UNDERSTANDING COMPLEXITIES OF PENDING BUDGET LEGISLATION:THE PLAYERS, THEIR PLAY BOOKS, AND THE IMPACT ON US RESIDENT TAXPAYERS
THERE ARE IMPORTANT DISTINCTIONS BETWEEN BUDGET FINANCE LEGISLATION AND NON-BUDGETARY LEGISLATION: THE KEY TO BUDGET TAX LEGISLATION IS UNDERSTANDING THAT THE DECISION IS ABOUT WHAT IS THE LEAST BAD OPTION: NO ONE WANTS TAXES NO MATTER WHO THEY APPLY TO --EVEN IF THE TAX IS ONLY BEING APPLIED TO THE WEALTHIEST TAXPAYERS OR TO NON-RESIDENTS. BUT ON THE OTHER HAND NO ONE WANTS TO CUT IMPORTANT GOVERNMENT SERVICES AND PROGRAMS. THE RUB IS ALWAYS, IN THE ABSENCE OF ADDITIONAL REVENUE STREAMS BEING IN PLACE, OR IN PLACE QUICKLY ENOUGH TO GENERATE THE NEEDED INCOME, WHAT JOBS OR PROGRAMS AND PUBLIC FACILITIES SHOULD BE CUT RATHER THAN TAXING SOME ONE OR ANOTHER CONSTITUENCY.
.NOW LETS STAND BACK FOR A MINUTE: As the breadwinner in a family, there are certain choices to be made when current income sources are suddenly reduced. You can react by creating new revenue sources, improving existing revenue sources, raiding dedicated funds (such as deposits to the kids' college fund), cutting current expenses, and/or borrow funds to supplement current income. These are the same choices being faced right now by the federal, state, and county administrations.
On the federal level, the Obama administration's approach is that we must borrow and spend the money needed to create new revenue initiatives. President Obama has made clear that the tack of cutting federal, state, or County budget to the bare bones, by cutting jobs and programs, is counterproductive and will only contribute to the downward economic spiral. For this reason he has made available to the states and counties large sums of money to those which have "shovel ready" (or bid ready) governmental infrastructure or services programs that would be likely to help jump start the economy.
Unfortunately the State of Hawaii, and generally the County of Hawaii, have however taken the opposite approach -- in fact they are pursuing exactly the approach that President Obama has rallied us to avoid.
A month or so ago, when the Lingle administration presented its plan to the Hawaii Senate Ways and Means Committee, it did not suggest any new source of income -- not one new revenue generating initiative. I repeat, not one additional source of income was proposed. When one of the Senators asked a question as to whether the Administration had identified any new source of income to counter the budget shortfall, the Administration's response was that the Governor was considering taking from the dedicated Hurricane fund,--or something to that effect. Totally irresponsible presentation. When I testified to this Committee I tried to make this point, explaining that the Administration's and Legislature's current approach is how to divide up a 12 inch shrinking pizza, instead of trying to increase the state's revenue, so that it would instead be dividing up a 16 inch pizza.
Now keep in mind, when there are bleak economic times, those in power are also able to agendas they hold close to heart, and justify pursuing those agendas because of the economic downturn. For example those in power do not like dedicated funds, rather than all money going to the general fund, because it takes away from their power to decide what programs get what funding. Likewise there is nothing like a good economic downturn to provide the opportunity to seriously gut the union contracts and decrease the power of the unions.
So as one could expect, Lingle's key proposals have been to eliminate or vastly reduce revenue sources that are dedicated to particular programs. Likewise on the Big Island, one of the first programs to be targeted by the Kenoi Administration was to take away the 2% land fund revenue deposits. Likewise Governor Lingle made clear from the get-go that she wanted the Unions to cough up 278 million in wage and benefit reductions.
So --to put it simply --let's take a look at some of the key players and their play books in the context of this budget shortfall:
Governor Lingle's choices:
Choice #1: seek additional revenue initiatives VERSUS just cut expenses: ANSWER: Just cut expenses
Choice #2: put in place a program of shared sacrifice so that all programs are reduced relatively equally regardless of whether it is funded through the general fund or though dedicated funds VERSUS cut or severely reduce the dedicated fund programs: ANSWER: Go after the programs with dedicated funds, especially those that are geared to provide for the long-term prosperity of the State -such as the Land Legacy and watershed management programs.
Choice #3: work with the unions to reduce the State and Counties labor costs -- and we all know there are many reasonable reductions to be made VERSUS suspend communications and negotiations with the unions and pitch to the County Mayors that they must assist her in her 278 million dollar attack on the unions, or else she won't help the Mayors keep their critical share of the Transient Accommodation Tax, and then gather public support for all the concessions she wants from the unions, so that the union leaders are backed up against the wall. (Now keep in mind that for the most part, the government union workers comprise the "Middle Class" in Hawaii.-- other than the tourists, it is the spending by this segment of our population that keeps our island economy flowing).
The House Budget Proposals: Generally the same as the Governor with no proposed revenue generating initiative. The House voted to simply take the Counties TAT (Transient Accommodation Taxes-hotel taxes) while still requiring the Counties to provide the services those revenues were meant to address. (How stupid can they be!)
The Senate Budget Proposals: Some revenue generating initiatives in the form of increased taxes to the wealthiest individuals and small increase in Transient Accommodation Taxes were suggested to avoid having to gut to the extreme many valuable programs. Unfortunately though no new programs that would immediately generate revenue without adding new taxes were suggested. At the same time even some senators favored taking the Counties' portion of the TAT revenues.
NOW of course you hear Lingle's anticipated response to the Senate's more moderate approach: I will veto new taxes and I will create a public outcry against new taxes -- even where just levied on the very wealthiest -- such as on the sale of very high end properties and second homes. Also expect to hear her encouraging more public outrage against the unions -- and the need to cut the unions at the knees (rather than negotiating a proportionally fair reduction from the unions).
Well I think I should stop there --- you get the idea of some of what is going on behind the scenes of this budget battle.
This week will be the final crunch for the conference committees on the various budget bills, let's see how these various groups play the budget game.
^A melodious thrush and some other residents from Waimea