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. By Tom Yamachika, President This week we’ll discuss a couple of examples from this legislative session of the controversial but commonly used technique called “Gut and Replace” where a bill is amended so much that it looks nothing like its former self. Senate Bill (SB) 162, as originally introduced, would have provided tax credits for hiring elderly people. In late February, the Departments of Taxation and Transportation (DOT and DOTAX) came to key legislators with a problem. In 2018, a law was enacted to raise the special tax on car rentals from $3 to $5 – but only for those who couldn’t produce a Hawaii drivers’ license. The car rental companies opposed the bill then, citing constitutional concerns, but legislators pooh-poohed the objections after a deputy attorney general concluded that the bill was okay. In the beginning of 2019, however, some of the car rental companies came back in with a new analysis concluding that the law’s discrimination against nonresidents was prohibited by a part of the U.S. Constitution that the deputy attorney general didn’t consider. “Oops,” the deputy said. “I think these guys may have a point.” DOT was greatly concerned because the car rental company threatened to sue to invalidate the tax. Revenue from the tax normally goes to the Highway Fund, which DOT uses to fix roads and bridges. Interruption of revenue to that fund would put DOT in a bind. The discrimination could be solved by making the tax on locals and visitors equal. So, DOT’s fix was for everyone to pay $5 a day. That solution would, however, require a bill to be passed and signed into law. Eyes then fell upon SB 162. Now, once a bill is introduced, its title can’t be changed, and its contents need to be consistent with the title. There were several bills floating around that would allow a tax credit for hiring the elderly, so no one would miss this one. It was titled “Relating to Taxation,” meaning that it could appropriately contain the language to fix the rental vehicle tax. On March 1, Senate Ways & Means published a hearing notice for the bill along with a proposed Senate draft that would trash the language currently in the bill and change it to fix the rental motor vehicle tax. The bill passed out of Ways & Means in a form close to the proposed draft, but at least people had a chance to, and did, testify on the language in the proposed draft. When the bill crossed over to the House, public hearings were held and only a few minor changes were made. The Senate disagreed to those changes, and a conference committee was appointed. The committee made another minor amendment to the bill, and the bill is now on the Governor’s desk for consideration. Contrast this with the saga of SB 1405, which, as it was moving through committees of both houses, would have made it a crime for unlicensed people to ship e‑liquid products (used for “vaping”), increased tobacco wholesaler or dealer license fees and retail permit fees, and hiked administrative fines and criminal penalties for electronic smoking devices by persons under 21. The bill that came out of Conference Committee requires educators to confiscate e-cigarettes found on school kids, provides a safe harbor for disposal of e-cigarettes, and increases fines and criminal penalties on underage smoking. The final version of this bill is not completely unrelated to the prior versions, unlike SB 162, but there was no opportunity for public input at all on the final version of SB 1405. Now here is the question for you to consider as a taxpayer and citizen. The system our constitution sets up for bills to become law requires opportunity for public comment. Although both of these bills technically comply with the rules, they are “gut-and-replace” bills because the final version and the version as introduced embody entirely different concepts. Was there a meaningful chance for the public to comment on the ideas in the bills before they were shipped off to the Governor? And if not, should either or both bills be invalidated as a result? (Disclosure: The author represents some of the car rental companies.)
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With the Assessment Property Values increasing over prior year, keeping the rates the same will in fact and effect be a property Tax increase already. Seems too often that the Maui Government officials do not understand that and when they increase the rates as well, they are compounding the net increase much more than they considered. The WMTA intends to make that point clear in our testimony regarding rates, to hold the line as that will already provide the County with significantly more income. We do not know what that exact amount of increase would be pending appeals and hope that a good number will be available to the Council and Administration to know prior to setting any new rate increases.
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 January 13, 2019 Zero-Based Budgeting By Tom Yamachika, President Last week, we spent some time on “variance reports,” which is how our state government agencies report differences in position count and spending from one year to the next. The agencies are also supposed to report on performance measures that they pick themselves, but sometimes still disregard this requirement. Today, we examine “zero-based budgeting,” an idea that has been around for a while but was recently championed by House Finance Chair Sylvia Luke. Zero-based budgeting assumes that nothing, not even the amount the legislature approved the previous year, is approved. Agencies will have to justify everything, all the dollars they want to spend and all the positions they want to have, from the bottom up. This is a whole lot more work than agencies are used to doing, and it generates a lot more information than legislative staffs are used to reviewing during our compressed legislative session, so it’s going to be a tough sell all around – especially for people who don’t understand what ZBB is. The international consulting firm McKinsey & Co. defines ZBB as something that goes beyond simply coming up with a budget: "Zero-based budgeting is a repeatable process that organizations use to rigorously review every dollar in the annual budget, manage financial performance on a monthly basis, and build a culture of cost management among all employees. A world-class ZBB process is based on developing deep visibility into cost drivers and using that visibility to set aggressive yet credible budget targets. The annual budgeting process does in fact start from zero and is very detailed, structured, and interactive in order to facilitate meaningful financial debate among managers and executives. Throughout the year, multiple owners are tasked with managing performance and continuing the healthy debate on cost management. Through new system and process controls, and aligned incentive programs, all employees make cost management a part of their daily routine." One of the key elements of ZBB is visibility. An organization needs to understand what money is being spent on, and why. In government agencies, especially larger ones, it’s difficult to obtain that understanding. Waste and fraud can be buried, not only because of some evil intent but simply because “it’s always been done that way.” It takes work to figure out why a task or process is being done, and only then can it be analyzed to determine if it can be done more efficiently or even if it is needed at all. Nevertheless, it’s probably worthwhile to periodically take deep dives into an agency’s activities. Advantages of the process include sharpening the agency’s focus on its mission so marginally related activities can be identified and possibly refocused, identifying redundant activities, identifying artificial budget inflation, and increasing the efficiency of resource allocation. Doing things a certain way just because they’ve always been done that way might not be right when the times have changed and the agency’s priorities and needs have changed. Yes, it takes leadership and hard work to do ZBB correctly. But if it is done correctly, the potential for savings to the public fisc is huge. McKinsey estimates that if properly implemented, ZBB can reduce sales, general, and administrative costs “by 10 to 25 percent, often within as little as six months.” We can’t afford not to try this. |
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