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 April 23, 2017 Tax Casualty? Maui Memorial Hospital By Tom Yamachika, President This week our series of tax news returns to Maui, where we have an update on the efforts to help with Maui Memorial Hospital workers and other employees of our state health system. As we have written before, our state-run hospitals in Maui County, including Maui Memorial Medical Center, Kula Hospital & Clinic, and Lanai Community Hospital, have been losing vast quantities of money over an extended period. Act 103 of 2015 allowed Maui Memorial’s operations to be privatized. The government employees’ union sued to block the transition, and simultaneously efforts were made at the Legislature to give those employees a special severance package. The Governor vetoed the bill providing the severance benefits, SB 2077, citing concerns that the bill would disqualify the whole of our Employees’ Retirement System from tax-exempt status. The Legislature overrode the veto, making the bill law immediately. (Act 1, 2nd Special Session 2016.) To prevent disaster, the ERS sued in First Circuit Court to block implementation of the law until it could obtain a letter ruling from the IRS to see if its concerns were well-founded, and the court granted a preliminary injunction to this effect in September 2016. On March 9, 2017, the IRS issued the letter ruling. The Service explained that a “cash or deferred election” is any direct or indirect election by an employee to have the employer provide either cash (or some other taxable benefit) that is not currently available, or to have the employer provide a benefit under a plan deferring the receipt of compensation. Act 1 allowed an employee to choose between a cash voluntary severance benefit, or a subsidized early retirement benefit under the ERS plan. Thus, Act 1 gave an employee a cash or deferred election. Then, the Service explained that only certain types of retirement plans, namely profit sharing, stock bonus, pre-ERISA money purchase pension, or rural cooperative plans, are allowed cash or deferred elections. The ERS plan is a governmental defined benefit plan, and is not one of the above. Therefore, if Act 1 became effective, the ERS plan would not satisfy the requirements to be a qualified plan under the Internal Revenue Code. (Which is what ERS counsel advised last year.) Finally, ERS had asked the IRS to rule on what would happen to the members and beneficiaries if the ERS plan were disqualified. IRS declined to do so, given that the members and beneficiaries were not asking for the ruling, and the question may be entirely academic because Act 1 did not take effect and may never become effective. Even with this ruling, the wrangling continues. HB 233 and HB 234 provided for separation benefits but were not heard by the Senate Ways and Means Committee. The House Finance Committee gutted SB 207 and replaced it with language allowing affected employees to purchase credited service to qualify for, or increase the percentage of, benefits under the state retirees’ health plan, known as EUTF. The HGEA union wasn’t happy about SB 207, however, objecting that the proposal was “dramatically antithetical to the dialogue of the past two entire legislative sessions” and “does not comport to prior legislative intent.” But didn’t the IRS just say that the prior legislation, namely Act 1, would have disqualified the plan for everyone, not just the Maui hospital workers? We do not live in a vacuum, especially when it comes to complex, federally regulated retirement plans. We see some displaced workers and it is understandable to want to help them, but we need to beware of unintended consequences that may make life worse for everyone. West Maui Improvement Foundation and the West Maui Taxpayers Association continues to serve the West Maui Community. Its mission remains, "To improve the West Maui community by receiving and expending funds for the erection and maintenance of public and community facilities for the overall betterment of public services for West Maui residents and visitors, including enhancements for health and safety improvements."
Currently, we continue to help in restoring and enhancing the Lahaina Skate Park Facility via dedicated improvement program which will include the purchase and installation of web cam system for monitoring Lahaina Sake Park, improve signage, and develop a dedicated ongoing support group for facility. Ways to support WMIF in the MHLA Charity Walk (WMIF organization code is 487):
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 April 16, 2017 Tax Casualty? Maui County Carnival By Tom Yamachika, President The 2nd Annual Maui County Carnival, scheduled for April 6-9, 2017, has been cancelled. Skyrocketing state government fees have been blamed as one reason for the cancellation. In April 2016, E.K. Fernandez Shows brought the carnival to Maui for four days at the War Memorial Complex in Wailuku. The inaugural event featured rides, games, food, entertainment and special attractions. The Boys & Girls Club on Maui was the primary nonprofit beneficiary of the carnival. This year, E.K. Fernandez Shows announced that it was cancelling the carnival. The company cited huge increases in shipping rates, over 40% in the past three years, which they said made it almost impossible to ship the necessary equipment from Oahu to Maui. They said that they tried unsuccessfully to negotiate a more competitive shipping rate with the shipper. In Hawaii, there is only one company licensed to provide interisland shipping, namely Young Brothers. A company spokesman said that E.K. Fernandez was offered a special charter voyage to take all the equipment over on a single trip, the rate for which was about 9% higher than it was in 2016. More than half of the increase, around 5%, was blamed on an increase in State wharfage fees. Wharfage fees are what the State Department of Transportation, Harbors Division, charges shippers using the harbors in Hawaii. As we reported earlier this year, wharfage fees charged by the Harbors Division were hoisted 17% on February 1, 2017, with two more double-digit increases swiftly coming down the river: 15% to hit on October 1, 2017, and another 15% on July 1, 2018. At our Governor’s office, no one seems to be fazed by the magnitude of the increases. Instead, in a news release dated February 7, 2017, the Governor commended the Department of Transportation when Standard & Poor’s upgraded its rating of Hawaii’s harbor system revenue bonds. Per the release, the upgraded rating “reflects a positive view” of the Harbors Division’s actions, including “[r]ecent and frequent tariff increases that have allowed for consistently strong debt service coverage given rising costs,” and “[e]xceptional liquidity position in unrestricted cash, equal to almost five years of operating expenses.” If we are holding five years of operating expenses in unrestricted cash, why aren’t we considering paying down some of these bonds (which represent borrowed money)? Money sitting around in the bank is certainly not drawing more interest income compared with the interest expense we are paying to float the bonds. In addition, the last thing we want to do is have a wad of cash sitting around waiting for some legislators to think up ways to raid it as they have tried to do with other programs such as GEMS (which also involves lots of borrowed money). And then, does anyone realize that these recent and frequent tariff increases get baked into the costs of the clear majority of goods and many of our services? If these are praiseworthy in our government’s mind, then it is no wonder we have an astronomical cost of living. The Maui County Carnival may be one casualty caused by this mentality. Let’s hope that our policymakers can take a more expansive view of what it takes to boost the general welfare of our state. |
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