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Dunning Taxpayers With Uncontrolled Fees

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By Lowell L. Kalapa

(Released on 5/11/08)

Last week we reported about the litigation that struck down regulatory fees on the insurance industry as being an unconstitutional in-lieu tax because the fees imposed generated more revenues than were needed to regulate the insurance industry. Such fees are nothing more than a tax, especially when the proceeds are used to fund programs and services totally unrelated to the fee payer.

The suit had been brought by the trade association representing local insurance companies who pay fees to the department of commerce and consumer affairs which regulates the insurance industry in Hawaii. These user fees are supposed to cover the cost of the service that will benefit the users paying the fees. In this case, the service provided is the regulation of the insurance industry. When the amount raised by the fees exceeded the cost of the service, it appeared, in the court’s opinion, that the fee then became an in-lieu tax especially where the excess funds were then used to pay for programs or services that were unrelated to the fee payers.

Such would seem the case in the environmental response tax or fee which currently is imposed on all petroleum products imported in the state at the rate of a nickel per barrel. The purpose of this fee was to raise a reserve of funds that could be tapped in an emergency to clean up any oil spills that might occur on the state’s shoreline. However, over the years various other tasks were assigned to the environmental response fund. Those tasks are of questionable relationship to the original intent of the fund and include such activities as environmental protection, natural resource protection programs such as energy conservation and alternative energy development. The fund now can also be used to address global warming, clean water, polluted runoff, solid and hazardous waste, drinking water, and underground storage tanks.

Thus, what started out as a way to set up an emergency fund to address shoreline oil spills has turned into a multipurpose catch all for environmental concerns. The question is where is there a relationship between the imported petroleum and some of these programs and problems that have literally been added on to the responsibility of the environmental response fee?

This year lawmakers proposed increasing the fee by five times and loaded even more responsibilities on the fund. In the end, they created a new temporary renewable energy facilitator to help with the permits for renewable energy projects and to administer the coordination of those projects. The measure also sets up a new energy security special fund which may receive some of its funding from the environmental response fund and the measure then appropriates $112,000 out of the environmental response fund to the new fund.

Given the now open ended program that the environmental response fund will be called upon to fund, taxpayers and consumers can almost bet that lawmakers will be back to raise the rates of the environmental response fund fee.

So what started out as an emergency pool of money to be prepared for oil spills on the state’s shores will now turn into an ongoing source to run yet another state program. Plus, the cost will be hidden from taxpayers because it will be paid by the importers of petroleum products.

Another way to add to the burden of taxpayers is to allow department heads to establish user charges and fees with absolutely no over sight by the lawmakers. Such is the case with the legislation that was approved last year to address the production of greenhouse gases. Act 234, SLH 2007, allows the director of health to adopt a schedule of fees under the state’s administrative procedures law to be paid by sources of greenhouse gas emissions regulated by the Act.

While the director of health will have to hold a public hearing and give public notice about the fee schedule, the fees will go into the clean air fund with no support as to what level of funding will be needed to carry out the programs of the clean air fund. Will the level of fees imposed be more than necessary such that the fund then becomes a target for raids by lawmakers? If this occurs, then this situation might invite litigation much like the insurance industry brought with respect to the fees charged for their regulation.

And why should taxpayers care? If you think that any of these industries will absorb these additional fees, you are unfortunately mistaken. Undoubtedly all of these fees will be passed on to the consumers of these products. In that respect, this scheme amounts to nothing more than financing of yet another government program with a hidden tax increase.

Lowell L. Kalapa is the president of the Tax Foundation of Hawaii. Mr. Kalapa’s commentary is printed each week in the Maui NewsWest Hawaii TodayGarden Isle News, and the HawaiiReporter.com.

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