Governor's Intent to Veto List Released!
by Tom Yamachika, President, Tax Foundation Hawaii, June 21, 2021
Gov. Ige has released his “Intent to Veto” list required by the Hawaii Constitution. Any bill that is enrolled to the Governor and is NOT on the list will become law. Bills that are on the list may or may not be vetoed.
Four bills the Foundation has been following made the list. Two of them were controversial, including HB58, the “Enola Gay Frankenbill,” and HB862, the bill that would stop sharing Transient Accommodations Tax with the counties but would let the counties impose their own TAT surcharges.
Bills that did not make the list, and that will become law, include HB1041, which conforms state law to the Internal Revenue Code but does not pick up key changes in the American Rescue Plan Act and the Consolidated Appropriations Act; HB485, which increases the rental motor vehicle surcharge tax from $5 to $8 over several years; and HB1298, which raids $95 million from non-general funds of various departments (including $15 million from the Department of Taxation).
The four bills that made the list, and the Governor’s rationale for putting them there, are as follows.
HB1299 HD1 SD1 CD1 – RELATING TO NON-GENERAL FUNDS
This measure repeals, reclassifies, or abolishes funds within various departments, and transfers unencumbered balances to the general fund.
RATIONALE: This bill is unconstitutional. In particular, the transfer of funds from the Milk Control Special Fund to the general fund is a violation of the separation of powers doctrine, as the fees are assessed by the Department of Agriculture through administrative rules and not by the Legislature through statute. This measure would have deposited these fees into the general fund, but by statute, the fees must be expended for purposes of administering the Milk Control Act instead of being used for general public purposes.
The bill also unconstitutionally reclassifies the Department of Hawaiian Homelands’ Hawaiian Home Receipts Fund (HHRF) as a trust account. This reclassification directly contradicts the Hawaiian Homes Commission Act, which explicitly identifies the HHRF as a trust fund. This change could impair or reduce the benefit of oversight that is normally provided by a fund, which may require consent of the U.S. Congress as determined by the Department of the Interior.
Additionally, Hawaiʻi’s fiscal situation has improved dramatically since the Governor’s Executive Biennium Budget and Financial Plan was presented to the Legislature in December 2020, reducing the pressing need for the extraordinary revenue actions proposed in HB1299.
HB58 HD1 SD1 CD1 – RELATING TO STATE FUNDS
This measure temporarily suspends certain general excise and use tax exemptions and increases conveyance taxes for the sale of non-commercial properties valued at $4,000,000 or greater.
RATIONALE: Hawaiʻi’s fiscal situation has changed so much since this bill was introduced that there is no longer the pressing need for the extraordinary revenue actions proposed in HB58. There is concern that due to the county definitions of commercial property, there may be inadvertent negative consequences on family-owned businesses. Additionally, the increase in conveyance tax rates for non-commercial properties could adversely affect the development of affordable rental housing, one of the Administration’s major priorities.
HB862 HD2 SD2 CD1 – RELATING TO STATE GOVERNMENT
This measure makes significant changes to the Transient Accommodations Tax (TAT), including repealing TAT funding for the counties (but authorizing counties to establish their own TAT capped at 3%), repealing TAT funding for the HTA, and amending TAT funding to the Hawai‘i Convention Center Enterprise Special Fund. The bill makes significant functional changes to the Hawai‘i Tourism Authority (HTA), including repealing the Tourism Special Fund, repealing HTA’s procurement exemption and HTA’s market development-related research authority. It also switches HTA funding to ARPA and reduces HTA’s funding levels by 24%.
RATIONALE: Coupled with HB200, HB862 would not authorize HTA to operate the Hawaiʻi Convention Center (HCC) beyond the $11M ceiling. This low ceiling will restrict the HCC from attracting additional events and fulfilling its mission. Funding requested in the Administration’s Executive Biennium Budget allows the HCC to operate at full potential.
The Transient Accommodations Tax was established to provide dedicated funding to allow visitor spending to mitigate visitor impacts on the community. HTA has refocused its efforts beyond marketing to destination management and is looking to strike a more sustainable balance with respect to tourism’s impacts on our community. Shifting funding sources to appropriations from ARPA makes this support less predictable and could undermine HTA’s efforts.
HB1296 HD1 SD2 CD1 – RELATING TO STATE FUNDS
This measure seeks to re-allocate funds from the state’s tobacco settlement monies, while making other appropriations for staffing in various departments. Part 1 repeals the Tobacco Control and Prevention Trust Fund and transfers any remaining balances into the general fund, eliminates settlement monies dedicated to the University of Hawai‘i’s revenue-undertakings fund by July 2033, and caps the total amount in the Tobacco Settlement Special Fund at $4.3 million annually.
Part 2 makes an emergency appropriation to the state’s Emergency Medical Services program, while Part 3 appropriates funding for 2 permanent and 5 temporary positions in the governor’s office. Part 4 requires the university to reimburse the state for fringe benefit costs for any position paid for by a special fund. It also prohibits the University of Hawai‘i Cancer Center from using cigarette tax revenue for research or operation costs. Part 5 establishes a threat assessment team at the Department of Defense and Part 6 appropriates funding for 1 full-time position at the Department of Human Resources Development.
RATIONALE: Hawai‘i’s fiscal situation has changed so much since this bill was introduced that there is no longer the pressing need for the extraordinary revenue actions proposed in HB1296.
By repealing the Tobacco Settlement Trust Fund, this bill eliminates a consistent funding source for tobacco control and prevention programs. While monies from the Master Settlement Agreement can fluctuate from year to year, the creation of a professionally managed trust fund for settlement monies provided a steady and reliable source of revenue for highly effective public health and prevention initiatives. This move was lauded for its creativity in leveraging private dollars to ensure steady long-term funding.
Additionally, HB1296 would significantly increase costs for the University of Hawai‘i, while simultaneously eliminating the UH Cancer Center’s ability to conduct cancer research and cancer center operations with cigarette tax revenue. The potential public health impacts of defunding prevention and cessation programs will likely amount to significantly higher cost to the state’s health systems in future years.
While HB1296 was likely an effort to increase general fund revenues in a time of financial uncertainty, recent improvements in the state’s revenue forecast eliminate the need for this bill.
Additionally, the measures that passed out of the respective chambers solely addressed the Tobacco Settlement fund. Sections two through six in the final version were not provided an opportunity for public comment.
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GOVERNOR IGE RELEASES INTENT TO VETO LIST
News Release from Office of the Governor, Jun 21, 2021
For full Intent to Veto list: click here to begin download
HONOLULU – Gov. David Ige has notified legislative leaders and key lawmakers of his intent to veto 28 out of 268 bills passed during the 2021 Hawai‘i legislative session. A complete list of bills on the Intent to Veto List is attached.
“The state’s economic position has significantly brightened since the beginning of the legislative session, and we no longer need to take some of the extraordinary revenue actions proposed,” said Gov. Ige.
Gov. Ige noted two specific reasons for the improved economic position:
First, the Coronavirus Response and Relief Supplemental Appropriations Act of 2020 and American Rescue Plan Act of 2021 (ARPA) provide substantial federal funding to address a range of pandemic-related state costs. They include nearly $600 million for the Department of Education and $1.64 billion of general-purpose funding to mitigate state revenue losses and increased COVID-related expenses.
Second, the Council on Revenues has met three times since the FB 2021-23 Executive Biennium Budget and Financial Plan were presented to the Legislature in December 2020. It increased its general fund revenue projections for fiscal years 2021 through 2027 by a total of $6.1 billion over this seven-year period.
Gov. Ige also cited federal guidelines that were issued on May 1, 2021 for the use of ARPA funds as another reason some measures are on the Intent to Veto List.
“New guidance from the federal government clearly states that rescue funds cannot be used for debt service, and this created a gap in the budget that must be corrected,” said Gov. Ige.
HB54 HD1 SD1 CD1 – Relating to the State Budget
This bill appropriates general funds and federal stimulus funds to the Department of Budget and Finance to cover fixed costs and replenish the State’s rainy-day fund.
RATIONALE: The federal stimulus funds appropriated in this bill for debt service are not an allowable use of ARPA Coronavirus State Fiscal Recovery Fund (CSFRF) funds.
“I support the Legislature’s intent to replenish the emergency fund to fix essential debt service appropriations,” said Gov. Ige.
HB200 HD1, SD1, CD1 – Relating to the State Budget
This bill makes appropriations and fund authorizations for the Executive Branch in FB 2021-23.
RATIONALE: The ARPA restricts states from using Coronavirus State Fiscal Recovery Fund (CSFRF) monies for:
General obligation bond debt service. HB200 appropriates $160 million in FY22 and $153.7 million in FY23 of CSFRF for this purpose.
Programs that have federal fund matching requirements. HB200 appropriates $134,000 in FY22 and $1.1 million in FY23 of CSFRF for this purpose.
Only these items will be line-item vetoed. All other legislative appropriations in HB200 will remain.
HB613 HD2 SD2 CD2 – Relating to Education
This bill seeks to appropriate federal funds from the Coronavirus Response and Relief Supplemental Appropriation and the ARPA for the purposes of conducting various education related services. The bill also requires the Dept. of Education to seek legislative approval to make any adjustments to the appropriations made in each category specified in the bill.
RATIONALE: According to guidance issued by the U.S. Dept. of Education, state legislatures do not have the ability to limit a local education agency’s use of funds appropriated through the CARES Act or ARPA. For federal purposes, the Hawaiʻi Department of Education (HIDOE) is considered both a state education agency, as well as a local education agency. The proscriptive limits on spending for each service category outlined in the bill, effectively limit HIDOE’s ability to allocate funds under current federal guidance.
Additionally, the federal government requires a local education agency using ARPA funds to develop a spending plan that incorporates “meaningful consultation” with community stakeholders, including teachers, principals students, school staff, unions, civil rights organizations, English learners, and various other groups. The spending plan outlined in HB613 was developed during conference committee and it is unclear whether any meaningful community consultation occurred. This lack of a transparent and open consultation process further puts the state and Department of Education at risk of being in violation of federal guidance.
“The appropriations made in this bill do not comply with federal guidance for spending and put the state at risk of being in violation of federal rules, which could require the return of the funds,” said Gov. Ige.
Other bills on the governor’s Intent to Veto List were deemed objectionable because of concerns about legality, practicality of implementation and/or lack of transparency.
HB862 HD2 SD2 CD1 – Relating to State Government
This measure makes significant funding and functional changes to the Transient Accommodations Tax (TAT) and the Hawaiʻi Tourism Authority (HTA).
Using ARPA appropriations makes funding less predictable and adds potential inefficiencies.
An added 3% county TAT represents a significant increase that could have a major impact on Hawaiʻi’s nascent economic recovery.
Coupled with HB200, HB862 would limit operational funding for the Hawaiʻi Convention Center (HCC) to no more than $11 million, which is only 20% of the $54.1 million requested in the Administration’s Executive Biennium Budget based on projections from interest received. Such extremely low funding would severely restrict the HCC from attracting additional events and fulfilling its mission.
“I am very concerned that the funding and functional changes in this bill will severely damage HTA’s shift to destination management. We need to find ways to mitigate the impact of visitors on our islands, and this bill would make it impossible for the HTA to strike a more sustainable balance in our communities,” said Gov. Ige.
All measures on the Intent to Veto List are subject to veto, but inclusion on the list does not indicate that the governor will veto a bill. The public is urged to make comments on legislation at: https://governor.hawaii.gov/contact-us/comments-on-legislation/.
Gov. Ige has until July 6 to make his final decisions. Any measures passed by the Hawai‘i State Legislature this session that are not on this list will become law with or without Gov. Ige’s signature.
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