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Biggest Budget Increase Ever: The good, bad and ‘mostly ugly’ at 2023 Legislature
By Grassroot Institute @ 5:41 PM :: 2119 Views :: Hawaii State Government, Taxes

The good, bad and ‘mostly ugly’ at 2023 Legislature

from Grassroot Institute of Hawaii, May 10, 2023

Mostly ugly. Some bad. But also some good. 

That was how Joe Kent, executive vice president of Grassroot Institute of Hawaii, described the results of the recent legislative session when he appeared Monday on Rick Hamada’s radio show on News Radio KHVH 850 AM.

The hands-down ugly would have to be the biggest budget increase in the history of the state. 

“The budget is increasing by 30% this year,” Kent said, far exceeding last year’s record increase of 17% and breaking the state’s constitutionally mandated spending limit as well, which can be bypassed by a two-thirds vote.  

He said only eight legislators voted “no,” “but all of those lawmakers voted no because they felt the budget didn’t spend enough.”

One of the “good” results was the vote authorizing Hawaii to join the Interstate Medical Licensure Compact, which, pending approval by Gov. Josh Green, will make it easy for doctors from other states to practice in Hawaii and, in turn, help alleviate the state’s doctor shortage.

“We’re really happy about that bill,” Kent said.

Another good result was the many bad measures that died in session. According to Kent, those included the governor’s proposed $50 “visitor impact” fee and “a ton of tax hikes — capital gains; a wealth tax, they’re going to tax you if you’re too wealthy; a conveyance tax or carbon taxes — these all died.” 

TRANSCRIPT

5-8-23 Joe Kent on the Rick Hamada show

Rick Hamada: Joe Kent into the studio, of Grassroot Institute. Brother Joe, it is so good to see you. Aloha.

Joe Kent: Aloha. And actually, it’s 8:15, not 9:15.

Hamada: I’m really hoping that we’re at 9:15.

Kent: Oh. [laughs]

Hamada: So, thank you for that. 8:15 in the morning. It is good to have you with us. 

Brother Joe, just before we jump into the details, share a bit, once again, your role with Grassroot and the mission of Grassroot Institute.

Kent: Yeah. I’m the executive vice president of the Grassroot Institute, and we’re a public policy think tank. We’re basically a watchdog, and we’re trying to advocate for individual liberty, economic freedom and accountable government. So, you know, someone’s got to watch what the government’s doing, and that’s our job.

Hamada: Want to thank you, and Dr. …

Kent: Keli’i Akina.

Hamada: I was going to get there. It’s Monday, brother.

Kent: Sorry. [laughs]

Hamada: I’ve had a long day already. Believe me. But I know. OK. Let’s just get right to the chase. Your thoughts on this session?

Kent: Well, there was good and bad and ugly — mostly ugly though. [laughs] But there was a lot of good though. So we have to give credit where credit’s due. 

I mean, there were a lot of bills that we were championing behind the scenes, and it’s kind of like a horse race: You want your horse to win in a way. And a few of the horses won, and that’s actually good for Hawaii residents. 

But on the other hand, there’s some bad ones that passed, and then some kind of shady things that happened too.

Hamada: Yeah. No doubt about it. Since it will be a relatively short list, what stands out for you as a positive?

Kent: The big one is the doctor compact. So Hawaii has this law that keeps out doctors who want to help here and work here, and there’s this compact that we could join that would make it easier for doctors to come work in Hawaii. 

So, there’s other states that are part of this compact. Those doctors can, you know, go to each other’s state very easily. And so that actually passed this session. 

Now, you know, it ain’t over yet because it’s sitting on the governor’s desk; he still has to sign it. But we’re really happy about that bill.

Hamada: OK.

Kent: And there were also some bills that would help with tax relief. So that’s good. One bill was a really complicated pass-through entity bill, but basically, a bunch of businesses in Hawaii don’t have to pay federal taxes now — certain federal taxes — because of this bill. 

Again, we’ll see if it passes in the governor’s desk, but basically, certain businesses could get a huge tax break at no cost to the state. Isn’t that weird? You got the state bill that can actually save your federal taxes? But that’s how it works. 

And then there was a tax credit bill that passed too that’s going to filter a lot of tax credits down to the people — which is generally a good thing — but there were some better tax reform bills that we were championing for, that didn’t make it.

Hamada: There was a bit of a missed opportunity, was there not, especially in the tax credit bill? It could have been expanded to have included more.

Kent: That’s right. So, the governor was going to, or he had a package, the Green Affordabilty Plan, that would have saved taxpayers $300 million this year. 

Now, the one that passed saves about $100 million, so that’s about $200 million that we’re missing out on, in a way. But the bill that would have saved … it would have basically been a tax cut, which is a good idea, but instead, they passed tax credits.

Now the problem with tax credits, by the way, is, yes, you’re getting tax money back, but it’s not your tax money back. It’s someone else’s tax money, and someone else gets someone else’s. And it’s kind of like a game of musical chairs. Eventually, one person’s left out, and they’re the ones paying all the taxes. 

And so that’s kind of how tax credits work. That’s what passed. I mean, it’s a good thing that more tax money is in the pockets of local residents, but whose tax money is it?

Hamada: At the end of the day, that’s right. Talking with Joe Kent, Grassroot Institute, and delighted that he’s with us on board. Can we get over to some of the budget and especially the spending?

Kent: Yeah.

Hamada: There was a tremendous amount of revenue being exchanged: $280 million, as an example, to the Rental Housing Revolving Fund, another $150 million to Hawaii Community Development. This, according to the vice speaker of the House, was the No. 1 accomplishment in the “big square building” because it addresses affordable housing, which we hear ad nauseam. 

What do these two expenditures, totaling over $400 million, what does that mean, Joe, and what’s the impact and benefit?

Kent: Well, just remember, last year, we already spent a billion dollars on housing. This year, we’re spending half a billion dollars on housing, and where’s the housing? (chuckles)

Hamada: Amen.

Kent: But the other thing to note is this is the biggest budget increase, I think, in the history of the state, certainly as long as I’ve seen. And I mean, the budget is increasing by 30% this year. That’s huge. Normally, it increases by 5%, so that’s huge. I mean, even last year, which was like a record increase, that increased 17%. 

So we’re increasing so much that they exceeded the spending cap. We have got this constitutional spending limit, and that’s supposed to keep spending in check. Well, they’re basically just ignoring that. They spent a billion dollars over the spending limit.

Now, you ask, how can they do that? Well, apparently the spending limit has this way of bypassing it where you need a two-thirds vote to bypass the limit. But every year they pass the budget unanimously. So it’s very easy to get over that limit. 

Now, there were a lot of lawmakers who voted no — a lot, meaning, like eight — but all of those lawmakers voted no because they felt the budget didn’t spend enough.

Hamada: Wow.

Kent: So it’s so ironic that even, you know,  if we only had more lawmakers that felt the budget didn’t spend enough, they might have all more voted no. [laughs]

Hamada: So I thought there was a concern, at least on the floor, expressing that this is reckless spending. We’re just spending, spending, spending. We have to have limitations and we shouldn’t bypass what is a malleable cap. I mean, gosh, just go crazy.

Kent: There were people who said, you know, “I can’t believe we’re spending a billion dollars over the limit,” but in the next breath, they would say, “And we need to spend more on this program and that program and that program.” 

And so I’m not … it’s even hard to interpret what they were wanting. But, you know, at the end of the day, this means that the surplus is getting whittled away.

So, remember, we had this $2 billion surplus, right? It’s like, you know, happy days are here again, right? And the surplus was projected to grow to $10 billion in just four years. That’s bigger than the budget itself.

Hamada: Yeah.

Kent: So they wanted to give tax breaks back with that surplus, but, oops, they only gave a hundred million dollars of tax breaks. And the surplus though, in the meantime, disappeared. It whittled away. Not because of the revenue reduction, but because of the spending increases.

So spending increases are typically annual. So when the budget goes up a billion dollars, think, that’s not just this year; that’s next year and the next year and next year. And that eats away into all that extra cash. So I’m wondering exactly how much we’re going to keep spending and whether there will be a surplus at the end of this.

Hamada: So, Joe Kent with us, and by the way, there are people swerving off the roads that are pulling off to the side … 

Kent: [laughs] Keep your eyes on the road.

Hamada: … to try and fathom that our state government, if we just … we’ve gotten to the point where you mentioned $7 billion. It’s like, “Eh, that’s not so bad.” We have a federal deficit upwards of $32 [trillion], $33 trillion. What, what’s a few billion? 

But I want folks to really understand that post-COVID, that we received X amount of dollars, that purposefully were supposed to benefit certain categories. It’s been absconded with, and you’ve just described this incredible amount of spending. 

Tell us about a last-minute infusion — appropriation — of $200 million in this process.

Kent: All right, so there’s this slush fund that’s put into the budget that basically is extra cash for the governor to use as he wishes, to the tune of $200 million. 

That, by the way, is the same amount as the tax break that we wanted, But anyways, so, this $200 million was put in there at the very last second to give Gov. [Josh] Green, I guess, some leeway to spend however he wishes. And there’s a lot of people who are telling him their wishes, like, “We want to spend on this program or that program.” 

But, you know, this is too much money — especially after we’ve already exceeded the spending cap —  to put in an extra $200 million just for play money.

Hamada: Where does all this money go?

Kent: Exactly. And the Department of Education budget, for example, that was one where a lot of lawmakers were standing on the floor on the last day of session and just giving fiery speeches about how we’re cutting to the bone. 

You know, a lot of lawmakers were almost in tears about how much they’re cutting spending on education. But if you really look into the details, what they were cutting were proposed increases, not nominal increases.

So if you look from, compared to last year, the Department of Education budget increased by 10%. Now that’s a huge increase. 

So you know, all this talk about, “We’re not spending enough,” and everything, it’s not real. This is the biggest budget we’ve ever had in the history of the state. This is the biggest increase, probably, that we’ve ever had in recent memory anyways.

Hamada: So what is our budget?

Kent: It’s about $11.2 billion, and that’s up from about $8.7 billion from last year. So this is the general fund spending. That’s huge.

Hamada: A 1.4 million population, of which about 860,000 are 18 and older, and that’s what we’re spending.

Kent: Yeah.

Hamada: Dear Lord. Unbelievable. 

We’re talking again with Joe Kent of Grassroot Institute and, make sure we get this in, Joe, there is an event that’s coming up and you’re going to be on neighbor islands, but here on Oahu, May 11th, I believe it is. It is a Q&A.

Kent: That’s right. This coming Thursday, we’re talking about the good, the bad and the ugly at the Hawaii State Legislature, and, you know, Grassroot Institute has a whole staff that’s dedicated to trying to open the books and educate about, you know, better ways to run the government, and our staff is going to be there to answer questions about what really happened at the Legislature. 

So that includes Ted Kefalas, he’s our government affairs director, and Malia Blom Hill, who’s flying here all the way from Washington, D.C., to talk about what happened at the Legislature too.

Hamada: Once again with Joe Kent. We do have some time. I’m going to go through the bottom-of-the-hour break a bit to optimize our time. 

There was a bill that would require certain businesses to post their salaries. Joe Kent, what’s up with this?

Kent: Yeah, this is a bad one, but it depends on who you ask though. I’ve noticed that people who have never owned a business tend to like this bill [chuckles], but business owners realize that this has a lot of unintended consequence. 

Basically, if it’s signed into law, it would require certain businesses with 50 or more employees to disclose their hourly rates or salary ranges on job postings.

And so that seems kind of benign. You know, it’s like, “Oh, yeah, it’s nice to know what the salary is before you sign up for the job.” But what happens if you want to negotiate for a higher salary? Or what happens if you’re not skilled enough for this job and actually you’re a better fit for another job? 

I mean, you know, I’ve interviewed people, or I’ve been in many interviews, where they switch, you know, they switch things up, sometimes for the betterment of the employee.

And so this puts businesses more so in a straitjacket because now they have to interview for that job and that salary. 

And not only that, what if you have some workers who do the same job? One worker performs a lot better than the other worker. And now what? Their salaries are going to be public or compared to each other? 

So this is a meddlesome bill. This is just too much government meddling.

Hamada: And there is another bill, SB1383. This would have a new increase to unemployment, and businesses would have to field this as well.

Kent: Yeah, that’s right. And that’s why we already have unemployment taxes going up a lot. I mean, there was a pause after the pandemic. Taxes were supposed to go up exponentially because unemployment was being doled out at such a high rate, the unemployment fund. So this money actually comes from somewhere. There’s a fund, it’s called the unemployment fund.

And it emptied. In fact, it went all the way into the red by almost a billion dollars in Hawaii. And so, if the fund goes down, the tax goes up automatically. And so businesses were about to get hit with all these huge taxes, but lawmakers during the pandemic years put a pause on that — thankfully, because otherwise, you know, we were already seeing so many business closures. That would’ve been devastating. 

And so they paused it. And also lawmakers rightly put in a bunch of money from the feds into that fund. So that’s something good that they did. 

It’s like, “Here’s this deal. We’re going to shut you down, but we’re going to put money into the fund too.” That’s a good thing. But they didn’t fill the fund up; they just got to zero basically.

So the fund is still at the point where taxes are automatically supposed to ratchet up by a lot. 

Now, this year they let their finger off the pause button, and that means that businesses are going to see a huge hike in their unemployment taxes, especially since all that unemployment taxes were doled out so much, it’s just sort of getting all rolled up three years into one. And so that, plus the bill you mentioned, it’s really going to make it difficult for employers.

Hamada: I would also like to say that any business, what they will do with an increasing hard cost, they’ll pass it on to us. So we’re already confronting a magnitude of cost of living. 

Was there anything in this session — I didn’t see anything, but maybe there was — to mitigate cost of living and the amount of the expense for those of us to live in Hawaii?

Kent: Yeah. I mean, like I said, those tax credits, that will help a little for certain groups of people with grocery bills and income and all these things, but that’s if you get to claim the tax credit. And when do you get to claim the tax credit? You might have to wait till next year.

I mean, the way tax credits work, they take the money, they put it into a vault and then a year later you might get it back? So yeah, right now a lot of people dealing with tax or with the cost of living, that’s a manini sort of thing to help.

Hamada: Yeah. I mean, you know more than I exactly the ratio between Hawaii and pick-a-state. I mean, we’re just so very high. I know we have a few moments remaining. I’d like to invoke a word and get your take. Crypto.

Kent: Ah, yes.

Hamada: Please explain.

Kent: Well, crypto is, it’s kind of a loaded word. It’s a complicated word, but the way I view crypto is it should be a free word. So the market should be free. If somebody wants to create a new technology or a new currency or something, and everybody or nobody wants to use it, that should be their choice. 

But what’s going on now is the government is getting involved and saying, “Only this cryptocurrency can work, and you can only use this cryptocurrency company.” And so they’re coming down and micromanaging.

Now, of course, the way they view themselves are as angels coming to save the public from, you know, some bad actors in this space. But what could easily happen is they stomp out the bad cryptocurrencies and impose their cryptocurrency, which is also known as a CBDC, or a central bank digital currency. And so they’re trying to say, “Bitcoin is not allowed, but our CBDC, our government currency, is allowed.” 

And so that’s not a good idea, especially as we’ve seen the dollar collapse in value for a hundred years. And so we need a flourishing market of competition in cryptocurrencies, not this government crackdown.

Hamada: Again, that’s one of the underreported stories is the state of the American dollar, and especially in global trade. And you find more and more and more refusing to utilize the U.S. dollar, Russia leading the way with petroleum and oil reserves and purchasing that are now mandating the ruble, and other countries jumping on. Anyway, can you stay for about a week and a half and we’ll get into that? 

HTA funding, mysteriously or not, $30 million again. We’re like, “Huh?”

Kent: Yeah, the HTA [Hawaii Tourism Authority] mysteriously got defunded, and I’m not sure. I say “mysteriously,” because there was a bill that was supposed to keep it going. It would’ve changed the name, but it would’ve essentially kept it going, but that died in conference committee, and then it was like, “Oops, we don’t have a bill to fund the HTA,” and there was no funding in the budget.

And so the HTA was left basically without sails, and now it’s trying to sail to the end of the year. 

They do have some money, you know, in their budget to last or till the end of the year, but I think actually it’s a good thing. I mean, the Hawaii Tourism Authority is, yes, it’s kind of a marketing agency for Hawaii, but already there are so many private sector businesses that market Hawaii.

The hotel industry certainly spends tens of millions of dollars marketing Hawaii every year. So this is the government as an ad agency. And I think, you know, my rule is: If there’s something that the private sector can do better, then the private sector should do it, not the government.

Hamada: I had this conversation with a dear friend, Tony Vericella, 120 years ago when he was heading up HVCB [Hawaii Visitors and Convention Bureau], and I remember asking, he said, “Why? Why are we doing this again?” 

It is our time with Joe Kent. We have about a couple of minutes left. I want to turn it over to you for something we may not have discussed thus far. And if there is a subject of import, which one would that be, Joe?

Kent: Well, it’s important to understand defense. I mean, offense is good. Picture a soccer field with 4,000, 3,000 balls, and one goalie. You know, that’s kind of how it feels at the Legislature sometimes. And we’re the only goalie sometimes it feels like, and you’ve got all these things passing. 

There were a lot of things that died that we need to celebrate. I mean, a ton of tax hikes — capital gains; a wealth tax, they’re going to tax you if you’re too wealthy; conveyance tax or carbon taxes — these all died.

That’s hundreds of millions of dollars that, you know, we’re ducking, and the green fee died too. That was a $50 fee on visitors, but it would be on any visitor, even your visiting family or former residents, or things like that. So if those visitors were to visit a park or a trail or something, they’d have to, you know, pay for this fee.

And that’s a bad idea. You know, they’re trying to increase and market tourism in Hawaii, and at the same time, they’re imposing this fee.

 The best way to market Hawaii would be to just lower taxes. I mean, those tourism taxes are too high. So basically, let’s applaud the things that died and also a few of the things that passed too.

Hamada: Sounds like we should have a New Orleans-style funeral procession for some of these bills. 

Joe, how do we connect with the Grassroot Institute and how can we learn more and even help more?

Kent: Well, you can go to grassrootinstitute.org and you can see our event on this coming Thursday at noon. You can sign up for that on our website — that’s in downtown Honolulu — or on the neighbor islands. We’re going to Maui tomorrow, on Tuesday, and then the Big Island on Wednesday. So go to our website to learn more.

Hamada: Excellent. Joe, I want to thank you very much for taking the time today.

Kent: Thank you so much too.

Hamada: Always appreciate it. Joe Kent, Grassroot Institute. 

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