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. Weekly Commentary For the Week of November 11, 2018 Oh? Can’t We Keep HART’s Funding Sources “Pure”? By Tom Yamachika, President Recently, there has been fierce debate over Bill 42 before the Honolulu City Council. Here’s the background: In 2007, the City passed Ordinance 07-001, which says that the Honolulu rail project would be funded only with proceeds of the general excise tax surcharge and federal money. “We’ll never touch the real property tax to build rail,” the politicians said at the time. Bill 42 basically repeals 07-001 to open up other funding sources, like real property tax. For a long time, I was wondering what the authors of 07-001 were smoking. For a little while since 2007, the rail project seemed to be on track. Mr. Mayor was out telling all of us that the project will be built on time and on budget. But then, a little later when the project was being planned and costed out, Mr. Mayor started becoming a frequent visitor to the Legislature. With hat in hand. “We need just a small kine extension of the surcharge,” he said. “A permanent extension would be nice.” This, of course, started to drive the Legislature nuts. Several legislators wondered out loud why they needed to stick their necks out to extend or increase taxes to bail out the City from its projected cost overruns when the City could just hide behind 07-001 and say to voters, “But WE protected your property taxes.” As time went on, more and further bailouts were needed. Not only was the GET surcharge extended multiple times, but 2017 legislation added an additional percentage point to the transient accommodations tax to build rail. Some of the bill drafts contained language that would require the City to repeal 07-001 if they wanted a state bailout, but that language didn’t pass. At the same time, the State reduced its skim off the surcharge proceeds from 10% to 1%, freeing up millions more for rail. Then, the debate turned to whether real property tax, thus protected, was too low. HSTA and others started arguing that low property taxes exposed the soft underbelly of our real estate market to nasty, rotten, foreign speculators. The solution? Enact a surcharge on property taxes to increase funds for education. That conversation, which started in the 2017 session, rose to prominence in the 2018 session, and then dominated the public’s attention while a proposed constitutional amendment to do that was on the ballot. Mercifully, that amendment was dealt a death blow by the Hawaii Supreme Court. Amid all that, the Federal Highway Administration, which was supposed to be contributing $1.5 billion to the effort, grew increasingly dissatisfied with the City’s skin in the game and threatened to crater the project unless more money was immediately made available to it. 07-001 was in the way. It needed to go. In effect, the Feds were saying that they were not going to dance the same way that the State did; the City needed to show its commitment. Hence, Bill 42 was necessary. Was Bill 42 a manifestation of promises made and betrayed? I think of it more as a realization that 07-001 represented a promise that was unrealistic from the beginning. If the City wanted to build this project, it needed to be committed; if it weren’t, reality would catch up with it eventually. And by committed I don’t mean the commitment that the chicken makes to give you your bacon and eggs breakfast; I am talking about the commitment that the pig makes. More and further bailouts, by the State, the Feds, or the electorate, won’t happen without consequences. Our City officials need the resolve to make this project work within its means if they hope to avoid those consequences.
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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. Weekly Commentary For the Week of October 21, 2018 Do We Really Have a Spending Ceiling? By Tom Yamachika, President This week, we look at another provision that was passed by the 1978 Constitutional Convention to assure our fiscal health—and what our lawmakers have done to marginalize it. As we mentioned in June, Hawaii Constitution Article VII, sections 8 and 9 limit general fund expenditures by an “expenditure ceiling.” It says that the Legislature is to establish a General Fund expenditure ceiling to limit the rate of growth of General Fund appropriations, excluding federal funds received by the General Fund, to the estimated rate of growth of the State’s economy. The Legislature did enact laws, now codified in HRS chapter 37, part V, to implement this requirement. However, if the governor is proposing a budget that would breach the ceiling, the governor needs to specify by how much the ceiling would be breached, and why. The legislature then can approve appropriations that breach the ceiling by passing a bill with a two-thirds vote in both houses which will “set forth the dollar amount and the rate by which the ceiling will be exceeded and the reasons therefor.” Neither is a high hurdle to jump, and the resulting bills haven’t even been considered newsworthy. In this past session, for example, the Governor’s budget contained some language buried in the appendix to the budget: “Total proposed appropriation measures from the general fund … will exceed the appropriation ceiling by $36:7 million (or 0.5%) in FY 19. The reasons for this excess are the substantial costs of social assistance entitlements, support for public education, fringe benefits and other critical requirements.” In other words, “government costs money” is the reason for breaching the spending ceiling. There is nothing in those reasons to indicate that this year’s fiscal situation is surprising or unexpected. Furthermore, breach of the spending ceiling now appears to be a routine occurrence. Even in 2001 when the Felix Consent Decree was the justification put forward for busting the spending ceiling yet again, we in the Foundation argued that even that wasn’t a good enough reason to disregard the limitations. As my predecessor wrote at the time: “If the argument is that the Felix programs are mandated by the court, then our state administrators and lawmakers need to find programs for which spending can be reduced so that the Felix programs can be accommodated. This is a process of setting budget priorities. ... Again, the pat response here seems to be as with education in the past, just spend more money rather than finding the difficult solutions to the real problems. “Again, the intent of Con-Con delegates was that state government general fund spending should grow no faster than the growth in the state’s economy. ... If state spending begins to exceed that growth rate, then there is no doubt that somewhere down the road the state will run smack dab into another financial crisis where state spending cannot be supported by the economy. “Instead of merely spending more money, taxpayers should demand that the money be better managed and the spending ceiling be honored.” Was my predecessor correct in his predictions? If we do have a constitutional convention this year, one of the items the delegates should consider is whether to tighten up this rule so it too can’t be routinely broken and rendered meaningless. 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. Weekly Commentary For the Week of October 14, 2018 Whither the General Income Tax Credit! By Tom Yamachika, President Those of us who are getting along in years may remember the “general income tax credit,” a line on our state income tax return where we could claim a one-dollar ($1) credit. The saga of this credit tells us a little about a bold move undertaken in the 1978 Constitutional Convention and our lawmakers’ reaction, which was to beat it into insignificance within a couple of years. The last time we had a constitutional convention, in 1978, delegates thought that government shouldn’t be keeping the people’s money if it didn’t have to. “Your Committee believes that it is proper for the State's taxpayers to benefit from any surplus in the State's general fund balance,” they said in Committee of the Whole Report No. 14. So, they put before the voters, and the voters approved, what became Article VII, section 6 of our Constitution. It says that if our general fund balance is more than 5% of general fund revenues for two fiscal years in a row, then the legislature is supposed to enact a tax credit or refund to give some of that money back to us taxpayers. This credit came to be called the general income tax credit. In the first year the provision was effective, 1981, the surplus requirements were met, and lawmakers gave the taxpayers a credit of $100 per head. In 1982, the surplus requirement was met again, but lawmakers thought that $100 was a little much. So, they knocked it down to $25. In 1983, the surplus requirement was met again, and lawmakers apparently decided that this dumb credit was getting in the way of good budgeting. They slashed it to $1. For the next five years in a row, the surplus requirement was met again, and lawmakers gave the taxpayers a credit of $1 in each of those years. In 1989, with Hawaii’s economy apparently on a roll, lawmakers generously approved a $125 general income tax credit! It didn’t take long for cooler heads to prevail, however. The credit was cut to $60 the following year, and in 1991—yes, you guessed it—we were back to $1, where we stayed through 1995. In 1996, the surplus requirement was not met. No credit was required, and none was given. This continued through 2000. In 2001, we once again met the surplus requirement. Once again lawmakers gave us a $1 credit. The same happened in 2002. For the years 2003-2006, the surplus requirement wasn’t met. In 2007, state coffers were in great shape and the general income tax credit again sprung to life. This time lawmakers tiered it so more would be given to poorer people. It ranged from zero to $160. In 2008 and 2009, the economy sunk but the surplus requirement was met. Two more years of a $1 credit resulted. In 2010, the legislature proposed, and voters approved, a constitutional amendment that allowed lawmakers to forgo providing a tax credit if they instead shoved some money into our rainy-day fund. Thus 2009 was the last year of the general income tax credit. ![]() Source: Hawaii Department of Taxation Reports
With that history, do you think the intent of the constitutional convention delegates was met? Or do you think lawmakers acted like slippery eels and dodged the provision? If voters think it’s a good idea to tell lawmakers to curb the growth of government, maybe they should consider a constitutional convention where limitations like this one can again be considered, with, hopefully, some reasonable parameters that assure goals are met. |
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