Who wins and who loses at the Legislature is usually spelled out in the state budget document, and a picture is emerging of a spending plan that will protect Hawaii’s wobbly private employers while also sheltering the public employee workforce.
For public workers, the feared furloughs, pay cuts and layoffs discussed at the height of the pandemic never did materialize despite warnings from Gov. David Ige last year that they would likely be necessary.
The state budget crisis that triggered talk of furloughs was blunted by Congress and President Joe Biden when they passed the American Rescue Plan Act.
That federal law will provide a bailout of more than $1.6 billion to state government, and Hawaii lawmakers say they plan to spend almost all of that money in the next two years.
But the pandemic and the shutdown of the state tourism industry were brutal for Hawaii businesses. The state’s sky-high unemployment rate — which remained the highest in the nation in February — has lawmakers urgently embracing relief for the business community.
The most dramatic House and Senate budget proposals would both repay about $740 million in principal and interest on loans from the federal government that helped cover unemployment benefits for jobless workers.
The $740 million in principal and interest on the loan amounts to almost half of the money provided in the ARPA federal bailout of the state, and Ige now says he also supports repaying the loan on behalf of Hawaii employers.
That is a huge win for the Chamber of Commerce Hawaii and the rest of the Hawaii business community because it is the businesses that legally are on the hook to repay that loan.
The unemployment system is supposed to be financed through taxes levied on employers, with the proceeds held in a trust fund that is tapped in hard times to pay jobless claims. When the trust fund is exhausted — which happened in both the Great Recession and the pandemic — the state can borrow from the federal government to pay jobless claims by workers.
During the Great Recession the state borrowed modest amounts to keep the Hawaii unemployment system afloat, and employers paid that money back. But the chamber argues that repayment this time would be too much of a burden for struggling employers to bear.
Lawmakers are sympathetic, noting it was the state that shut down Hawaii tourism last year to slow the spread of COVID-19. Many employers had no choice but to impose layoffs.
Both the House and Senate now propose to repay the federal loan with interest on behalf of Hawaii employers, something the state has never done before.
As recently as last month Ige said he opposed the idea of repaying the unemployment loan because the revenue projections at the time suggested the state didn’t have enough money.
However, the governor reversed course on Monday, saying that now “we are supportive of paying down the loan. We think that that’s the best way to help many employers across the state manage the cost of the unemployment system.”
Ige told reporters he was initially hesitant because of the many other community needs, but said “significant” federal support has arrived or is on the way to help with housing, child care, food costs, unemployment benefits and health insurance coverage.
In another victory for local business interests, a watered-down proposal to increase the state minimum wage to $12 an hour next year is almost certainly dead in the House.
Advocates had originally sought an increase to $15 or even $17 an hour, but the House has refused to even consider even $12 an hour. That means Hawaii — one of the most expensive places to live in the nation — will continue with a minimum wage of $10.10 an hour.
To understand what an extraordinary coup that is for the local business community, consider that the minimum wage in Arizona, Colorado, Connecticut, Oregon and Maine was already $12 per hour in 2020, while California, Massachusetts and Washington set their minimum wage above $12 last year.
The chamber last year effectively accepted a proposal to increase the state minimum wage to $13 an hour by 2024 but now says the proposed increase to $12 next year “will undermine efforts made to turn Hawaii’s economy around.”
Public Employees Will See Funding Restored
As for the public workforce, House lawmakers in their draft of the budget deleted funding for hundreds of vacant public worker positions, but House and Senate leaders are already acknowledging they plan to restore much of that funding.
Another major piece of the budget puzzle is what to do about the state’s required annual payment into the Hawaii Employer-Union Health Benefits Trust Fund to cover the cost of future health care benefits for state workers and retirees.
Those payments are mandated under a state law that Ige helped to pass in 2013 in an effort to set aside enough money to cover future health care costs for public workers. But the pandemic budget crisis prompted Ige to use his emergency powers to defer $408 million in payments into the fund last year.
Now the administration is asking lawmakers to authorize deferral of another $1.4 billion in payments to EUTF during the four years that begin July 1.
According to Craig Hirai, director of the state Department of Budget and Finance, delaying those payments for the state and counties “will provide the state and other public employers flexibility to address budgetary shortfalls while the economy recovers.”
But Senate Ways and Means Chairman Donovan Dela Cruz said in an interview Monday the Senate budget plan includes money to make those EUTF payments for the next two years, which altogether would total about $750 million.
House Finance Committee Chairwoman Sylvia Luke said last month she also included money to make the EUTF payments in the House budget draft, but later said she had been mistaken.
Luke said the House chose not to fund the EUTF payments out of concern that they might run afoul of the requirements for the federal ARPA bailout.
That means the House and Senate will have to decide in the final weeks of the session how much they should budget for future health care costs.
Meanwhile, Dela Cruz is advancing a package of tax increases he says could be used to raise extra cash to replenish the state’s emergency and budget reserve fund, also known as the “rainy day” fund. Ige mostly drained that fund to help cover the cost of state government during the pandemic.
“Whatever we can muster up, we want to try to see if we can at least start to build it back up,” Dela Cruz said of the rainy day fund. “It may be slow, but if it’s possible, that’s something that we think we should do.”
Several of those tax proposals are included in House Bill 58, which would expand the reach of Hawaii’s estate tax and increase the state conveyance tax on sales of properties worth more than $4 million.
HB 58 would also temporarily suspend an array of excise tax exemptions, which would raise an estimated $45 million to $50 million a year for the next two years by applying the excise tax on transactions that are now exempt.
The state Tax Department calculates the proposed expansion of the estate tax in HB 58 would allow the state to collect about $25 million more per year, while the conveyance tax increase proposed in the same bill would raise more than $40 million a year for the next two years.
The Senate Ways and Means Committee has also given preliminary approval to a proposed increase in the individual and corporate capital gains tax, a step the tax department estimates would garner an extra $55 million to $60 million a year for the state.
The House has also advanced bills to boost the capital gains tax and expand the reach of the state inheritance tax, which suggests those measures have a reasonably good chance of passing.
When lawmakers do approve tax increases, it is often in odd-numbered years when no elections are being held. But the proposed tax increases this year do not appear to be arousing much in the way of partisan passions.
In the state House, three of the four Republicans voted against the expansion of the estate tax, but only two of the four GOP House members voted against the capital gains tax increase.
House Republican Minority Leader Val Okimoto was one of those who voted in favor of the capital gains increase with reservations, but said she did so because she wants to be able to participate in the end-of session conference committee negotiations on the bill.
Lawmakers who vote against a measure are not appointed to the conference committee where the House and Senate work out the final details of that bill.
“Especially at this time, now is not the time for any tax increase,” she said. “We have businesses that are suffering.”