WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers To view the archives of the Tax Foundation of Hawaii's commentary click here. Shining Light on Revenue Estimates
By Tom Yamachika, President At the Legislature, I often hear legislators considering proposed tax legislation ask our Department of Taxation (DOTAX) how much money a certain proposal would bring in (if it’s a “revenue raiser”) or cost (if it’s a tax credit or exemption). Sometimes, the DOTAX representative at the hearing peers into a little manila folder he or she brings to the hearing and reads out some numbers. For at least the last several years, those numbers, and the basis for their calculation, are not in DOTAX’s testimony and are not given out to the public. DOTAX justified the shroud of darkness surrounding its revenue projections with a theory, derived from federal Freedom of Information Act (FOIA) law, called “deliberative process privilege.” We want agencies to be able to deliberate and think about their decisions, so the theory goes, but once they decide what to do then the decision becomes public. Our state Office of Information Practices (OIP), which administers our state’s open records laws, went along with this doctrine for the past 30 years. But that theory was never put to the test before the Supreme Court of Hawaii…until recently. In December 2018, in Peer News LLC v. City and County of Honolulu, 143 Haw. 472 (2018), our supreme court spoke. That case involved a reporter from Civil Beat who was trying to see internal documents generated during the setting of the City & County’s annual operating budget. He was, essentially, told to take a long walk off a short pier, leading to the lawsuit. The court divided 3 to 2, with the majority holding that the Hawaii act was significantly different from FOIA to justify a different interpretation. Specifically, the majority refused to recognize the deliberative process privilege. The majority acknowledged that the law allows withholding documents from public disclosure when exposing those documents would make it difficult or impossible for the agency do its job. However, the majority was not willing to let this exemption apply to agency decision-making in general, because agencies make decisions all the time. On May 20, 2019, OIP applied that decision to DOTAX. An attorney requested worksheets and other information supporting DOTAX’s revenue estimates of tax bills being considered in the legislative session. OIP ruled that because of the Peer News decision DOTAX could not rely upon the deliberative process privilege. DOTAX also argued that it would not be able to produce objective and independent revenue estimates if its working papers were disclosed, but OIP held that production of those estimates was just another form of decision-making. DOTAX also argued that its work is indispensable to the legislative process and should be able to rely on the statute allowing for work product of legislative committees to be kept secret. OIP dismissed that argument, saying that DOTAX staff don’t work for the legislature and DOTAX is not unique in that many agencies other than DOTAX provide expert and presumably unbiased analysis of various measures before the legislature. Taken together, these decisions represent a big step forward for transparency. The dollar impact of a tax or public finance measure is often critically important not only to lawmakers, but to taxpayers. Government, after all, doesn’t pay taxes. Taxpayers do. Public scrutiny and comment on this important aspect should lead to better and more well-informed estimates, and thus to better decision-making on proposed legislation affecting the State’s economy and taxpayers’ pocketbooks.
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WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers To view the archives of the Tax Foundation of Hawaii's commentary click here. The "Rail Skim" Suit: We Lost The Battle, Taxpayers Won The War
By Tom Yamachika, President A long time ago, in October 2015 to be more precise, the Tax Foundation of Hawaii sued the State. Why? Because at the time, the State was skimming 10 cents off every dollar that was being collected for rail, and it plopped the money into the state’s general fund, where it was spent on everything but rail. Its justification for pocketing the money was that there were various costs associated with administering and collecting the rail tax, and those needed to be reimbursed. But the State was hauling in $25 million a year – a sum comparable in size to the entire budget of the state Department of Taxation. We thought the State was not only reimbursing itself, but was making a killing in the process, all at the expense of Oahu taxpayers. When we initially filed our complaint, the State’s response was more about “jurisdiction” and “standing” rather than the meat of the dispute. In other words, they were saying, “And what right do you pipsqueaks have to be telling we the State how we should be spending our money? If anyone has a complaint, it should be the City government and not you runts.” Our response was simple. Governments don’t pay taxes; taxpayers pay taxes. If taxpayer dollars are skimmed from rail, fewer dollars are available to build rail. To build the train, the City would then have to tax Honolulu taxpayers for a longer period. And indeed, the City got the Legislature to move the sunset date of the surcharge from 2022 to 2027 to 2030. The Circuit Court tossed out the case. It reasoned that if the Foundation wasn’t seeking a tax refund (we weren’t), then the Foundation would be seeking a “declaratory judgment” which, under statute, cannot be obtained in tax cases; game over. We appealed. On March 21, the Supreme Court of Hawaii released three opinions, totaling 125 pages, saying that the Foundation loses. The great bulk of all three opinions addressed the issue of standing. They reviewed the tortuous history of attempts by many nonprofit groups, from Life of the Land to Hawaii Insurers Council to Hawaii’s Thousand Friends, to get the courts to act in cases where they thought governmental power was being misused or abused. Rules were made, rules were bent, and rules were bent some more, depending on which version of the history you found more persuasive. Ultimately, four of the five Justices concluded that the Foundation did have standing. This means that we, or similar taxpayers, who feel that our tax dollars are being distributed unlawfully can go to the courts to get something done about it. The merits of the suit are only addressed in the last ten pages of the principal opinion. There, four Justices were satisfied that the Legislature didn’t cross the line when it enacted the 10% skim. There would be “costs of assessment, collection, disposition, and oversight” of the new tax, people had no idea how extensive these costs would be; so 10% was a reasonable estimate. Also, it wasn’t discriminatory as compared with the other counties because if any of the other counties enacted a surcharge, they would have been skimmed as well. Game over. We, of course, didn’t think the estimate was reasonable at all. How could the costs for assessing, collecting, and overseeing a mere 3% of the total revenues taken in by the tax system be around 100% of the costs to run the whole Department of Taxation? In the end, however, we need to focus on the real issue, namely The Skim. What happened to that law that allowed the state to skim 10% of the county’s surcharge? In the 2017 special session, the Legislature slashed the skim from 10% to 1%. It snipped out one zero, and the result was a huge victory for taxpayers. Would they have done it without the Foundation’s lawsuit hanging over their heads? We doubt it; the law contains an explicit reference to our lawsuit, so it’s clear that lawmakers were very much aware of it. The Foundation may have lost the court battle. But all of us won the war. WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers To view the archives of the Tax Foundation of Hawaii's commentary click here. A Threat To Judicial Independence
By Tom Yamachika, President When we learn about our three branches of government, we’re usually told that the legislative branch makes the laws, the executive branch carries them out, and the judiciary branch interprets them. Each branch serves as a check and balance on the other two. The legislative branch also has the power to raise money, for example by imposing taxes, and the power to spend it. It’s been written that such power is with this branch primarily because it’s most directly accountable to the people. Each state legislator must run for office either every two or every four years. Most in the executive branch and the judiciary are spared that ordeal. With the power to spend money comes the power to place conditions upon its use. The legislature might not have the power to tell the executive branch what to do directly, for example, but it could certainly say that a particular agency shall do X, or shall not do Y, if it wants to see legislatively appropriated dollars flow into its coffers. Against that backdrop is a very debate-worthy comment from one powerful senator at the end of the 2018 session. He described a “tension” between the legislative and judicial branches of government: "We also had some tension with the judiciary. That was very healthy as well. They did some rulings that we thought were stepping into the legislative arena, they were trying to legislate from the bench. We control the purse strings, so we said no to a lot of their money. They reversed some of their decisions. We gave them some money. So the tension worked." Civil Cafe: Legislative Wrap-Up 2018 Panel Discussion 23:10-23:34 (May 2, 2018). In past articles we at the Foundation often have urged our legislators to use their power of the purse to set priorities for where we are going as a society. The state has a limited amount of hard-earned taxpayer dollars, and the legislature is there to make sure that the dollars they collect are spent wisely for our collective benefit. In other states, this kind of tension has played out in the public arena, with observers scratching their heads and with the media having a field day. In New York in 1991, for example, Governor Cuomo slashed the judiciary’s budget and Chief Justice Wachtler sued, eventually resulting in a settlement. A similar spectacle occurred in Illinois in 2003, where the justices ordered the government to pay salary increases that its governor vetoed. What the Hawaii Senator referred to, however, is not a question of finding the wisest use of scarce taxpayer funds. It was an attempt, and a successful one if we take the speaker at his word, to use that power to influence the content of judicial decisions. “Justice is blind,” we are told, meaning that justice should be applied without regard to money, power, or other status. If money — especially our own money — is used to skew or bend the justice we deliver here in Hawaii, then our justice is tainted. Certainly, the Legislature and the Judiciary have their respective jobs to do and there is some merit to slapping down one branch that has entered the other’s kuleana. Legislating from the bench isn’t legitimate either; that’s why the courts have a “political question doctrine” that says policy issues for which no discernible standards in law exist are not issues for court resolution but are to be left to the legislature. What happens, though, if the judiciary and the legislature disagree on what questions are political and which are judicial? Do we let the courts decide, or should the legislature be allowed to take matters into its own hands by pulling the purse strings? |
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