By Lowell L. Kalapa
We have taken a look at some of the economic stimulus measures approved by the latest special session of the legislature and some of the proposals made by the minority caucus, but what about the next session of the legislature that will convene in a couple of months?
The question is whether or not lawmakers will do anything more to help move Hawaii’s economy or as one cynical observer opined, will they just “hunker down” and hope to dodge the stray bullets? What has become increasingly apparent is that lawmakers did little to provide either relief or economic stimulus for small businesses in the state.
True, lawmakers did raise the thresholds for the payment of taxes on a less frequent basis, but those taxes will still have to be paid. While not approved, minority lawmakers suggested a tax holiday where businesses selling certain items would not have to pay the 4% general excise tax on those sales. Some even suggested that the general excise tax be deferred on sales made in the next few months as a way to help small businesses. Again, the idea never got off the ground.
So what can be done to help small businesses over the tough times ahead? Well, deferring or even exempting sales from the general excise tax really won’t help businesses either big or small because the 4% tax is due only when a business makes a sale. However, there is one tax that businesses must pay regardless of whether or not the store opens its doors for business. That tax is the property tax. Think about it, if a business closes down for a week or a month, the business will not have any payroll to meet because there isn’t anyone working, there will be no utility bills because no one turned on the lights or the air conditioning, and there will be no bills for advertising because the store was closed. Ah, but the property tax will still be due and payable to the county.
While the counties may not be in a position to forgive property tax bills as they need every penny they can get to survive the bad times, that doesn’t mean that the state could not consider reimbursing the counties for property taxes that might otherwise have been collected from small businesses. Lawmakers may want to explore some kind of incentive plan to encourage the counties to lighten the load on small business at this time.
Another cost that is incurred regardless of whether or not a business opens its doors is the debt obligations of that business. Most businesses in starting up their enterprises go out and borrow the necessary funds to set up shop be it to purchase equipment or inventory or to refurbish the existing facilities. If the business is a going concern, the cash flow is used to pay the cost of operating the business plus the debt obligations.
However, as a result of the economic slowdown, many businesses are struggling to make ends meet. In some cases, some have cut the hours they are open, reduced their workforce by laying off workers, or deeply discounting their merchandise or services. In any case, the cash flow has been diminished and what many businesses are finding is that they can barely cover their operating costs like payroll, taxes, rent, and utilities let alone the debt they owe for their business.
The state has for years operated revolving loans for the purpose of helping new businesses to start up or expand. Given the fact that it is more difficult to start up a new business than it is to expand or maintain an existing business, state lawmakers may want to consider using the existing loan funds to help existing businesses meet their debt obligations. The loans could be made at a low or no interest rate. These loans might help struggling businesses to make it through the difficult economic times ahead and survive until times are better. As the economy improves, the state could start to recall these loans, making that decision on a case-by-case basis.
Keeping small businesses solvent is crucial to economic recovery for Hawaii as the small business community has become the backbone of the economy. Small businesses can be found in nearly all identifiable sectors of the economy, from the visitor industry to agriculture to construction to high technology.
While some may argue that infusions of capital into construction or the visitor industry will trickle down to everyone, many of Hawaii’s small businesses may not be around to see that trickle down if something is not done to help them survive until that turnaround occurs.