the sharing. With tourist arrivals through the floor, there wasn’t a lot of TAT to go around anyway, but a small trickle is still more than a big fat zero. We suggested that this was government overreach. The counties were being hurt, and what did the confiscation of TAT money have to do with our emergency? I was waiting for one of the counties to sue, and then argue to our Judiciary that the Governor went too far. I’m still waiting. It’s been a year. What happens if the Foundation sues? Then the State will go to court saying, “Judge, this pipsqueak foundation is just screeching in the wilderness. This is really a matter between the State and the counties, and if none of the counties are willing to man up then this matter doesn’t belong in court.” At least when we challenged the rail skim, we were paying some GET so we could show a connection between us and the dispute. This one does seem to be a dispute only between the State and the counties, and it’s tougher to justify the Foundation’s standing to sue. Will the counties sue? Nah! At the county government level, we all want to get along. Let bygones be bygones. Besides, if a particular county makes noise, won’t it be squashed flatter than a pancake the next time the Legislature meets? What happened to “Land of the Free and Home of the Brave”? Battles are fought all the time to keep freedom alive. And the battles of today don’t use muskets and sabers. Some of them are in the courtroom. Others are in the court of public opinion. Although sometimes I groan when I hear of lawsuits or other antics of activist groups, I give them credit for getting off their duffs and doing something to remedy injustice. Not all of us were meant to be the gladiators. For those of us who aren’t, there are other ways to show bravery. Complain about government oppression or overreach to a legislator. Tell an organization that does gladiator work that you appreciate their battle. Maybe send a few dollars their way so they can keep up the good fight. But don’t just sit back and let yourself be stomped on. Our Founding Fathers didn’t. They endured ridicule and violent opposition. They shed blood. And they formed what we sing about as the Land of the Free and Home of the Brave. Secret Tax Relief on Maui?
In a recent article, we spoke of a decision by the government of Maui to broaden the class of properties classified as short-term rental (which happens to be the class of properties with the second highest property tax rate, even edging out hotels and resorts, beaten only by timeshares). We noted that the decision happened at light speed, and we wondered why. An alert reader brought a clue to our attention. In 2020, the Maui County auditor issued a report on the fiscal sustainability and financial condition of the county. It’s listed on the County’s website as a self-initiated project. One paragraph, almost at the end of the report, says that “the coronavirus pandemic has challenged the County to make many unprecedented decisions. One such decision was to reduce the Assessed Values of Hotel and Resort properties due to the catastrophic drops in occupancy experienced by that industry.” What does this mean? Apparently, while the pandemic was still raging some of the hotels came to the Maui administration and said, “We can’t do this! We can’t pay your property taxes because people aren’t coming any more!“ The administration couldn’t change property tax rates, because those are set by ordinance, but they could do something about the assessed valuations of the hotel properties. And they dropped the valuations. It seems that this step was done very quietly. It didn’t make big news. But it bothered the Auditor enough so that he wrote about it. To be sure, down valuing the hotels may have been perfectly legitimate because one of the traditional indicators of real property value is the amount of income that it generates. But the pandemic and the resulting government-mandated closures, which caused hotel occupancy to fall through the floor, are (we hope) temporary conditions and therefore shouldn’t carry much weight in determining the value of a property through consideration of how much income it will generate over a long time span. The county auditor was also concerned about a bigger problem. Was anyone else given the opportunity to come to the Real Property Tax Division and have their property values adjusted immediately because of the pandemic? Our supreme court in 1996, in Maui County v. KM Hawaii Inc., 81 Haw. 248, 915 P.2d 1349 (1996), faulted Maui County for using assessment methods that were not uniform and equal, thus violating the equal protection clauses of the federal and Hawaii constitutions. Giving some hotels the chance to revalue their properties on a snap basis might not only be unfair to other hotels or other property taxpayers in general, but also might be unconstitutional. Nevertheless, with the valuation adjustments that did happen, the property tax collections undoubtedly went down in a big way – and with the Governor shutting off the spigot of Transient Accommodations Tax money that had been shared with the counties, the county needed to raise some cash pronto. We don’t know for sure, but that fiscal pressure may have motivated the warp-speed property tax ordinance amendments that were enacted at the end of 2020. In any event, this episode seems to show a government being run on the fly, with lots of back room deals that regular people could not hope to have access to. The likelihood of arbitrary application of the laws is sky high. Is that really the government that we want to have? |
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