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Lets Hope The Next Legislature Has More Smarts

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By Lowell L. Kalapa

There will be lots of new, shiny faces dotting next year’s legislature, eager to get to work and with lots of ambitious ideas on how to solve the state’s problems. 

Hopefully those new faces will also come with a lot more smarts about how the world works. No, we don’t mean intelligence or academic background, but good old experience or as some would call it, street smarts. Based on its track record in recent years, there has not been a lot of common sense applied to the laws that have been adopted by lawmakers. 

Among some of the dumber examples of legislation approved in recent years have been those bills which seek to provide sustained funding for specific programs by earmarking certain sources of revenues for those programs. One of the earliest examples of this failed logic was the earmarking of marriage license revenues to fund domestic violence programs. 

Somehow lawmakers seemed to think that there was a direct link between being married and incidents of domestic violence. The illogical reasoning seems to say that one had to have a marriage license in order to engage in domestic violence. Of course, there is no such correlation and the result was that the funds earmarked from the marriage license fee were insufficient to fund all of the domestic violence programs. 

So instead of doing what would have been the most accountable thing to do – to appropriate what was needed to fund the domestic violence programs – lawmakers merely hiked the marriage license fee. Again there was no promise that the increased fee would generate the necessary funding for domestic violence programs. 

This strategy of earmarking revenues spawned other “bright” ideas for funding programs. Affordable housing has always been a major concern for lawmakers although the legislature has yet to come up with a viable response to the problem after nearly three decades of discussion. So in the early 1990’s, in the midst of the Japanese real estate bubble, lawmakers doubled the conveyance tax rate and earmarked a portion of the increase to fund affordable rental housing and activities of the natural area reserve program. 

As we all know, the Japanese bubble burst and suddenly the Hawaii real estate market went belly-up. During those years, these particular programs received minimal funding to the extent that little, if anything, was accomplished because conveyance tax revenues sank with the depressed market. While lawmakers attempted to raise the conveyance tax again, their efforts failed because of the depressed real estate market. 

However, when the current burst of real estate activity resurfaced a few years ago, lawmakers once more turned to the conveyance tax and pulled another dud. This time, citing the speculation of investors in the residential real estate market as one reason for the growing homeless population, lawmakers hiked the conveyance tax basing higher rates on the value of the property, with higher rates kicking in at the $600,000 and $1 million dollar levels. And if the property was residential property which was not going to be owner-occupied, the rates are even higher. 

The problem with that strategy is again, the lack of good common sense. Where do lawmakers think rentals come from? Do they suddenly drop out of the air? And are all properties worth a million dollars residential property that is found in Hanalei or in Kapalua? 

Lawmakers obviously have never invested in the real estate market as they don’t seem to realize that rentals are residential property that is not owner-occupied. Thus, by punishing the purchase of residential property that is not going to be owner-occupied means that they are making residential rental property that much more expensive. While the higher conveyance tax may not discourage a lot of investors in residential real property, what it does do is add to the cost of what may eventually be rental housing. 

And how many nonresidential, i.e., business, commercial, industrial properties sell for less than $1 million? What lawmakers did by slapping more “expensive” properties with a higher conveyance tax is to increase the cost of goods and services produced or sold from nonresidential properties. Again, thank you lawmakers for increasing the cost of living in Hawaii. 

Of course the award for one of the more ridiculous ideas has to go to the hike in the cigarette tax to provide funding for the operating costs of the cancer research center. It was good entertainment to hear advocates testify about how raising the cigarette tax will help to deter people from smoking while advocates on the other side were urging lawmakers to provide this stable stream of funding. Or was the message supposed to be, please smoke more so we can operate the cancer research center?

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