Cooperating To Balance Budget

When I last talked to House Finance chairman Marcus Oshiro about a biennium budget it was 2008. Republican Linda Lingle was governor and Oshiro was in a very bad mood. “I admit it,” he says, “I was mean, nasty and short – all doom and gloom.”

He had reason to be disagreeable. The nation’s Great Recession had hit Hawaii. In her state-of-the-state address, Lingle had offered few specifics regarding the budget, and Oshiro’s committee had something like 30 days to come up with a plan.

Times have changed. With a member of his own party – and a state House and congressional veteran – in the governorship, Oshiro seems almost ebullient about the possibility of producing a balanced budget. “Gov. Abercrombie appreciates the dynamics of legislative politics,” says Oshiro. “He’s been around and he’s telling it like it is. He has experience with labor. And he realizes that we have to make these changes now.”

David Ige, chairman of the Senate Ways and Means Committee, agrees that creating a balanced budget is significantly easier when working with an administration you trust. “It’s very different working with people like Kalbert Young (director of the Department of Budget and Finance) and Fred Pablo (director of the Department of Taxation),” says Ige. “When you talk with them, you feel you’re getting honest answers. They’re not cooking the books. The state didn’t have a balanced budget in the last two years of the Lingle administration. It’s clear that Young and Pablo care about balancing the budget.”

So where do you find $771 million to cover the projected $410 million budget shortfall for 2012 and $361 million for 2013? “By new revenue and cost reductions,” says Oshiro. “We’ve passed out $500 million in new revenue and cost reductions.”

The most controversial of the new revenue measures has been a tax on pensions. Abercrombie proposed taxing them at $37,500 of adjusted gross income. The House Finance Committee has countered with a proposal to tax pension income of $100,000 for an individual, $150,000 for a couple. “It would produce $17 million in revenue compared to $160 million in the governor’s proposal,” says Oshiro. “It would only affect 4,000 tax filers.”

Senate Ways and Means members are talking about a $75,000 level. Says Chairman Ige: “That would still exclude 75 percent of the state’s pensioners.”

Hawaii is currently one of only 10 states that excludes all pension income from taxation; and if the Hawaii chapter of the AARP has its way, it will remain one. “Members of the Legislature are scared of the AARP,” says Oshiro. “Pensioners are religious voters.” Religious voters likely to punish politicians who vote to tax their retirement income.

The largest revenue measure to pass out of the House Finance Committee would suspend general excise tax exemptions for more than 20 different “entities” ranging from airlines and shopping malls to ship repair shops and tugboat operations. The GET will be set at 2 percent on these businesses in fiscal year 2012, 3 percent in 2013. The state would realize additional revenue of $67 million the first year, $192 million the second. Needless to say, many of those “entities” are pushing back at the proposal.

The GET is, of course, the state’s most effective form of taxation; a hike of 1 percentage point could raise $500 million. But discussion of it has been muted this year. Abercrombie promised during his 2010 campaign for governor that he would not raise the GET, and members of the Senate have grown tired of proposing it.

“It has general support in the Senate,” says Ige. “We’ve proposed it repeatedly, but the governor threatened to veto it, or the House wouldn’t go along. You get tired of beating your head against a wall on this one.”