​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 September 17, 2017


 
Legislature with U R Missing
By Tom Yamachika, President
 
This week, I was inspired by a sign on the First Baptist Church on Pensacola Street here in Honolulu.  Their sign read, "CH _ _ C H – what's missing?   U R !"

If you take away "U R" from "CHURCH," you are left with "CHCH," which isn't even a word.  Apparently, the point there is that the church isn't a church, and in fact has no meaning, without the people participating in it.  

Now, what happens if we apply that same concept to "LEGISLATURE"?

"U R" missing from "LEGISLATURE" yields "LEGISLATE," which means "to make laws."  This is quite different from the situation with “CHURCH,” because the remaining letters do have a meaning.  And that meaning is significant.  Why?  You don't need the people's participation to legislate.   Legislatures don’t have a monopoly on legislating.  Kings and tyrants do it too.  The Law of the Splintered Paddle, a legacy of King Kamehameha the Great here in Hawaii, is a very famous law here, now enshrined in the Hawaii Constitution at Article IX, section 10.   That law was not voted on by a house, or senate.  It was decreed.  By one person. 

A legislature, which is one of the key components of our form of government, also legislates.  But there is supposed to be ample opportunity for public participation, because those who framed our system of government believed that this participation was indispensable to the process of legislating.  Lawmakers get input from those with many different viewpoints and backgrounds, including watchdog groups like the Tax Foundation of Hawaii.  That input and those viewpoints can be used to craft better legislation.

I say that there is "supposed to be" opportunity for participation because legislation doesn't always happen that way.  Public participation either can be squelched or cut off by those doing the governing, or it can wither and die because we in the public don’t want to participate.  If participation is limited or barred, those doing the governing become no different from the kings, dictators, and tyrants.  Sometimes they do come up with good, wise, and enduring laws, as was the case with Kamehameha the Great.  But sometimes those leaders have issues like unfairness and corruption, and occasionally come up with laws that serve themselves rather than their constituents. 

If public participation isn't there because people don't want to participate, we get to the same result.  The people who are doing the legislating have fewer effective checks and balances, and it's easy for them to get used to not being held accountable.  That leads to the same issues of unfairness, corruption, or self-serving legislation.

What form of government would you rather have doing the legislating?  Shouldn't you care about participating in the process as opposed to just being aghast when you find out the results?

"LEGISLATURE."  It's so much better with (when) "U R" included. 

​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 September 3, 2017


 
Rail: I Dunno About TAT
By Tom Yamachika, President
 
We are getting closer to the special session that our Legislature has scheduled to continue its discussion about funding Honolulu rail.  During this past session, the House and Senate were unable to agree on a common version of a bill to continue rail funding.

The two chambers disagreed about whether to use our Transient Accommodations Tax (“TAT”).  The TAT is a statewide tax.  A large portion of it is shuttled off to special funds, $93 million a year is shared with the counties, and the remainder goes to the state general fund.

One frequently voiced comment about using the TAT is that “Neighbor Islands should not pay for rail in Honolulu.”  This was the headline of Maui Council Chair Mike White’s analysis, recently published in The Maui News, which said:

For fiscal year 2018, in what has now become a common occurrence, the Legislature raided the counties’ TAT share by reducing it from $103 million to $93 million.  The counties’ share was reduced at a time when TAT revenues are at an all-time high, with anticipated revenues nearing or exceeding $533 million in the coming year.  By the end of this fiscal year, the state will have harvested $96 million more in TAT since FY 2016, or a 42 percent increase.

The state has increasingly taken more TAT revenues to help balance its own budget at the detriment of counties.  Now the Legislature wants to raise the tax to fund rail?

Neighbor Islands receive no benefit from the Honolulu rail, and a TAT increase has major implications on the economy. . . .

Members of the [Maui] County Council also agree that increasing the TAT is not the solution, and passed a resolution this past week urging the Legislature to extend Oahu’s GET surcharge instead.  The hope is that legislators will have a change of heart and avoid pulling the Neighbor Islands into the rail project and draining resources the counties need for their own projects.

Chair White seems to be arguing that the counties have a right to TAT money.  Really?  The TAT, when it was enacted in 1986, was primarily meant to fund the Hawaii Convention Center, which happens to be on Oahu.  (The tax at that time was 5% and it was billed as a temporary tax that would go away once the convention center got built.  Now it’s a 9.25% tax, and it’s permanent.  I have ranted about that before.)  The Hawaii Constitution explicitly says that the legislature shall have the power to apportion state revenues among the several political subdivisions.  State lawmakers have a right to send state revenue from a state tax wherever they see fit. 

State taxes fund all kinds of projects on all islands.  Guess how the Maui Memorial Hospital was built and maintained, for example?  Or Honoapi’ilani Highway?  If the 80% of Hawaii’s population on Oahu decided that they didn’t want “their” state taxes to fund any projects on any other islands, Maui County would be very different today. 

Also, Maui County has its own taxing power.  If revenue is needed to run county government, the county can tinker with real property tax, fuel tax, vehicle weight tax, vehicle registration charges, user fees, and other revenue sources.  (Honolulu has that power too, and it will probably have to use it to operate and maintain the train…unless it can persuade state legislators to use state money or state taxing authority to make Honolulu’s job easier.)  If Maui County doesn’t want to because their politicians fear political backlash from their electorate, Oahu and the State shouldn’t be blamed for that.

The Tax Foundation of Hawaii is not endorsing any particular tax to be tapped for rail.  We just want to make sure that any decision made is not based on misinformation.

​
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 August 6, 2017


 
The Grand Skim of Things, Part 1
By Tom Yamachika, President
 
In this space, we have often spoken of funding government with “special funds.”  Special funds are pots of money dedicated to a specified purpose.  Money in the fund can be spent for the specified purpose without going through the general appropriation process at the Legislature.  Agencies love them because they can spend money without interference by meddlesome lawmakers.  Supporters of the programs and services that the fund is spent on like them too, because the fund is dedicated to their program or service.  Or so they think.

But there is some “skimming” going on.  A Hawaii law dating back to 1955, which now can be found at HRS section 36-27, says that 5% of any special fund’s income will be paid to the state general fund to pay “central service expenses,” which we assume are shared services costs such as payroll, accounting, compliance reporting, and other administrative costs.  HRS sections 36-28, 36-28.5, and 36-29 apply a similar skim to the highway, airport, and harbor funds respectively, except that the 5% applies to the fund’s income net of payments for principal and interest on bonds.

The same 1955 law contained another provision, now found at HRS section 36-30, which says that each special fund “shall be responsible for its pro rata share of the administrative expenses incurred by the department responsible for the operations supported by the special fund concerned.”  This law does not provide for a flat percentage, but instead requires the state department in charge of the special fund to figure out the proper administrative costs.

Reports to the Legislature by the Department of Budget and Finance show the amounts assessed in recent years:
 
Fiscal Year Ending 6/30/
Central Services Expense Assessments
Departmental Expense Assessments

2016
$ 44,216,395.76
$ 3,137,519.32

2015
46,154,994.98
3,733,194.31

2014
45,108,045.50
3,497,915.92

2013
39,093,748.69
3,206,727.79

2012
39,468,690.86
2,981,309.31

2011
40,516,153.25
3,789,295.21

2010
32,804,292.00
2,951,017.00

2009
31,703,168.00
3,336,976.00

2008
37,486,514.00
2,693,986.14

2007
30,473,089.00
2,169,355.00

Source:  Department of Budget and Finance, Budget, Program Planning and Management Division website

In 1994, the State Auditor, Marion Higa at the time, issued Report 94-17 on these assessments.  She concluded that it was appropriate for special funds to pay their fair share of administrative costs.  But she observed that a flat 5% seemed to be an arbitrary percentage and wondered whether it was a reasonable amount, observing that other states that charged central services expenses were charging quite a bit less in percentage terms. 

To determine whether the 5% flat amount is fair, we need to know what costs this charge was meant to cover.  The State Auditor recommended that the Department of Budget and Finance put out some rules, which the statute authorizes explicitly, to add clarity and consistency.  It’s 23 years later and we’re still waiting for those rules.

In upcoming weeks, we will examine other issues relating to the Central Services Skim, as I call it, including the sheer number of funds that are exempt from it and how continued proliferation of the exemptions may get us in sky high trouble with the federal government, and the one department in state government that flatly refuses to pay a penny of the Central Services Skim.