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Hawaii counties squander opportunity to lower taxes

Editor’s note: Some of the figures cited in the transcript for the proposed Maui budget were underestimated. The correct figures appear in brackets.
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It’s the perfect time to lower taxes.

That’s what Joe Kent, executive vice president of Grassroot Institute of Hawaii, said Sunday morning, June 5, 2022, when interviewed by host Johnny Miro of the H. Hawaii Media network of Oahu radio stations.

Kent said government revenues have been booming across the state — $1 billion higher than in 2019 — for a number of reasons, including: 

>> Soaring property values, which means increased property taxes.

>> “Inflation is running hot, and when inflation goes up, a lot of people lose because they have to pay more at the store for things. But governments win because that makes their tax revenues go up.” 

>> More taxes on tourists, due to the counties imposing 3% surcharges on the state’s transient accommodations tax.

>> Federal aid money that the counties received throughout the coronavirus lockdowns.

“To make a long story short,” Kent said, “it is a bonanza.”

But instead of using the windfall to lower taxes, he said, all four of Hawaii’s counties are embarking on spending binges. 

Kent noted that Hawaii’s private economy is growing by only about 4%, but the counties are planning to expand their budgets by double or triple that amount, breaking the golden rule of government budgeting, which is that the governments should not grow faster than the private economies that support them.

Kent acknowledged that Maui County recently lowered some types of property tax rates, to offset the county’s increased property values, but it also raised the rates on other types. 

Having grown up on the Big Island, Kent said he was proud of the Council members there when they recently were talking about lowering taxes across the board — “except at the last second they killed that idea, so there’s not gonna be any tax relief for Big Island folks.”

Kent said spending money isn’t necessarily a bad thing, especially when it’s spent on long-overdue infrastructure repairs, since “that’s a one-time expense.”

But if it’s spent on growing government permanently, such as by increasing the number of county workers, which all the counties are proposing, that’s not a good thing because more county workers means more public pension and healthcare benefits down the road, and the state programs responsible for those payments already are billions of dollars in debt.

Find out what else Kent said during his 23-minute interview with Miro by clicking on the image below. A complete transcript is provided.

6-5-22 Joe Kent with radio host Johnny Miro on H. Hawaii Media radio network

Johnny Miro: Good Sunday morning to you. This is Johnny Miro. It’s time for Sunday morning public access programming here on the six Oahu H Hawaii media radio stations. We’re found at 101.1 FM, 107.5 FM, 103.9 FM, 101.5 FM, 96.7 FM and 97.1 FM. 

Joining us this morning [is] the executive vice president from Grassroot Institute of Hawaii, They’re found at grassrootinstitute.org. Normally we speak with their president and CEO, Keliʻi Akina, but we’ll be talking to, this morning, Joe Kent, the executive vice president. Good morning to you, Joe.

Joe Kent: Good morning, Johnny. And thanks so much for having me.

Miro: Yeah, I look forward to another interesting topic now. We spoke with Keliʻi a few weeks past about the Legislature and the budget, the surplus, but the update on the county budgets, we wanna discuss that topic this morning. So my first question with you, Joe, would be, overall, how have the county budgets fared this year?

Kent: Well, if you remember from last week, the state has a booming surplus, and so do the counties now [laughs]. They’re operating off of the same playbook, I guess. It’s a bonanza; revenues are booming across the state. Happy days are here again, you could say. [laughs]

Miro: … The Roaring Twenties again then, right?

Kent: That’s right. The Roaring Twenties, exactly. And tax revenues are way higher now, actually, than they were even before the COVID-19 lockdown. So, we’re back bigger than ever, but that’s not necessarily a good thing. 

What should you do if you have a big bonanza, if you have a big windfall? And that’s really the question that the county lawmakers are asking, and that we’re asking them. And you know, in total, across the counties, tax revenues are up over a billion dollars higher than in 2019. So there’s a lot of money out there.

Miro: And I’m not sure if you answered it, but this bonanza you referred to a couple of times, why are we in this bonanza? I guess the situation is a good position to be in. And why are these revenues so high?

Kent: Yeah, well, it was a big surprise to a lot of people. But if you look at the numbers, it wasn’t a surprise at all. I mean, property values have zoomed upward. Your listeners probably know that the price of a single-family house in Hawaii is over a million dollars for most of Hawaii. And so that has increased the property values and increased property taxes. 

And so that’s a huge reason why revenues are so high. I mean, the feds lowered interest rates over the past two years, and that created this gold rush to buy houses here. And that translated into bigger revenues for county coffers.

And also inflation is running hot, and when inflation goes up, a lot of people lose because they have to pay more at the store for things. But governments win because that makes their tax revenues go up. 

And they’ve also increased tax rates on the tourism industry. You might remember that all the counties increased taxes on tourism by 3%. And that’s on top of the state’s general excise tax and the state’s tourism taxes. So we now have higher taxes on our tourists than any state in the nation. 

Plus, counties received plenty of federal aid money throughout the lockdowns and that added substantially to the budget. So a long story short, it is a bonanza.

Miro: [laughs] You summed it up. It sure is. Executive vice president of Grassroot Institute of Hawaii, Joe Kent, speaking with me this morning. 

So what do you think the county lawmakers are gonna do with all this money that they’re flush with?

Kent: Well, they’re gonna spend it, of course, [laughs] and they’re gonna spend it as quickly and fast as possible. So, now, that’s OK by the way, it’s not bad to spend money. But what is bad is to spend money on growing the government permanently. 

So let’s say you win the lottery or something. You wouldn’t wanna spend it on something that you’d have to pay the same amount year after year. And so what’s good is that governments are spending a lot of the money on infrastructure repairs, which is a good thing. I mean, that’s a one-time expense. And a lot of repairs are long overdue at the county level. 

But a lot of the money is going to increasing employment. And that could be a bad thing since it just creates more bloat.

Miro: Increasing employment. Is that in state and county government?

Kent: That’s right.

Miro: OK. OK. All right. 

Kent: That’s right. Yeah. Increasing the number of county workers. Exactly.

Miro: OK. And so why could it be a problem for the government to hire more workers then?

Kent: Well, there’s nothing wrong with hiring more workers. And there are a lot of county workers that do great things, and if it’s sustainable, hiring workers could be a good thing. But county lawmakers are using this windfall to hire a lot of workers and create a lot of positions. And that could be unsustainable in the long run. 

I mean, imagine if we had an economic crash in the future. It’s not that hard to imagine. We just came from an economic crash.

And so if we had an economic crash, what would county lawmakers do when it comes to all these new positions that they’ve created? Would they cut them? Or would they say, “No, we can’t cut workers. We need to increase taxes.” And that’s what we saw throughout the pandemic, is lawmakers didn’t want to cut workers, and instead, they increased taxes. 

So, putting more workers on the rolls is a big liability. And you know, what’s more, a lot of county and state governments took on more debt in order to keep the spending going. So, yeah, we make a big caution symbol around hiring too many workers.

Miro: All right. In your opinion, Joe, then what is a better way for counties to utilize these monies to budget? How do you go about budgeting properly?

Kent: Well, we like to say, “Follow the golden rule of government budgeting.” And the golden rule goes like this: The government should not grow faster than the economy. That makes sense, right? 

I mean, if the government gets its money from the private sector, then the government should grow slower than the economy. ‘Cause otherwise, if it’s the other way around, it’s unsustainable. So, we say the government should pay close attention to how fast the economy’s growing, and stay behind that line.

Miro: I can’t recall if you mentioned it at the top: Where are we at as far as growth within the state economy?

Kent: The economy is growing at about 4% since 2019. But the governments are growing at double, triple that amount. I mean, if you look at the county budgets, they’re growing at, let’s see here, 30, 20% in some cases. So that’s a big jump over the economy. And so what we’re seeing is the government is lurching forward, but the economy is still struggling.

Miro: Well, let’s dive into the county budgets. Start with our island, Oahu, the largest population base. What can you tell our listeners about the Honolulu County budget?

Kent: Yeah, sure. Well, Honolulu City Council just passed a record-high $3.2 billion budget, and that’s [19%] higher than in 2019. But remember, part of those funds are hundreds of millions of dollars that was left over from federal recovery funds. So it really is like they have a bunch of extra money and they need to spend it somehow. 

So they’re spending it a lot of times on infrastructure projects, which is a good thing. but they’re also adding hundreds of positions. And that could add some blow to the budget.

Now, at the same time, just because they’re adding positions doesn’t mean they’re filled. A lot of the positions are still empty because departments sometimes have a hard time recruiting talent. So that speaks to the government worker pay. And government workers are getting big pay raises across the board as well. The unions negotiated big pay raises, and so all that translates into more spending.

Miro: And then with that would come more pensions, and the need to keep funding that, correct?

Kent: That’s exactly right. When salaries go up, then pensions go up and health benefits go up. And remember, we already have big unfunded liabilities in our public-pension and health-benefits systems. And if you add it together, we’re about $25 billion underfunded on those systems. And now we’re adding more stress on that system. 

So, remember also that Honolulu County and actually all the counties are notorious when it comes to overtime for police and fire workers, especially. I mean, we’ve seen some police workers getting $60,000, $100,000 per year, and that’s on top of their base salary, in overtime. And if you can spike your salary like that, then it spikes your pension forever. So that also adds stress to the system.

Miro: Yeah, it does. Any other big pay increases? How big were some of the other pay increases that you haven’t mentioned so far?

Kent: Yeah, sure. So some unions, like firefighters, got increases of 3% and 4% for the next two years, and so on. So, they’re really kind of catching up because remember, a lot of the unions took pay freezes for the past two years. And that was because the budgets fell off a cliff and, you know, they were talking about making cuts, and so the unions agreed to pay freezes. Now they’re catching up. And so it does make some sense to give salary increases at this time, since we’re catching up. 

And also remember, inflation is so hot right now. I mean, inflation’s running at, what, 8%, 8.5%? So if you’re only getting a 5% pay raise, you know, that’s not really catching up. So it does make sense to bump up the salary. 

But just remember that county workers across Hawaii already have the highest average pay in the nation. If you compare it, even when accounting for cost of living which is hard to believe but even when accounting for Hawaii’s cost of living and adjusting for that, we still have the sixth-highest county worker pay in the nation. So, in any case, this is a lot of money that’s being spent on permanent government expenditures.

Miro: Joe Kent, executive vice president of Grassroot Institute of Hawaii, grassrootinstitute.org, for more really good studies that they have up there posted at their website. 

So we’re still talking about the Honolulu budgets, some of the big-ticket items. The obvious one, the rails, some of the other ones though, Joe.

Kent: Sure, yeah. The rail, right. [laughs]. They voted, by the way, to stop the rail before Ala Moana, and that’s in hopes of staying on budget, by the way. But it’s kind of stopping out in the middle of nowhere at the moment, in a place they call the Civic Center. And so, it remains to be seen how that’s gonna shake out. 

You also have the about $1.3 million to remove the Haiku Stairs. And that is a controversial thing since a lot of people like those stairs. But nonetheless, we’re removing them.

There’s $80 million set for affordable housing and tens of millions of dollars for updating sewage and infrastructure and water treatment systems and stuff. And remember, that can be a good thing. I mean, updating infrastructure, especially during a windfall, can be a good thing if you’ve got the extra cash. 

But you just have to make sure that you don’t get too used to the inflated budget so that in future years you keep a rein on spending.

Miro: The $1.3 million to remove something, the folks at Grassroot Institute of Hawaii, did they say this money can be utilized much better? And did you folks have an idea where that money could be utilized, how that money could be utilized? Or are you OK with that?

Kent: [laughs] Yeah. Well, just remember, we’ve got millions of dollars that are being spent now, but without a tax decrease. And so whenever someone asks us, how should the money be spent, we kind of turn the question around, and say, “Well, don’t you think we could lower taxes?” 

I mean, now is actually the perfect time to reduce taxes across the board, but the counties aren’t doing that. Honolulu kept taxes the same, you know. Most of the islands didn’t touch tax rates at all, actually. So that’s disappointing. 

So, yeah, when we’re talking about better uses of the money, the better use of the money would be in the pockets of the economy and of individuals. 

Remember, it’s so difficult to live in Hawaii, partly because taxes are so high. If we look at a basic family’s income, about 20% of it is going straight to taxes. And that’s almost as much as their house costs, actually.

You know, the monthly house payments, for example, for rent or for living. So reducing taxes has a huge impact on helping people afford the cost of living in Hawaii. So it’s no small thing to talk about reducing taxes, but unfortunately, lawmakers skipped that this year.

Miro: Let’s head to the Valley Isle, Maui nō ka ʻoi.

Kent: Yeah, sure.

Miro: What’s going on over there? How’s their budget?

Kent: Well, Maui’s budget is the fastest-growing budget in the state, actually. [laughs] They really have a bonanza. Since 2019, their budget has grown about 38%. So and it’s still in deliberations right now but that is a huge jump. 

Now a lot of it is for infrastructure improvements, and that can be a good thing in a windfall. You know, for the past couple of years they wanted to improve their infrastructure, but they couldn’t actually hire enough workers to do the job, because, you know, everyone was laid off because of the lockdowns. 

And so now they still have that money sitting around. So that’s why they’re kind of putting it towards infrastructure. And like I said, that could be a good thing.

But remember, they’re also adding about [309] positions, which again, that’s more financial strain on taxpayers, if it’s permanent. And we’re talking 63 new positions for public works, 47 for the parks department, 30 new clerks, 47 new fire workers, 35 new police workers [and 27 for the Department of Finance]. And that’s a lot of government workers. So that could translate into long-term expenses for taxpayers.

But at the same time, Maui County, actually they are the only county that’s reducing property taxes for most people across the board. So we have to give them a pat on the back for that. I don’t think any other county is doing that, except for Maui. 

Now, the one caveat to that is they’re hiking taxes on the very wealthy and on the tourism industry. So, [laughs] it’s kind of a mixed bag. It is a good thing that tax rates are generally going down on Maui, but it’s not a good sign that spending is ratcheting up.

Miro: All right, Joe, let’s head to your island. Graduated from University of Hawaii at Hilo. A Big Island boy. How’s your home island doing for as far as their budget?

Kent: That’s right. I graduated from Hilo High, so that’s definitely my home island. But the Big Island is keeping spending more in line with the economy. I mean, their budget’s growing only 17%. So their budget is growing not as fast as any other, you know, slower than all the other counties. 

And they were planning to reduce taxes. And I was so proud of the council members there that were actually talking about lowering taxes across the board. And that would’ve been a good thing. Except, at the last second, they killed that idea. [laughs]

So, unfortunately, there’s not gonna be any tax relief for Big Island folks. It would be a great thing if we could see that in future years because, you know, it’s been a long time since Hawaii taxpayers actually saw a tax cut.

Miro: OK, Joe, let’s head to the Garden Isle. The beautiful Garden Isle, Kauai. Is their spending going up also?

Kent: Uh, yep. Just like all the other counties. Kauai is hiking its spending by 21%, and so they’re growing by leaps and bounds. Thankfully, though, they’re not planning on adding too many county workers, so maybe they heard what we’re talking about here. [laughs] Maybe they’re listeners of Grassroot Institute of Hawaii hopefully. Just they’re only growing their county workers by about 2%, so that’s much more reasonable.

Now most of the new money that they have is being spent on upgrading infrastructure, like roads, bridges and sewers and stuff like that. And they’re also tucking away millions of dollars in savings for a rainy day. 

And that’s really something that all counties should be doing, because when the economy crashes, it’s always a surprise. It’s never like, oh, we’re gonna plan for the economy to crash in five years or something like that. It always happens as a surprise, so that’s why it’s a really good thing, as we all learned. Well, at least some of the counties learned to save for a rainy day.

Miro: We’re speaking with Joe Kent, executive vice president of the Grassroot Institute of Hawaii. Once again, their website, very informational, grassrootinstitute.org.

We talked about tax cuts, that they weren’t coming. Tax hikes. I don’t think we mentioned that. Are any counties planning to raise taxes?

Kent: Well, it’s not looking good on the tax front. I mean, the counties, again, have already increased tourism taxes substantially last year. So that means, with that and the state tax and the GET, it’s about 18% tax on tourism. And that gives us the highest taxes on tourists in the country. 

And some counties are even planning higher taxes than that. So Maui County, again, is hiking its taxes on high-end real estate by 56%. So if you live in a non-owner-occupied property, and that property is over $3 million, then your taxes are gonna go up substantially. So that’s one thing they’re doing.

They’re also hiking short-term rental taxes by about 5 or 6% on Maui, but they’re offsetting that with lowering taxes on everyone else. Now, the other counties, we’re all flirting with the idea of lowering taxes, but all of those proposals were shot down, unfortunately. And that’s too bad because, remember, revenues are booming. It’s the perfect time to lower taxes. But instead, we’re stuck with the high taxes that we have for the foreseeable future.

Miro: And they see the tourists coming in. So they’re just gonna let it roll. [chuckles] Roll for a while.

Kent: That’s right.

Miro: They’re coming back. They wanna travel and they sure are traveling over here, especially. And I guess, Joe, we’ll wrap it up. What would your advice be for lawmakers who are planning the budget?

Kent: Well, remember the golden rule of government finances: The government should not grow faster than the economy. And, again, right now, the government is growing at double or triple or quadruple the rate of the economy, and the economy can’t even keep up. And that means taxpayers are gonna have a big financial burden to pay for in the future. 

All this spending like we talked about gets wrapped up in public-pension and healthcare–benefit spending as well. So every time you increase a county worker’s pay, it increases their benefits. And we don’t have the money right now to pay for all those benefits. Even for the county workers we have, we can’t pay for all those benefits. So it’s going to increase the debt. 

And that’s why our businesses haven’t fully recovered yet from the lockdowns. Thousands of people, I can just recall, all the thousands of people over the past two years that were unemployed or their businesses were shut down and all manner of life turned upside down. And you just have to remember all those business owners that were in tears for so many years, and now we’re just starting to come back, and we’re just getting back on our feet again. And at the same time, government is lurching forward. 

So we should really practice more fiscal restraint. We should save for a rainy day and definitely don’t grow permanent government growth too quickly. We need to spend within our means and keep the government affordable for the local economy. 

Lawmakers should also rethink their stances on taxation, because it would be great to see some tax relief at this time. We should be really lowering taxes with all this extra money.

Miro: On that note, we’ll end it right there. We’ve been speaking with Joe Kent, executive vice president of Grassroot Institute of Hawaii, on the county budgets. And you can find out more about what Joe has on his mind and the others at that fine institute at grassrootinstitute.org. Joe, have yourself a fantastic Sunday.

Kent: Thanks so much, Johnny. Aloha.

Miro: The views and opinions expressed in this public access programming do not necessarily represent those of H Hawaii Media’s family of radio stations. You’ve been listening to Sunday morning public access programming on the H. Hawaii media family of radio stations on Oahu. Mahalo for listening to this H. Hawaii media radio station. Have a great day.

 

 

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