Small Business News
August 2005 | Online Edition
Governor Lingle Rescinds Decision to Veto Tax Increase
HB 1309 Becomes Law -- General Excise Tax to Increase by 12.5%
Governor Lingle with rail tax supporters announced that she would let HB 1309 become law without her signature.
By Malia Zimmerman, HawaiiReporter
Surrounded by Democrats in the State Capitol Rotunda, Republican Gov. Linda Lingle on July 11, reversed a statement she made Friday, July 8, saying she now plans to allow HB 1309 to become law without her signature, rather than veto the highly controversial tax increase measure as she said she would.
Gov. Linda Lingle cuts deal with Democrats and agrees not to veto HB 1309, which allows the counties to increase the General Excise Tax to fund a rail system on Oahu. Though Hawaii already has the highest overall tax burden in the nation, the bill allows the county councils to increase the state General Excise Tax by 12.5 percent to fund transportation related projects.
Hawaii’s General Excise Tax is 4 percent and will increase to 4.5 percent should the counties take that option. The tax, deemed the most regressive tax in the nation because it hurts the poor the most, is imposed on every good and service at every transaction level, equivocating to a 12 percent to 16 percent sales tax.
Lingle says she decided not to veto the bill after receiving a letter from Senate President Robert Bunda and House Speaker Calvin Say. The letter was a signed pledge from the Democrat leaders to introduce legislation in the 2006 session to revise the sections of HB 1309, so counties, not the state, are responsible for the assessment and collection of the tax. They also agreed to publicly support and work with the state’s respective members to seek their support and subsequent vote for prompt passage of the amendments.
“Specifically we will introduce legislation to amend the bill so that the counties are responsible for collecting and assessing the 0.5 percent surcharge,” Say says.
“Hooray for an agreement. And I’ll tell you what, being a person who is in gridlock every afternoon, I am glad we can proceed with a project,” Bunda says.
(There was no mention in the letter of what will happen if the House or Senate Democrat leadership re-organizes — half of the Senate Democrats are attempting to oust Bunda as president).
Three of four county governments already declined the tax hike option, but the majority of Honolulu City Council members and Honolulu Mayor Mufi Hannemann are pushing for the biggest tax increase in Hawaii’s history. County official say they want to use the estimated $150 million collected annually to build a multi-billion rail system. Hannemann cut short a trip in Japan to return to Hawaii to make sure the transit bill wasn’t vetoed.
“Let me make it real clear, this is not just an issue about traffic gridlock — this is an issue about quality of life, but also about the economy,” Hannemann says.
City Council Member Nestor Garcia introduced Bill 40, which increases the General Excise Tax as laid out in HB 1309, and the bill is set for third and final reading on August 10, 2005, at Kapolei Hale. Should the bill pass that day, the county will implement the tax hike in 2007.
Lingle received loud applause from the dozen or so Democrat leaders who flanked her side during the press conference, and from the dozens of construction trade union members who showed up during the press conference to thank the governor for changing her mind on the veto.
She says: “I don’t want it to be that anybody won or lost. It was a compromise that everyone felt good about.”
But many feel they did lose in this deal. And now support for her administration and her re-election in 2006 is fading rapidly amongst small business owners and taxpayers who voted for Lingle after she pledged not to raise taxes, according to numerous interviews conducted by Hawaii Reporter.
When Lingle first broke her pledge not to raise taxes just weeks ago when she increased the state’s conveyance tax, she said she isn’t worried about the consequences to her political career but rather is focusing on what is the “right thing to do.”
Countering arguments she is breaking her pledge again not to raise taxes, Lingle argues the she is not raising taxes, and neither are state lawmakers, rather they are enabling the counties to do so.
But taxpayers — including more than 120 who showed up at a town meeting Monday night July 11 — say their taxes already are too high and increasing taxes is unfair, unjust and “a scam.” They said they didn’t care who raised their taxes — whether the county or the state — because in the end, they have to work harder to earn the same amount of money to support their families and themselves.
Members of a number of business advocacy groups, who met with the governor just prior to her decision to allow HB 1309 to become law, say they are extremely disappointed with the governor’s recent action. Republican lawmakers say Lingle’s decision to support the tax hike, when they opposed it as do the vast majority of the Republican Party members, will make it harder for them to do their job at the state Legislature. Republicans in both the House and Senate issued public statements and talked with the governor in private on numerous occasions asking her to veto HB 1309.
State Sen. Sam Slom, R-Hawaii Kai, who serves as president of Small Business Hawaii, hit the governor hard at the Monday night meeting, which he co-hosted with three other lawmakers opposing the tax hike including Rep. Galen Fox, R-Waikiki; Sen. Gordon Trimble, R-Waikiki; and City Council Member Charles Djou.
“The governor said the ‘open for business’ sign was turned on when she was elected and today, she turned that sign off,” Slom says. “It is really sad what the governor has done to us today. This is a complete sell out of taxpayers and the working people.”
Sen. Trimble noted the governor listened to representatives from nearly every business association in Hawaii, as to why the tax increase is bad and at a bad time, yet “the small business community was written off as if it does not count,” Trimble says.
Other Oahu taxpayers who attended the Monday night forum say they were disappointed in the governor’s decision and felt she hadn’t kept her pledge to reduce taxes — or at least not seek tax increases. “We’ve had more tax increases under this governor than almost any other,” says Tom White, a Republican who says he and his family campaigned to get Lingle elected.
Bobbie Slater, who helps to run HonoluluTraffic.com, an advocacy group opposed to the tax hike, says, “We were all blindsided and shocked today by the governor’s action.”
Bud Ebel, a resident of Makaha, told the audience that he doesn’t support the tax hike or the rail, pointing to a 14-mile rail project now under construction in Oregon that started out as $1.9 billion and has skyrocketed to $9.3 billion. “My pockets don’t go that deep,” Ebel says.
Another taxpayer asked if all of Honolulu will be assessed the tax, even if they don’t live on the Ewa side of the island.
Others cited concern over government condemnation of their property if it happens to fall along the route of the rail, especially in light of the recent Kelo vs. New London U.S. Supreme Court case where justices ruled by a 5-4 vote that county governments can seize property at will.
Some residents at the meeting cited concern over whether the taxes collected will actually be used to fund the rail as Hawaii government on the city and state level are notorious for raiding special funds and then increasing taxes and fees to make up the difference.
Conservative Jeffrey Bingham Mead says it is time for taxpayers to get out their pitchforks and get to the Capitol and city hall.
So Where’s The Rail?
Council Member Charles Djou says he is opposed to the tax hike, in part because he hasn’t seen any plans for the rail and claims the city government officials “have absolutely no idea what they are doing.”
“I am troubled because we have no plan for the rail, no route, no place for it to start and end, no cost for construction, no estimates for maintenance, and no idea of the ridership,” Djou says. The rail, he joked, is expected to cost $3.5 billion, give or take $2 billion. “And it is all your money,” he says. Djou asked the audience, “Would you give $450 a year (the expected cost per family in Honolulu to fund the rail) to someone if they didn’t tell you what it is for, when you will get it, and what it will look like?”
Djou notes the taxpayers, in the end, may not even get a rail because $150 million a year isn’t enough to raise the funds necessary to build a rail and Bill 40 doesn’t require the money be used for rail — it simply increases the General Excise Tax.
Bobbie Slater, who remembers the plan from the 1992 rail system that proponents were pushing, says it couldn’t be much different now because there isn’t much land to choose from in terms of a rail route. She says the reason county officials have not released those plans is because “they are so awful, that they cannot meet the light of day.”
Though the feisty group of taxpayers at the Monday night meeting realize they are up against great odds in their effort to stop the tax hike from passing at the Aug. 10, 2005, City Council meeting, they already are planning other strategies to stop the tax hike from going through. That includes a referendum on the city ballot in 2006 to stop the tax hike. The referendum could be put on the ballot if 30 percent of the voters in the last election — or an estimated 40,000 — sign a petition saying they support the question being placed on the ballot. They also asked people to put signs in their yards saying they want to stop the tax hike and to call city council members to do so. Some even suggested posting signs in and along side the yards of council members who favor the tax hike.
Rep. Fox notes there has been no statewide public polling done on the tax issue, (opponents say that is because around 70 percent to 80 percent of the taxpayers oppose a tax hike). But Fox says there is no better way to get a read on what the public supports than asking them to vote in the 2006 election on the question of whether they want their taxes increased.
Slom said in his parting words: “Some people say you can’t fight city hall, and this was all a backroom deal. Be that as it may, we have the means and the numbers to fight the tax hike and we have a reason to fight the tax hike. A half percent is only the beginning — they will be coming back for another increase, saying they want to make our quality of life better. Who should determine your quality of life — you or the politicians? We need to tell them it is our money and we will determine our quality of life.”
Slater noted there is years to go before this fight over the tax increase is resolved and taxpayers must keep pressure up every part of the way.
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