The 2001 State Legislature is scheduled to adjourn its 60-working day session which began January 17 on May 3. However, there are already rumblings of a possible special session during the summer to either attempt to override expected vetoes by the Governor or to finish financing incomplete public worker collective bargaining agreements.

Pay increases for Hawaii's public employee unions - the Hawaii Government Employees Association (HGEA) which won a 14.5% arbitration award last year, the United Public Workers (UPW), University of Hawaii Professional Assembly (UHPA) - which struck with the classroom teachers - and the Hawaii State Teachers Association (HSTA). Hawaii continues to have one of the highest public employee ratios in the nation and because of statewide control, the public employee unions exercise more political and economic clout in Hawaii than any other state.

Collective bargaining drove the 2001 legislature and overshadowed other attempted changes - fiscal, regulatory and environmental. There still is a possibility that major taxes - the Gross Income General Excise Tax or Personal Income Tax - could be increased at the last minute as demanded by the HSTA, some leaders in the Majority Party, other than Governor Benjamin Cayetano - and the DOE.

While meaningful collective bargaining reform died - a victim of union clout and strikes - surprisingly, true privatization reform as a government option, was still alive in the final conference committee. So too was a bill to alleviate the tax burden on Professional Employment Organizations (PEOs), and more tax credits for high technology businesses in Hawaii. Previous tax cuts for personal income, a subject of attack early in the Senate seemed to survive. For now.

A controversial measure to add a new $7.25 per day tax on tourism wholesalers was going down to the wire despite industry warnings that even more taxes aimed at tourists will have a detrimental effect. The industry which had originally forecast a 4% increase in arrivals for 2001 now says, based on Asian and Japanese economic problems, that the year will be flat at best.

A new bottle deposit bill was also still alive. Environmentalists hailed it, but as last drafted, it put additional burdens on consumers and business and added a new 2¢ tax to the state in addition to deposit amounts and mandatory business recycling centers.

Hopes that a substantial amount of the "temporary" Hawaii Hurricane Relief Fund, now holding $196 million, would be returned to home owners were dashed early on. Two proposals - one to use the interest proceeds for free UH tuition, and another to reestablish the fund, won out. There also is a possibility that the fund would be "raided" to pay for union pay hikes - the same as other special and rainy day funds were raided this Session. The Employment Payroll & Training Tax, an addition to unemployment compensation tax - was supposed to "sunset" but supporters attempted to make it permanent instead. A scathing report on the Fund and its misuse issued by the Legislative Auditor in April supported the SBH and NFIB position to end the fund.

Reapportionment will be a major issue later this year as a result of population changes from the recently released 2000 census. Big winners are the Neighbor Islands and West Oahu; they'll gain representation. Republicans held a press conference to announce their four commission nominees: restaurateur and small businessman Kenny Lum and attorney and past Commissioner (1991) Rick Clifton were named by Senate Minority Leader Sam Slom; House Minority Leader Galen Fox nominated public relations executive Jill Frierson and Haku Alliance organizer Deron Akiona. The Democrats were expected to name Dave Rae of Campbell Estate, union leader Lynn Kinney, Administration insider Harold Matsumoto and a female attorney. The Commissioners must begin work May 1 and complete redrawing state election district lines by November.

The next SB News (June) will provide a complete wrap of the Session, impact on small business, and a rating of all 76 lawmakers.

No Class - A Strike Shuts
Down Public Education in Hawaii

By Malia Zimmerman

Editor's Note: This article was written prior to the April 23 strike settlement.

Miss America 2000, from Honolulu, Angela Perez Baraquio, has been traveling the country talking about the importance of character education. Maybe she should come home to Hawaii and demand a little character from those running the schools here.

Benjamin Cayetano, the two-term Democratic governor, rallied the voters in 1994 and 1998 with the slogan "The Education Governor." His fire-and-brimstone speeches promised dramatic improvements in Hawaii's 256 public schools and 10 university campuses and an education system "second to none." Now he is presiding over the most severe public-school strike in American history - a labor action that shut down every public school from kindergarten through the university's graduate level.

On April 5, 3,000 university professors and 13,000 elementary and secondary schoolteachers exchanged their chalkboards for picket signs in a fight for more money and respect. Coordination of the strike is simple, since Hawaii's education system is the most centralized in the country, managed under a single statewide school district.

The strike created chaos. From kindergarten to high school, 183,000 students are out of school, including 22,000 with disabilities or other "special needs." The State Labor Board denied a petition to prevent teachers of special-needs students from striking. Parents clamored for day care; businesses struggled to help their employees cope by devising on-site facilities. Then there were 47,000 university students who fear the strike jeopardizes their semester, and in some cases may delay their graduation.

Part of the conflict is personal. In 1998 the University of Hawaii Professional Assembly, the professors' union, endorsed Mr. Cayetano's Republican opponent, Mayor Linda Lingle of Maui. It thereby became the first public union since statehood to endorse an opponent of a Democratic incumbent. The governor, notorious for fierce retaliation against critics, publicly pledged to remember the betrayal. He severely cut the university's funding, regularly disparaged the professors in the press, and offered them a 9% raise when they were demanding 12%.The Hawaii State Teachers Association, which represents 13,000 public elementary and secondary school teachers, did endorse Mr. Cayetano, infuriating the 70% of its members who had voted to back Ms. Lingle.

Hawaii's educational system is one of the worst in the country. The Manhattan Institute last year rated the Aloha State dead last in educational freedom. Education Week this year gave Hawaii a D-minus in standards and accountability, a D in improving teacher quality, an F in school climate and a C in the adequacy of its resources. The magazine's latest figures show in 1998 less than 18% of fourth-graders were proficient in math and reading, and less than 20% of eighth-graders were proficient in math, reading, writing and science. Primary and secondary education consumes more than a third of the state's operating budget-$1.2 billion of the $3 billion total. Much of that goes unaccounted for or is wasted by a top-heavy bureaucracy, according to reports published by the state legislative auditor, Marion Higa. The state spends $6,994 a student, but only half of that gets to the classroom. "People go nuts trying to figure out where our money is being spent," Karen Knudsen, a former chairman of the Hawaii Board of Education, belligerently told reporters last September. "I think it's being legitimately spent, but we just don't know where or how."

Hawaii is the only state under a federal court consent decree for not meeting the mandated needs of special-education students within the public schools. Legislators report a backlog of $640 million in repairs needed just to meet minimal health and safety requirements. Students at Oahu's Maili Elementary, whose classrooms and cafeteria swarm thick with flies attracted by animal manure from nearby farms, know well about the backlog. An air-conditioning system would solve the insect problem, but the school was told the $3 million to pay for it won't be available for 10 years. Restrooms at Oahu's Radford High School are so deplorable students are refusing to use them and are becoming ill.

The Hawaii State Teachers Association, in contrast, has its headquarters in a new, $3 million-dollar, state-of-the-art compound. It demanded a 22% across-the-board wage increase retroactive to 1999, while avoiding discussion of other meaningful educational reforms such as decentralization, charter schools, vouchers and merit pay. The HSTA suggested legislators increase the state's general excise gross income tax and to eliminate personal income tax reductions enacted two years ago to fund wage demands; the governor countered with varying offers of up to 17%.

The National Education Association reports the HSTA teachers' salaries are the 18th highest in the country, thanks to a 17% increase four years ago. The Hawaii union counters by adjusting the figures for the state's high cost of living, 133% of the national average, which the union says drags down teacher wages to 50th in the country. But teachers here also enjoy the nation's richest benefits package, so the total compensation package is well within the top half of states.

Gov. Cayetano blames the strike on the state Legislature, but Senate Minority Leader Sam Slom, a Republican, notes that the Legislature has no part in the negotiations, though it does have to find money for raises. Indeed, the state Senate, two-thirds through its 60-day session, set aside $250 million for collective bargaining agreements. Sen. Daniel Inouye, Hawaii's most senior political leader, came home in mid-April and met with Mr. Cayetano; there's no indication the talks were particularly fruitful. So Hawaii's public schools remain shut down for the foreseeable future.

One group of Hawaii's parents, though, was less affected than most: those who teach in Hawaii's public schools. Many of them with school age children send their own kids to private school.

Malia Zimmerman is a free-lance writer based in Hawaii and a co-founder of the Grassroot Institute of Hawaii. She is also Managing Editor for Small Business News. This article originally appeared on The Wall Street Journal website, OpinionJournal.com. Copyright © 2001 Dow Jones & Company, Inc. All Rights Reserved.

Share N Tell Forum May 22

The Small Business Hawaii "Share N' Tell Networking Business Forum" returns after a six month's absence with a new format and a new venue.

The Share N' Tell will be held on Tuesday, May 22, from 11 am until 2 pm at the beautiful Waialae Country Club in Kahala. Business table topics, information and strategies, networking demonstrations and speakers-including State Tax Director Marie Okamura- built around a superb full course luncheon buffet will be the order of the day. The SBH member cost (and for guests of current members) for the entire event-including lunch, parking and materials, is only $20 for members who reserve and pay in advance (send in reservation form on page 9) or $25 for non-members and at the door (if space is available).

Take this opportunity to come and learn about the latest legislative, work comp, tax and mandated benefit trends and impact on YOUR business from other members and community leaders. A wrap-up of the recently concluded (May 3) 20th State Legislature will also be part of the program.

Visit our home page for the latest update to this story.

Be at the SBH Sunrise May 31

The next monthly SBH member Sunrise Networking breakfast will be Thursday, May 31, from 7-8:30 am in the Liberty House Pineapple Room, Ala Moana Center, 4th floor. There is easy access and plenty of free parking.

The popular SBH networking Forums are held the last Thursday of each month through October. They have been well received.

A great business speaker will present a topic of interest to local small business owners on May 31 and provide you with strategies to do more business. Call the SBH office and Joey at 396-1724 for more specifics.

The April 26 speaker was member- mediator Gieuseppe Leone, of Mediation Plus. Leone discussed the role of mediation as an alternative to arbitration and law suits and examined the trend toward alternative dispute resolution (ADR) nationally and locally. Leone also discussed how mediation is growing along with the explosion of e-business and the Internet.

Emphasis at Sunrise is business networking. There are also surprise guests, door prizes, individual introductions and announcements and current business information. If you would like to provide a product or service demonstration or donate a door prize, please call Joey at SBH at 396-1724.

Sunrise Networking costs $15 for SBH members and their guests who pay in advance (refunds until May 28); $20 for non-members and at the door, provided space is available.

You'll network, meet new people, do more business, and enjoy a good breakfast. Please plan on joining us May 31. Mail or fax the reservation form in the printed issue of Small Business News.

Visit our home page for the latest update to this story.

Fairness to Local Contractors Act

by Nora Feurstein, Director, Omega

Recently, the "Fairness to Local Contractors Act" was introduced in the U.S. House of Representatives. The purpose of the bill is to provide authorities to, and impose requirements on, the Department of Defense in order to facilitate enforcement of state tax, employment, and licensing laws against federal construction contractors.

The bill would require potential contractors to submit with their bid or offer a tax clearance from the state in which the contract is to be performed. A tax clearance is a document from an appropiate state agency indicating that the bidder or offeror is in compliance with all the tax laws in the state in which the contract is to be performed.

The law would require federal agencies to withhold final payment under a construction contract until the contractor submits both a tax clearance and a certification from the state that it is in compliance with all applicable state laws that require employers to make payments to or for the benefit of employees. These include laws relating to unemployment insurance, workers compensation, health insurance, and disability insurance.

The bill would authorize agencies to withhold payments to a contractor if the contractor owes taxes to the state in which the contract is being performed. Upon request of the state in which the contract is performed, the agency may pay the state for any tax liability the contractor owes from the withheld payment.

The bill would also require federal agencies to ensure contractors public buildings, facilities, or work, to obtain all applicable state licenses.

Business Center Debuts on Molokai

The first off-Oahu Business Information and Counseling Center (BICC), opened on the Island of Molokai in mid-April. The Kuha'o Center is a partnership between the U.S. Small Business Administration (SBA) and the Moloka'i Community Service Council. The BICC offers new and prospective small business owners a wide array of assistance and technology resources. Assistance is also available through the SBA, SCORE and the SBDC at the new center.

American Savings Bank and Bank of Hawaii provided financial support for the new center which is located at 25 Kamehameha IV Highway in Kaunakakai. For information about services and hours of operation call 553-3244.

"COBO," Postal Workshop
and Other Small Biz Bits

Small Business Hawaii has joined COBO - the Coalition of Business Organizations - designed to be the state's most comprehensive on-line collection of business-related associations. This assembly will facilitate the exchange of information among members of Hawaii's business community by offering key data about business organizations across the state. Membership requires no cost but offers many benefits. COBO was begun by a small group of Hawaii community leaders seeking a way to encourage the University of Hawaii and the Hawaii business community to work together. Led by Mike Herb of Hawaii Business Connections and David McClain, Dean of UH's College of Business Administration, and First Hawaiian Bank Distinguished Professor of Leadership and Management, the group wanted to get all business organizations together in one place and to provide a means of mass communication via the Internet. For more information contact Herb at 521-9709 or e-mail Jacki Doppelmayer at jdop@hawaii.com (phone 951-6790).

Rod Wright of the U.S. Postal Service advises about an upcoming postal mass mailing seminar, "Making Direct Mail Easy" in Honolulu Wednesday, May 30. The workshop at Dole Ballrooms will include presentations on mail preparation, concept, copy and design, renting and selling direct marketing lists and using the internet. The four-hour seminar costs $40 but SBH members can save $10 by calling Rod at 423-3926. All attendees will also receive a free copy of the booklet, "Being Direct: Making Advertising Pay," by Lester Wunderman, chairman of Wunderman Cato Johnson/New York, a $25 value.

Member Katsumi Tanaka of E Noa Corporation was recently nominated by the Governor and confirmed by the Senate for a term on the Small Business Regulatory review Board. He joins two other SBH members on the Board: Maile Romanowski of James Glover and Sid Quintal of Sun Industries.

SBH member and Director Helen Rapoza of Helen's Haven will attend an American Women Association - Germany (AWAG) 3-day conference, May 14 - 16 and will teach two classes on "How to Look and Feel Good," as well as two classes based on the book, "Who Moved My Cheese?"