Tax Foundation of Hawaii Special Alert

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Governor's Intent to Veto List Released!
By Tom Yamachika, President

Gov. Ige has released his “Intent to Veto” list required by the Hawaii Constitution.  Any bill that is enrolled to the Governor and is NOT on the list will become law.  Bills that are on the list may or may not be vetoed.
Four bills the Foundation has been following made the list.  Two of them were controversial, including HB58, the “Enola Gay Frankenbill,” and HB862, the bill that would stop sharing Transient Accommodations Tax with the counties but would let the counties impose their own TAT surcharges.
Bills that did not make the list, and that will become law, include HB1041, which conforms state law to the Internal Revenue Code but does not pick up key changes in the American Rescue Plan Act and the Consolidated Appropriations Act; HB485, which increases the rental motor vehicle surcharge tax from $5 to $8 over several years; and HB1298, which raids $95 million from non-general funds of various departments (including $15 million from the Department of Taxation).
The four bills that made the list, and the Governor’s rationale for putting them there, are as follows.
 
HB1299 HD1 SD1 CD1 – RELATING TO NON-GENERAL FUNDS
This measure repeals, reclassifies, or abolishes funds within various departments, and transfers unencumbered balances to the general fund.
RATIONALE: This bill is unconstitutional. In particular, the transfer of funds from the Milk Control Special Fund to the general fund is a violation of the separation of powers doctrine, as the fees are assessed by the Department of Agriculture through administrative rules and not by the Legislature through statute. This measure would have deposited these fees into the general fund, but by statute, the fees must be expended for purposes of administering the Milk Control Act instead of being used for general public purposes.
The bill also unconstitutionally reclassifies the Department of Hawaiian Homelands’ Hawaiian Home Receipts Fund (HHRF) as a trust account. This reclassification directly contradicts the Hawaiian Homes Commission Act, which explicitly identifies the HHRF as a trust fund. This change could impair or reduce the benefit of oversight that is normally provided by a fund, which may require consent of the U.S. Congress as determined by the Department of the Interior.
Additionally, Hawaiʻi’s fiscal situation has improved dramatically since the Governor’s Executive Biennium Budget and Financial Plan was presented to the Legislature in December 2020, reducing the pressing need for the extraordinary revenue actions proposed in HB1299.
 
HB58 HD1 SD1 CD1 – RELATING TO STATE FUNDS
This measure temporarily suspends certain general excise and use tax exemptions and increases conveyance taxes for the sale of non-commercial properties valued at $4,000,000 or greater.
RATIONALE: Hawaiʻi’s fiscal situation has changed so much since this bill was introduced that there is no longer the pressing need for the extraordinary revenue actions proposed in HB58. There is concern that due to the county definitions of commercial property, there may be inadvertent negative consequences on family-owned businesses.  Additionally, the increase in conveyance tax rates for non-commercial properties could adversely affect the development of affordable rental housing, one of the Administration’s major priorities.
 
HB862 HD2 SD2 CD1 – RELATING TO STATE GOVERNMENT
This measure makes significant changes to the Transient Accommodations Tax (TAT), including repealing TAT funding for the counties (but authorizing counties to establish their own TAT capped at 3%), repealing TAT funding for the HTA, and amending TAT funding to the Hawai‘i Convention Center Enterprise Special Fund. The bill makes significant functional changes to the Hawai‘i Tourism Authority (HTA), including repealing the Tourism Special Fund, repealing HTA’s procurement exemption and HTA’s market development-related research authority. It also switches HTA funding to ARPA and reduces HTA’s funding levels by 24%.
RATIONALE: Coupled with HB200, HB862 would not authorize HTA to operate the Hawaiʻi Convention Center (HCC) beyond the $11M ceiling. This low ceiling will restrict the HCC from attracting additional events and fulfilling its mission. Funding requested in the Administration’s Executive Biennium Budget allows the HCC to operate at full potential.
The Transient Accommodations Tax was established to provide dedicated funding to allow visitor spending to mitigate visitor impacts on the community. HTA has refocused its efforts beyond marketing to destination management and is looking to strike a more sustainable balance with respect to tourism’s impacts on our community.  Shifting funding sources to appropriations from ARPA makes this support less predictable and could undermine HTA’s efforts.
 
HB1296 HD1 SD2 CD1 – RELATING TO STATE FUNDS
This measure seeks to re-allocate funds from the state’s tobacco settlement monies, while making other appropriations for staffing in various departments. Part 1 repeals the Tobacco Control and Prevention Trust Fund and transfers any remaining balances into the general fund, eliminates settlement monies dedicated to the University of Hawai‘i’s revenue-undertakings fund by July 2033, and caps the total amount in the Tobacco Settlement Special Fund at $4.3 million annually.
Part 2 makes an emergency appropriation to the state’s Emergency Medical Services program, while Part 3 appropriates funding for 2 permanent and 5 temporary positions in the governor’s office. Part 4 requires the university to reimburse the state for fringe benefit costs for any position paid for by a special fund. It also prohibits the University of Hawai‘i Cancer Center from using cigarette tax revenue for research or operation costs. Part 5 establishes a threat assessment team at the Department of Defense and Part 6 appropriates funding for 1 full-time position at the Department of Human Resources Development.
 
RATIONALE: Hawai‘i’s fiscal situation has changed so much since this bill was introduced that there is no longer the pressing need for the extraordinary revenue actions proposed in HB1296.
By repealing the Tobacco Settlement Trust Fund, this bill eliminates a consistent funding source for tobacco control and prevention programs. While monies from the Master Settlement Agreement can fluctuate from year to year, the creation of a professionally managed trust fund for settlement monies provided a steady and reliable source of revenue for highly effective public health and prevention initiatives. This move was lauded for its creativity in leveraging private dollars to ensure steady long-term funding.
 
Additionally, HB1296 would significantly increase costs for the University of Hawai‘i, while simultaneously eliminating the UH Cancer Center’s ability to conduct cancer research and cancer center operations with cigarette tax revenue. The potential public health impacts of defunding prevention and cessation programs will likely amount to significantly higher cost to the state’s health systems in future years.
While HB1296 was likely an effort to increase general fund revenues in a time of financial uncertainty, recent improvements in the state’s revenue forecast eliminate the need for this bill.
Additionally, the measures that passed out of the respective chambers solely addressed the Tobacco Settlement fund.  Sections two through six in the final version were not provided an opportunity for public comment.