Here’s how Hawaii’s new state budget is evolving


April 7, 2021

Who wins and who loses in the legislature is typically spelled out in the state’s budget document, and a picture emerges of a spending plan that will protect Hawaii’s shaky private employers while also protecting the workforce. public work.

For public officials, the dreaded holidays, pay cuts and layoffs discussed at the height of the pandemic never came to fruition despite warnings from Governor David Ige last year that they would likely be needed.

The state’s budget crisis that sparked the leave talks was blunted by Congress and President Joe Biden when they passed the American Rescue Plan Act.

This federal law will provide more than $ 1.6 billion in bailout for the state government, and lawmakers in Hawaii say they plan to spend almost all of that money over the next two years.

But the pandemic and the shutdown of the state’s tourism industry have been brutal for businesses in Hawaii. The state’s exorbitant unemployment rate – which remained the highest in the country in February – lawmakers urgently adopt relief for the business community.

Businesses closed at Daniel K. Inouye International Airport last year. House and Senate lawmakers plan to help employers next year by repaying $ 740 million in federal loans on behalf of Hawaii businesses. Claire Caulfield / Civil Beat

The most spectacular House and Senate budget proposals would pay off both around $ 740 million in principal and interest on federal government loans that helped cover unemployment benefits for unemployed workers.

The $ 740 million in principal and interest on the loan is almost half of the money provided in the state’s federal ARPA bailout, and Ige now says he is also supporting repayment of the loan on behalf of the Hawaii employers.

This is a huge victory for the Hawaii Chamber of Commerce and the rest of the Hawaiian business community, as it is the businesses that are legally required to repay this loan.

The unemployment system is supposed to be funded by taxes levied on employers, with the proceeds held in a trust fund which is used in hard times to pay unemployment claims. When the trust fund runs out – which happened during both the Great Recession and the pandemic – the state can borrow from the federal government to pay workers’ unemployment claims.

During the Great Recession, the state borrowed small amounts to keep Hawaii’s unemployment system afloat, and employers paid that money back. But the chamber argues that the reimbursement this time would be too heavy for employers in difficulty.

Lawmakers are sympathetic, noting that it was the state that shut down tourism to Hawaii last year to slow the spread of COVID-19. Many employers had no choice but to impose layoffs.

The House and Senate are now proposing to repay the federal loan with interest on behalf of Hawaii employers, something the state has never done before.

In another victory for local business interests, a watered-down proposal to raise the state’s minimum wage to $ 12 an hour next year is almost certainly dead in the House.

No later than last month Ige said he opposed the idea of ​​paying off the unemployment loan because revenue projections at the time suggested the state didn’t have enough money.

However, the governor reversed course on Monday, saying that now “we are in favor of repayment of the loan. We believe this is the best way to help many employers in the state manage the cost of the unemployment system.” .

Ige told reporters he was initially hesitant due to the community’s many other needs, but said “significant” federal support has arrived or is about to help with housing, child care. children, food costs, unemployment benefits and health insurance coverage.

In another victory for local business interests, a watered-down proposal to raise the state’s minimum wage to $ 12 an hour next year is almost certainly dead in the House.

Advocates initially called for a raise to $ 15 or even $ 17 an hour, but the House refused to even consider $ 12 an hour. This means that Hawaii – one of the most expensive places to live in the country – will continue with a minimum wage of $ 10.10 an hour.

To understand what a tremendous blow this is to the local business community, consider the the minimum wage in Arizona, Colorado, Connecticut, Oregon and Maine is already $ 12 per hour, and the minimum wage is over $ 12 an hour in California, Massachusetts, and Washington.

The room last year actually accepted a proposal to raise the state’s minimum wage to $ 13 an hour by 2024 but now says the proposed increase to $ 12 next year “will undermine efforts to turn Hawaii’s economy around.”

Civil servants will see their funding restored

On the public workforce, House lawmakers in their draft budget cut funding for hundreds of vacant public service positions, but House and Senate leaders already acknowledge that they plan to restore much of that funding.

Another important piece of the budget puzzle is what to do about the annual payment required by the state into the Hawaii Employer and Union Health Benefits Trust Fund to cover the cost of future worker health care benefits. government and retirees.

A lei in the hand of the statue of Queen Liliuokalani on the makai side of the State Capitol. Lawmakers are still weeks away from finalizing the state budget for the next two years. Cory Lum / Civil Beat

These payments are compulsory under a state law that Ige helped pass in 2013 with the aim of setting aside enough money to cover future health care costs for public workers. But the pandemic budget crisis prompted Ige to use his emergency powers to defer $ 408 million in payments into the fund last year.

Now, the administration is asking lawmakers to allow the deferral of an additional $ 1.4 billion in payments to the EUTF over the four years that begin July 1.

According to Craig Hirai, director of the State Budget and Finance Department, deferring these payments to the state and counties “will give the state and other public employers the flexibility to deal with budget deficits during the period. let the economy recover ”.

But Ways and Means Senate Chairman Donovan Dela Cruz said in an interview on Monday that the Senate budget plan includes money to make these payments from the EUTF for the next two years, which would total around 750. millions of dollars.

President of the House Finance Committee Sylvia Luke said last month that she also included money to make EUTF payments in the House budget proposal, but later said she was wrong.

Luke said the House chose not to fund EUTF payments for fear they would meet the requirements of the federal ARPA bailout.

This means that the House and Senate will have to decide in the final weeks of the session how much they should budget for future health care costs.

Senator Donovan Dela Cruz at a meeting of the Senate Ways and Means Committee last year. Cory Lum / Civil Beat

Meanwhile, Dela Cruz is proposing a package of tax increases that he says could be used to raise additional funds to replenish the state’s emergency and budget reserve fund, also known as funds “for rainy days”. Ige primarily drained this fund to help cover state government costs during the pandemic.

“Whatever we can put together we want to try and see if we can at least start to rebuild it,” Dela Cruz said of the rainy day fund. “It might be slow, but if it’s possible, it’s something we think we have to do.”

Several of these tax proposals are included in Bill 58, which would expand the scope of Hawaii’s estate tax and increase state transfer tax on sales of properties valued over $ 4 million.

HB 58 would also temporarily suspend a series of excise tax exemptions, which would increase by around $ 45-50 million per year for the next two years by applying the excise tax on transactions that are now exempt.

The state tax department estimates that the proposed expansion of the inheritance tax in HB 58 would allow the state to collect about $ 25 million more per year, while the increase in tax rates Assignment proposed in the same bill would raise over $ 40 million per year for the next two years.

The Senate Ways and Means Committee also gave its preliminary approval to a draft increase in personal and corporate capital gains tax, a measure that the tax department estimates would bring in an additional $ 55 million to $ 60 million per year for the state.

The House has also brought forward bills to increase the capital gains tax and extend the scope of state inheritance tax, which suggests that these measures have a reasonably good chance of being adopted.

GOP Senator Kurt Fevella in the Senate in 2019. Cory Lum / Civil Beat

When lawmakers approve tax increases, it is often in odd-numbered years when no elections are held. But the tax increases proposed this year don’t seem to arouse much partisan passions.

State Senator Kurt Fevella, the only Republican in the Senate, has so far voted in favor of increase in capital gains tax as good as increases in inheritance and transfer taxes.

At State House, three of the four Republicans voted against the increase in the inheritance tax, but only two of the four members of the GOP House voted against the increase in the capital gains tax.

House Republican Minority Leader Val Okimoto was one of those who voted in favor of increasing capital gains with reservations, but said she did so because she wanted to be able to participate in the negotiations of the end-of-session conference committee on the bill.

Lawmakers who vote against a measure are not appointed to the conference committee where the House and Senate work out the final details of that bill.

“Especially now is not the time to raise taxes,” she said. “We have businesses that are suffering.

Honolulu Civil Beat is dedicated to being a group of informed citizens, all striving to make Hawaii a better place to live. We achieve this through investigative and surveillance journalism, in-depth corporate reporting, analysis and commentary that gives readers a holistic view of issues important to our community.

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