‘One step forward, one step back’ was Legislature’s MO

from Grassroot Institute of Hawaii, May 10, 2023

“One step forward and one step back” is how Ted Kefalas of the Grassroot Institute of Hawaii characterized the Legislature’s actions toward Hawaii businesses this year during an interview on Sunday with host Johnny Miro on the H. Hawaii Media radio network. 

Kefalas, the Institute’s director of strategic campaigns, said state lawmakers passed one particularly business-friendly bill that will reduce taxes for businesses at no cost to the state, but also approved a not-so-friendly bill that mandates salary disclosures in job listings. 

Similarly, but speaking more broadly, the Legislature approved a bill authorizing the state to join the Interstate Medical Licensure Compact, which will help alleviate the state’s doctor shortage, but shelved other licensure compact bills that would have applied to nurses and other healthcare professionals. It also failed to exempt medical services from the state’s general excise tax.

Kefalas applauded the death of the governor’s proposed $50 visitor impact fee and the apparent defunding of the Hawaii Tourism Authority, but decried the Legislature’s “paltry” efforts to make it easier to build homes, its failure to set a cap on the cost of obtaining government records, and the Legislature’s blowing-off of the state’s constitutionally imposed spending cap by more than $1 billion.

Kefalas also voiced concern over two bills aimed at regulating cryptocurrency, HB525 and SB945, which he said “would fundamentally change” how Hawaii handles digital currency and could even ban the use of common cryptocurrency such as bitcoin.

The governor has until June 26 to inform the Legislature of his intent to veto any bills, Kefalas said, so “if there’s anything that you support or oppose, now is really the time to reach out to Gov. Green’s office and let him know about it before it’s too late.”

To hear the entire interview, click on the image below. A complete transcript is provided.

TRANSCRIPT

5-5-23 Ted Kefalas with host Johnny Miro on H. Hawaii Media radio network

Johnny Miro: Good Sunday morning to you. Once again, it’s time for our public access programming on our five Oahu radio stations within H. Hawaii Media’s Family, 101.1 FM, 101.5 FM, 107.5 FM, 97.1 FM and 96.7 FM. 

I’m Johnny Miro, and once again joining us, a great team member from the Grassroot Institute of Hawaii. And we’re going to be talking about the 2023 legislative session. Ted Kefalas, the director of the strategic campaigns for Grassroot Institute of Hawaii, joins us this morning. Good morning, Ted.

Ted Kefalas: Hey, good morning, Johnny. Thanks for having me.

Miro: You’re very welcome. Always gracious to bring forward your knowledge from Grassroot Institute of Hawaii. 

Ted, the 2023 legislative session is the first that Gov. Josh Green was involved in as the state’s governor. So let’s start with a few of his major proposals. I had Joe Kent on the program a few weeks ago to discuss the governor’s tax relief plan. Now, did the Legislature agree on that?

Kefalas: They did. Well, parts of it. So if you remember, Gov. Green announced sweeping tax reforms after getting elected. And back in January, the governor outlined his “Green Affordability Plan,” or what they called GAP, as the largest tax reduction in the history of the state. 

Unfortunately, this final proposal of the bill looks a lot different than when it was first proposed. So the good part of the bill is that it doubles the earned income tax credit, the food tax credit and the childcare tax credit. That being said, it no longer indexes income tax to inflation or increases the standard deduction or personal exemption.

Gov. Green’s original proposal would’ve returned about $300 million to the taxpayers, while this new plan from the Legislature returns about $125 million. 

Now, make no mistake about it, something is better than nothing, but we feel that the Legislature had an opportunity to go a lot further when it comes to lowering the cost of living for local residents.

It’s also important to note that tax credits aren’t always the best solution. The main problem with tax credits is that sometimes people don’t remember to file them. It would be a lot simpler to just cut the income tax rate or get rid of the GET on things like groceries so that it cuts down on the administrative headaches and all the paperwork that people have to fill out.

Miro: All right, the “green fee,” Ted, the green fee was another of the governor’s major initiatives this session. I know you folks had some concerns about it. Now, did that bill survive?

Kefalas: I’m glad you bring that up, Johnny. Yes, so this bill failed to move forward this year after the House and the Senate couldn’t come to an agreement on how to move forward. 

Now, it was a popular bill and it makes sense to a lot of people because people feel that the tourists should have to pay more in order to protect the aina. But if a family of four vacationing in Hawaii has to pay $200, for example, for the visitor impact fee, that’s going to come out of their budget somewhere. 

Maybe it’s the souvenirs, maybe it’s where they go to dinner and maybe it’s that they can’t afford to rent snorkel equipment anymore. It’s a mistake to just assume that you can increase the cost of a vacation and it won’t affect the industry in any way. 

I guess what I’m trying to say is that local businesses are going to be left feeling the pinch a lot more than the large hotel chains or rental car companies that are usually headquartered on the mainland. 

Then, you know, you look at the issue of enforcement for the green fee. How do you prove someone’s a local resident? So the bill that was proposed would’ve defined a Hawaii resident as anyone who has filed Hawaii income taxes in the past year, has a valid Hawaii ID or someone that can show official residency like a utility bill. But by that definition, people like Oprah, who has a home on Maui, could show their utility bill and are considered a resident.

But someone that was born and raised here and had to move to the mainland to make ends meet is not a resident anymore, and is going to have to pay that fee whenever they come back to celebrate birthdays or any other special occasions with their family. 

So I don’t think that’s right. And while I understand and appreciate the intent, we’re very glad this bill failed this year.

Miro: Ted Kefalas, the Director of Strategic Campaigns at Grassroot Institute of Hawaii. Their work is at grassrootinstitute.org. 

I’m Johnny, and there was a lot of talk at the Legislature about defunding the Hawaii Tourism Authority, a lot of talk about that and replacing it with a new Office of Destination Management. What ended up happening there, Ted?

Kefalas: Well, you’re right. There were actually multiple bills introduced this year to replace the Hawaii Tourism Authority with some sort of Office of Destination Management. All of these bills were killed at some point during the session. A few of them made it all the way to the end, but were killed in conference committee after legislators couldn’t come to an agreement. 

The HTA also didn’t receive funding in the budget. But that doesn’t mean that the agency’s completely dissolved at this point. The organization still has some leftover dollars from last year, so they should be able to limp along until next session.

Now, while tourism is an essential part of our economy, I am thankful that legislators pulled back from using state funds to promote the industry. The private sector already pays millions of dollars on its own to market Hawaii to the world, and we’re already known as one of the premier vacation destinations. So there’s no need to use more taxpayer dollars for additional advertising.

Miro: All right, the big one now: Housing. Housing: it’s a massive issue. What did lawmakers do about the housing crisis during this legislative session, Ted?

Kefalas: Well, there was some money spent on affordable housing initiatives. 

To be specific, $280 million went into the rental housing revolving fund to help low-income families. Another hundred million went into the dwelling unit revolving fund to help with infrastructure on affordable housing. Those sound like big numbers, but in the grand scheme of things, it’s really, you know, kind of paltry when it comes to it.

The other thing is that state Sen. Stanley Chang’s “Aloha Homes” proposal finally passed or at least a version of it did. For those that don’t know, this bill would create state-owned housing with 99-year lease holds. 

You know, we have some reservations about the project because our experience with things like the Honolulu rail shows that public work projects don’t necessarily reflect actual costs. So, you know, we could experience some more cost overruns in that regard. In any government project, costs are likely to exceed original estimates, and we’re seeing that now too with Aloha Stadium.

Luckily, state lawmakers changed the bill to make it simply a pilot project where they’ll test out the concept before committing long term. 

When it comes to cutting some of the red tape that holds back housing, you know, there was a lot of talk about that last November when it was election season, and there was a bill this year that would’ve reformed the Land Use Commission.

For some of the listeners that don’t know, the Land Use Commission is kind of a duplicative process when it comes to building a home. And the bill would’ve allowed certain housing projects under a hundred acres to skip that process and be approved instead at the county level. 

Unfortunately, the bill died, even though it made it out of conference committee, because there were some substantial amendments that were made that drew scrutiny from some, and that’s really a shame because we need action now. 

Back in November, like I said, we heard so many candidates campaigning about streamlining the homebuilding process, but it seems like now they’ve forgotten about those promises.

Miro: All right. Healthcare. Healthcare, another very important topic on the minds of many citizens. What about healthcare? Is our doctor shortage still going to continue, Ted?

Kefalas: Well, hopefully not, Johnny. This year, the Legislature took an important step toward addressing the doctor shortage by passing the Interstate Medical Licensure Compact. This bill makes it a lot easier for doctors from the mainland to now come to Hawaii without having to go through all the hassles of getting a Hawaii-specific license.

We actually came out with a report earlier this year that took a look at how addressing Hawaii’s licensing laws could improve healthcare access. It seems kind of redundant, to be honest, to make healthcare professionals that are already practicing in the U.S. go through a process of getting a Hawaii-specific license, especially given our shortage of healthcare professionals.

So we are ecstatic that this bill passed, and we’re hoping that it can help alleviate some of that doctor shortage. 

We are disappointed that other compact bills fail, like the one for nurses and physical therapists, though, because we aren’t just facing a doctor shortage, but a healthcare worker shortage as a whole. And fixing that shortage is going to require a multi-prong approach that also takes a look at exempting medical services from the general excise tax.

I’m not sure if you knew this, Johnny, but we’re the only state that taxes Medicare, Medicaid, and TRICARE. The federal government has actually said it’s illegal for doctors to charge any sort of tax to these patients, and rightfully so, but that means doctors have to eat that cost. 

Unfortunately, the bills to exempt the GET from these medical services died, but we’re hopeful that that gets across the finish line next year.

Miro: All right. All the knowledge coming from Ted Kefalas, the director of strategic campaigns at Grassroot Institute of Hawaii, grassrootinstitute.org to find out all their great work. 

All right, the people that write the bills, debate the bills, and then maybe pass the bills, we have got to keep ’em on the straight and narrow. I know this year, transparency and corruption were major issues. How have those measures fared?

Kefalas: Well, there were some bills that were passed regarding lobbyist training, and campaign finance reforms. But a lot of the big-ticket measures, unfortunately, failed. And that includes things like term limits, publicly financed elections and a cap on open records. 

Now, that last one is important because at Grassroot Institute, we like to think of ourselves as a watchdog of a sort, and there have been times in the past when we’ve asked for information in the public interest and we’ve been met with a six-figure bill.

I know there’s no such thing as a free lunch, but we still have to allow small nonprofits to keep an eye on the Legislature. So, looks like we’re going to have to wait another year when it comes to that. But we’re hopeful that we can get it passed in the future.

Miro: All right. Did the Legislature do anything to make Hawaii more business-friendly, or are there bills that the business community is concerned about?

Kefalas: Sure. Well, you know, some might say one step forward, one step back. That’s because lawmakers passed a bill that would lower taxes for Hawaii-based businesses at no cost to the state. This was a great bill. Essentially, it allows members of what are called pass-through entities like partnerships and S corporations to deduct their state income taxes from their federal income taxes.

It’s kind of a wonky subject, but it’s something that the IRS previously OK’d and more than 30 other states do it. So I’m glad we joined in the majority when it comes to trying to support some of our local businesses. 

On the not-so-great side, there was a bill that was passed that would require all jobs listings to include the hourly rate or salary range to promote transparency and equal pay for all employees.

Now that sounds great and I understand the intent of the bill, but we already have equal pay built into the statutes here in Hawaii. Groups like the Chamber of Commerce, the retail merchants and even the Society for Human Resource Management have all made it clear that wage-disclosure requirements could lead to major problems for both the employers and employees.

You know, Hawaii is already considered one of the least business-friendly states in the nation. This bill, we fear, might only make it worse. To be honest, the pay-disclosure requirement also has that potential to hurt employees, like I mentioned earlier, because it takes away their ability to negotiate their own salaries.

Miro: All right. Discussing the 2023 legislative session. Did the Legislature OK any other bills that you’re concerned about?

Kefalas: Well, there were a couple of bills this year that passed related to cryptocurrency. And now I’ll be honest, I don’t know all the ins and outs of bitcoin and whatnot, but I support anybody’s right to use it. These bills were HB525 and SB945. They would fundamentally change how Hawaii regulates cryptocurrency.

So in that first one, HB525, the definition seems to exclude cryptocurrencies like bitcoin from the definition of money. But the funny thing is it doesn’t actually mention it. So it allows what’s called central bank digital currency or CBDC, but it excludes other crypto from the definition of money. The U.S. does not currently have a CBDC, so it effectively bans crypto. 

But SB945, nearly every regulation in that bill has a caveat that allows the commissioner of the Division of Financial Institutions to rewrite the law according to his or her own will. We think that puts way too much power in the hands of a single bureaucrat, and it’s going to actually end up burdening cryptocurrencies and cryptocurrency companies with a high level of uncertainty when it comes to navigating all of these regulations.

Miro: Yeah. I didn’t hear too much about that. Central bank digital currency will be in the news in the coming months, if not sooner than that. 

This week you folks issued a news release — this is big — on the state budget violating the constitutional spending cap, read that. Can you explain a little bit more about that, Ted?

Kefalas: Sure. So Hawaii has a spending cap in place so that our elected officials don’t go crazy with the budget. It was created back in the 1978 Con Con, the state Constitutional Convention, and it said that spending is allowed to grow by an average of personal income growth in the three prior years. 

Now, that sounds weird, but the thought behind it was that the cost of government should not consume an increasing proportion of taxpayers’ income. That means that the government shouldn’t grow faster than the money that’s coming into your pocket.

That being said, the state Constitution allows the Legislature to override that cap by a two-third vote, which, you know, given the political dynamics in the state, it’s not difficult to surpass that threshold. Most of the bills that are passed are passed pretty unanimously. 

This year, the state budget, as written, currently is going to exceed the cap by 10%, and that is more than $1 billion. This is obviously concerning because it seems like legislators are just simply ignoring this constitutionally mandated cap just to finance their own special pet projects.

Miro: All right, Ted, as we wind things down here, does the governor have the power to cut spending for the budget now, now that the Legislature has passed it?

Kefalas: Yes. So, the governor can always exercise his ability to do what’s called a line-item veto.

Miro: OK.

Kefalas: That means he can reject particular parts of the budget bill without vetoing the entire thing and potentially putting us in some sort of spending crisis.

Miro: And one last question. When does Gov. Josh Green have to decide whether to veto or sign all these bills?

Kefalas: Yeah, so the governor has to take action on any bill by July 11th this year. If he signs it, the bill obviously becomes law and is given an ACT number. But if Gov. Green plans to veto a bill, he has to inform the Legislature by June 26th, and then he’ll have to deliver the veto by that July 11th deadline.

If a bill is vetoed, it won’t become law unless the Legislature successfully overrides that veto by a two-thirds vote in each chamber. And we’ve already seen that happen once this year.

So, if the governor does nothing by that July 11th deadline, the bill will still become law without his signature. And that’s important to note. 

But if there’s anything that you support or oppose, now is really the time to reach out to Gov. Green’s office and let him know about it before it’s too late.

Miro: All right, Ted, anything else to add? You covered a lot and informed our listeners of this current legislative session and the process of it. Anything else to add?

Kefalas: No, we really just appreciate the time and the platform, Johnny. Thanks so much for having us on, and we’ll talk to you sometime soon in the future.

Miro: Yeah. The director of strategic campaigns at the Grassroot Institute of Hawaii, Ted Kefalas, joining us this morning, and his work can be found at grassrootinstitute.org along with all the other great members of Grassroot Institute. Have a great Sunday. We’ll talk to you soon, Ted.

Kefalas: All right. Thank you, Johnny.