State Auditor’s Review of GET Exemptions and Exclusions
By Tom Yamachika, President

In 2016, lawmakers came up with a law requiring the State Auditor to review exemptions, exclusions, and credits in the general excise, public service company, and insurance premium taxes. Under the terms of the law, HRS section 23-71, the existing tax benefits on the books were divided into ten chunks, with each chunk to be reviewed every ten years.

The Auditor was supposed to figure out how much each tax benefit costs in terms of lost revenue and determine whether the tax benefit has achieved and continues to achieve the purpose for which it was enacted by the legislature.

The Auditor was supposed to start on the first chunk last year and finish the report before the start of the 2020 legislature, but there was a delay.

HRS section 23-91, also enacted in 2016, requires the Auditor to review tax credits, exclusions, and deductions in our net income-based taxes, namely the income tax and the financial institutions franchise tax. Those tax benefits were divided into five chunks with each chunk to be reviewed every five years, and the Auditor is supposed to start on those chunks this year.

Auditor’s Report No. 20-09, issued on June 25, was the first of these reports. It reviewed six exemptions and seven exclusions.
“Exclusions,” the report stated, “remove revenues from certain activities that were never intended to be part of a broadly defined tax base. Excluded amounts generally are not included in a taxpayer’s reported revenues and are therefore not taxed.”
Examples are the exclusion for dividends and for income from the sales of securities, commodity futures, evidence of debt, real estate in fee simple.

The report observed that the Department of Taxation does not require that any of these amounts be reported on a tax return (and never did). That makes it tough to estimate the revenue impact of the exclusion.

Here, the Auditor’s key finding is that the exclusions reviewed described kinds of income that were never supposed to be taxed in the first place. We agree with the finding.

The tax is supposed to be on the privilege of doing business, so excluding income not from business activity makes sense. The Auditor requested that it be spared from reviewing these exclusions again, which also makes sense.

For the exemptions, the Auditor was only able to find out in general what the exemptions were designed to do. To find the rationale for the subcontract deduction, for example, the Auditor unearthed a conference committee report from 1970 saying that the committee hoped the exemption would result in a reduction in the cost of housing.

For this as well as most of the other exemptions, the Auditor concluded that there was insufficient data to determine if the exemption was achieving the policy goal that the Legislature intended it to achieve, and asked that the Legislature do a better job of spelling out what it is trying to accomplish.

Getting lawmakers to do that is a noble goal but may not be easy to accomplish.

The Auditor did pass judgment on one exemption. An exemption for income from the operation of a stock exchange was enacted in 1988, apparently designed to attract a stock exchange to Hawaii to replace the Honolulu Stock Exchange that closed its doors in 1978. But no replacement stock exchange ever appeared.

Yet there were one or two handfuls of taxpayers who were claiming the exemption on their GET returns anyway (which doesn’t necessarily mean that the claimants belong in the hoosegow; they might have confused this exemption with the exclusion for stock market gains).

Maybe it is time to clean up and repeal this provision.
We also have one interesting fact to share regarding this report. The Tax Foundation of Hawaii was the only non-government organization that the Auditor recognized (in the Foreword section of the report) as providing cooperation and
assistance.

We are honored by the inclusion but wonder whether other stakeholders, such as taxpayers and trade organizations, should have been consulted as well. More feedback probably would have resulted in a more useful report, with suggestions for improving the exemptions that are now on the books.

So Do We Have Contact Tracers?
By Tom Yamachika, President

Last week we discussed contact tracers, the people at the Department of Health who are supposed to follow up with COVID-19 positive patients and trace their contacts in order to either find their sources of infection or at least let the people with whom they were in contact know that they have been exposed to the virus.  It’s been said that “contact tracing is a key component in controlling large outbreaks and it becomes even more important as infections are driven down to ensure the state does not see further spikes.” 

On June 10, according to our Director of Health as reported in the Legislative Auditor’s recent report, the Health Department then had 60 full time staff who work on contact tracing and the target was to have an additional 320 health professionals trained by mid-July.  He also said that nearly 1,400 people signed up for contact tracing training at the University of Hawaii.

The truth, however, was that the 60 staff were full time workers but, as Sen. Donna Kim was told, did not necessarily work on contact tracing full time.  And what of the people trained at the University of Hawaii?  On August 4, Hawaii News Now reported that nearly 450 people went through the training program but the State only hired 20 of them.  HNN followed one person who took the training hoping to get hired and help the State, but when she followed up with the Health Department to see if she was a candidate, she received an email from the university telling her not to contact the Department directly.

Why couldn’t such a person be onboarded quickly to help fight the crisis?  “You cannot just take someone because they have clinical background or [epidemiological] background,” HNN quoted the Department’s Dr. Sarah Park as saying.  “They have to be trained on what we do. … [Otherwise] you are gonna cause more problems than help.”  So, the people supposedly trained by the University of Hawaii were not in fact job-ready but needed to be trained again. 

And then, of course, there was another issue:  Where would you put the contact tracers once they were trained (twice)?  They would need space, and equipment like computers and phones.  But, as Dr. Park testified during a Senate hearing on Aug. 6, as reported by Hawaii Public Radio:  “Our grants from the Centers for Disease Control and Prevention do not actually allow us to rent space," she said. "They do not allow us to renovate space, basically don't allow us to do anything for space. They give us money to be able to hire people. They allow us to use our funds to obtain certain amount of equipment, but they do not allow us to use ... any of those funds to identify and secure any space anywhere. And so that's been extremely stressful, extremely problematic.”

Ultimately, the contact tracers set up shop in the Hawaii Convention Center, and the Department of Health held a press conference there on August 19.  The Department then said there were 126 contact tracers on the job with another 13 support staff. 

“What’s going to stop this disease from spreading in Hawaii is not the number of contact tracers, it’s going to be everyone’s behavior,” Anderson said.

So where does that leave us?  Apparently, the Department doesn’t want people to know.  They have told the media that because of their extreme workload, they will only respond to media questions during scheduled news briefings.  The State Auditor’s office complained of getting the runaround as well.  On August 28, the Department shot back, saying, “Employees attempted to accommodate the auditor’s very short time frame for interviews, despite the fact these employees are balancing a number of requests on top of their pandemic response duties.”

Folks, we have a pandemic going on.  If the best way to control it is by everyone’s behavior, as Director Anderson stated, people will need to trust those who would tell them what to do.  We taxpayers are stressed and anxious, and we have questions.  Would you trust someone who answered your questions with, “Shut up and just do as we told you”?  We need timely answers and fixes to what has been going wrong.  Then maybe one day we will be able to trust government again.

Case of the Missing Contact Tracer Millions
By Tom Yamachika, President 
The story you are about to read is true.  The names have not been changed to protect the innocent.  This is the city:  Honolulu, Hawaii.  I live here.  I’m a doggie.

This is the Case of the Missing Contact Tracer Millions.

In a previous column the Boss mentioned $1.25 billion that the federal government made available to Hawaii through the CARES Act.  (I wanted to howl about the real possibility that lots of that money will disappear at year’s end.)

Another federal act was passed after the CARES Act to throw a few more bones to those using the Paycheck Protection Program (PPP).  That act, the Paycheck Protection Program and Health Care Enhancement Act, also made $11 billion more available to the states.  Hawaii’s share of this additional money was roughly $50 million.  It was supposed to be for necessary expenses to develop or scale up COVID-19 testing, conduct surveillance, trace contacts, and other pandemic related activities.

In Senate Bill 75, the legislature told us what we were going to do with that money.  $36 million was to go to the Department of Transportation for thermal screening and related uses, and $14 million was to go the Department of Health for outbreak control, contact tracing, and personal protective equipment.

The bill also said that both agencies were to submit a monthly report to the governor and legislature that details all allocations and expenditures.

Governor Ige allowed the bill to become law without his signature on July 15th.  None of the appropriations just mentioned were vetoed or reduced.  So, the Department of Health was able to fetch $14 million.

It doesn’t seem like $14 million was spent on contact tracing.  When a group of senators raided the Department to sniff around, they found only a handful of overworked tracers where there were supposed to be closer to a hundred.

As mentioned, the appropriation act required monthly reports to the legislature on how the money was spent.  Reports to the legislature from an executive department are called Departmental Communications and are available on the Legislature’s website.  I pawed through the departmental communications from May 5 to August 20, DC 432 to DC 492, and none of them were from the Department of Health.  (There was no Department of Transportation report either.)

I’m not the only one trying to dig up information on where the money went.  On August 19, U.S. Representative Anna Eshoo of California, who chairs the Subcommittee on Health of the House Energy and Commerce Committee, wrote a letter to Governor Ige asking the same question.  She said that “less than two months ago, Hawaii had the lowest number of COVID-19 cases per capita of any state in the nation. 

However, this trend has reversed and now Hawaii has the highest infection rate in the United States.”  She requested specific information, and the last request was:  “Due to numerous instances of conflicting and false information being released to the public by your Department of Health regarding the number of contract tracers employed and their capabilities, what specific actions will you take to restore the integrity of the Department of Health?”

Yipe!  Talk about pointed questions!

This is a true story.  The end of the story has not yet been written.  We too will be following the money, or trying to, and will continue to bark like crazy if we can’t. 

Ours is a tough job but someone has to do it. 

The name’s Watch Doggie.