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Making Sense of Legislative Disconnects

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By Lowell L. Kalapa
(Released on 2/15/09)

In a year when lawmakers are faced with the challenge of finding enough money to balance the state budget, it is surprising that there are so many incidents of disconnects. That is, people seem to be oblivious to the fact that the state is facing a financial crisis and families are suffering from the downturn in the economy.

One of the “disconnects” is a measure that would raise the nickel per barrel tax on all petroleum products imported into the state by 200%. This barrel tax was initially enacted to set up a reserve fund so that the state would have the resources to clean up any oil spill that might occur on the Islands’ shores. The rate was set at a nickel per barrel of petroleum product and when the amount in the reserve fund reached $7 million, the tax would be suspended.

Ah, but the bureaucrats saw the opportunity to use the money in the fund for all sorts of things that they somehow justified as being related to potential oil spills, like taking trips so they could “learn” more about how to address those potential spills, buying filing cabinets so they could store their records about potential oil spills, and hosting workshops so they could convene with others who might also help in cleaning up those oil spills. It is not that they did not have a budget of their own, they just saw the opportunity to use the funds to do even more.

Of course, when one uses the funds that were supposed to be set aside to clean up those shoreline spills for other expenditures, it takes longer to fill up the fund to its mandated ceiling. Well, lawmakers caught the bureaucrats raiding the fund, so they came up with even more creative ways to use the moneys in the fund, by going back to the legislature to expand the uses and make everything they wanted to do with the money legitimate.

Of course, the general public, who ends up paying any and all taxes, wasn’t paying attention because they didn’t see it when they bought a gallon of gas or paid their utility bills, yet the cost of the nickel is imbedded in any item that utilizes petroleum products. That’s because it is imposed on the barrel of oil or petroleum at the front end, before it is refined into gasoline or burned to generate electricity or used to run the pumps of the water company.

So it comes as no surprise that lawmakers see this cash cow as ripe for a rate increase because no one will notice its passage because it is not readily visible to the vast majority of taxpayers. Instead, when the cost of everything that is reliant on imported petroleum products increases in costs, it will be the retailing businesses that will be saddled with the blame.

What is even more incredulous is that lawmakers want this tax increase to fund yet another new bureaucracy that will over see energy and food security. Has anyone notice that the state doesn’t even have enough money to fund textbooks in the classroom, let alone raise taxes to buy those textbooks. Talk about a disconnect!

Another disconnect is the ongoing crusade to save the tax credits for investments in the high technology industry which cost the state nearly $130 million in the latest year for which information is available. The advocates of the credit insist that no changes be made to the credit, either to limit the amount that can be taken or to provide greater oversight. Meanwhile, lawmakers struggle to find funds for safety net programs, education, and health and social services. One of the most glaring cuts will be the total demise of the state’s healthy start program which not only identifies at-risk children before they are born, but identifies kids who have special needs so that they can get the appropriate services once they enter the educational system. These kids were at the very heart of the dispute that led to a court-appointed master under the Felix decision.

In a hearing on a measure that proposed to sunset many of these credits, advocates of the various targeted business tax credits espoused the virtues of how their credit spurred new economic activity or the jobs that were created with the investment in their industry. It all sounds wonderful until the committee chair brought things into perspective by pointing out that the legislature is looking for ways to make up the budget shortfall without further cuts to spending.

The problem is that there is a great disconnect between those who want their tax incentives and the fact that there is a huge hole in the state’s budget, a situation much like fiddling while Rome burns.

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

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