Counties, the TAT Is Now Your Problem Too!
For many years, the counties and the State have been bickering about how much support from the State’s transient accommodations tax (TAT) they should get to help fund county infrastructure. County systems like fire, police, and parks maintenance undeniably help tourists too, and the argument was that the tourist tax should help the counties out. In 2009, for example, the law provided that 44.8% of the tax, after satisfying earmarks, would be distributed to the counties using specific percentages. That was when the TAT rate was 7.25%. The rate crept up to 9.25% in 2013, but the percentage was changed to a fixed dollar amount. The counties complained about their allocations, and in the following year the Legislature had a state-county functions working group recommend an appropriate allocation of TAT revenues. The working group recommended to the 2015 legislature that the percentage allocation of the TAT be restored, but the legislature balked. The fixed amount allocated to the counties went up and down slightly over the years and is now at $103 million while the TAT rate is 10.25%. When the COVID-19 pandemic hit, Governor Ige, in a questionable use of his emergency powers, completely shut off distribution of TAT money to the counties. But it’s not like that much money was being saved by that move, because TAT collections had fallen through the floor. According to a “Preliminary Comparative Statement of State General Fund Tax Revenues” for March 2021, TAT revenues for fiscal 2021 (July 2020 to March 2021) are down more than 80% compared to the comparable period for fiscal 2020. In the conference draft of House Bill 862, the allocation of TAT funds to the counties will be eliminated entirely and permanently, but the counties will be given authority to adopt by ordinance a TAT surcharge, up to 3%. House Finance Chair Sylvia Luke said that would “incentivize counties to hold B&Bs accountable, and enforce B&B” ordinances, and it “also provides the counties another taxing authority other than just property tax and some of the motor vehicle fees.” This is a tax increase. The State is proposing to scoop up the $103 million it previously shared with the counties and keep it all. The counties, just to keep up, would need to enact additional taxes, perhaps on visitor accommodations or on real property. In either case, a tax increase on the visitor industry may amount to kicking that industry when it’s down. As mentioned earlier, TAT revenues are down 80%. Businesses in that industry weren’t simply toying with the idea of furloughs; they already have experienced layoffs and business closures. State unemployment reached almost 24% just one year ago. As stated by HLTA President Mufi Hannemann in testimony on House Bill 321 which contains provisions that would move to House Bill 862, “now is not the time to place additional cost burdens on local businesses. Everybody is desperately working to recover an economy that has been disproportionately affected by the COVID-19 pandemic, and we should be looking to support these businesses rather than saddling them with additional costs.” The counties, not surprisingly, don’t want to be a part of this increase either. The Hawaii State Association of Counties, and some individual counties, testified against House Bill 321. Maui Mayor Victorino wrote: “Since the State and the counties serve the same constituents, it is important that we continue to work as partners in meeting the needs of our communities. As demand for services is ever increasing (and so is the cost of those services), it is equally important that revenue be appropriately shared so that the needs of our residents and visitors can be met to the best of our combined abilities.” That seems to be another way of saying, “Don’t make us do this. Both of us will get hurt.” Now we wait to see if Governor Ige will go along with this.
0 Comments
State Auditor Facing a Whack Job?
The House Speaker’s office recently released an unflattering report on the State Auditor. It faulted the Auditor’s Office for appointing executives without proper experience and said the move contributed to “delays and untimely reports,” and other actions that were “not in complete compliance” with the provisions of the Hawai’i Constitution governing that office. The House Speaker created the three-person working group that produced the report in a January 14, 2021, memo saying, “As you know, limited resources make it problematic for the State Auditor to address all outstanding issues and matters. Therefore, the findings of this group will assist the State Auditor in prioritizing its work and the scope of its work.” But the findings of the working group didn’t seem to address prioritization and scope of work. Part of the report recounted interviews of disgruntled former employees, however, and apparently was calculated to give the impression that the current state auditor was personally argumentative and combative, was creating a toxic work environment, and was responsible for a sky-high personnel turnover rate. Another part of the report gives the impression that the Auditor was less interested in finding out the truth and complying with generally accepted government accounting standards than he was interested in sensationalism, using his reports to create public spectacles. Another part of the report spends lots of time reviewing the Auditor’s recent actions involving the Office of Hawaiian Affairs (OHA). After some recent and less than rosy revelations about OHA’s internal workings, the Legislature’s 2019 budget made $3 million of state funding contingent upon the State Auditor completing a “financial and management audit” of OHA. When the Auditor’s staff began field work, they requested access to minutes of trustee meetings containing the details of legal advice sought and received by the trustees in those meetings. OHA said that these parts of the minutes were protected by attorney-client privilege. The Auditor replied by saying he couldn’t finish his report without them and stopped work. That put the brakes on the $3 million, and understandably generated some hard feelings. The report then slams the Auditor for not being impartial, for violating various auditing standards, and failing to comply with the law calling for the report. (Some of these criticisms are very much debatable.) The conclusion and recommendation section of the report then fault the Auditor for being non-productive for various reasons including those outlined above, and recommended that the Legislature should require the State Auditor to have at least five years of governmental audit experience (which the incumbent apparently lacks), that the same should be required of the office’s executive level managers and leaders, that the Legislature should take steps to “preclude the State Auditor from diverting from the specific issue and concerns of the Legislature,” that the Legislature should require the Auditor to terminate its litigation with OHA, and more. It’s hard to see how these findings and recommendations lead to better prioritization and scope of work. Rather, the report looks more like a “whack job” — a collection of facts and arguments to justify someone’s dismissal or discharge from their position. Apparently, the Auditor did something to get under the Speaker’s skin, and it’s time to exact retribution. Our state constitution provides that the Auditor may be fired for cause by a two-thirds vote of the members of the House and Senate in joint session. Are these findings enough? Will they be sufficient to persuade the Senate to go along? Over the years, I haven’t agreed with everything the Auditor has said and done. Far from it. But at least his office’s work has led to the discovery and exposure of many facts that the public needed to know and had a right to know. It’s understandable that those exposures would lead some to press legislative leadership to deliver a whack job. We would hope that cooler heads ultimately prevail, and that any decision on the State Auditor is made after due consideration of his service to the people of Hawaii. Bride of Frankenbill!
We wrote last week about House Bill 58, a “Frankenbill” made from bits and pieces of other bills. By putting those pieces into a bill that is still alive at the Legislature, those pieces are given new life. It turns out that our lawmakers are not stopping at just one Frankenbill. Let’s look at House Bill 468. This bill is called “Relating to the Hawaii Employer-Union Health Benefits Trust Fund.” In its present form (House Draft 1), it would take away Medicare Part B reimbursement for employee spouses for employees hired on or after July 1, 2021. At least one of the public worker unions testified against it. So, although it passed the House, the bill languished in the Senate. At the same time, an Administration bill from the Department of Budget and Finance, Senate Bill 1087 / House Bill 933, would have suspended existing laws calling for annual required contributions to the Employer-Union Trust Fund for fiscal years 2024 and 2025. House Bill 933 received no hearing in the House and died relatively early in the session. The Senate bill sailed through the Senate and crossed over to the House, where it received no hearing and died. Now, the Senate has published a proposed Senate Draft 1 of House Bill 468 that looks a whole lot like Senate Bill 1087 without any of the material that House Bill 468 used to have. By the time this article goes to press, the Senate Committees on Labor, Culture and the Arts and Ways and Means would have heard the bill and made the switcheroo. Some of you may have heard the term “gut and replace.” That term is used to describe how a bill’s contents are entirely replaced with material bearing little if any resemblance to what the bill used to say. It is one form of Frankenbill, and that is indeed what we have here. Why is this bill so critical? Imagine what would happen if you had a mortgage and then stopped making payments on it for a couple of years. When you finally got around to making payments again, the debt would still be there and the interest would have racked up. Paying off the mortgage would probably take quite a bit longer than the two years that were deferred. If, for example, you had a $500,000 mortgage at a 30-year fixed rate of 4%, you would be making principal and interest payments of $2,387. If you stopped making payments after year 5 and took a break for 2 years, your balance due would grow from $451,000 to $487,000, after which you would need 340 more monthly payments at the same amount, or 28-1/3 years, to pay off the loan. That would mean you would have to make 3 years and 3 months of extra monthly payments. What is EUTF? The State of Hawaii has promised to provide health benefits to its long-time employees for the rest of their lives. EUTF is a fund set up to fulfill that promise. According to the most recent actuarial report from EUTF’s website, the present value of the benefits the State has promised to its eligible retirees exceeds the expected value of the plan’s assets by $11.5 billion. The $11.5 billion is like a debt that the State and its taxpayers must pay. The Medicare Part B benefits, which House Bill 468 addressed before being turned into Bride of Frankenbill, accounted for $3.23 billion out of the $15.4 billion in actuarial accrued liability. Lawmakers, we ask again – what can we afford to do, or not do? |
If you wish to further discuss blog posts, please contat our office directly or contact us via Contact page.
Categories
All
|