Hawaii Senate Chambers

With the state facing a $1.3 billion budget shortfall over the next two years, the Senate Ways and Means Committee passed a $21.9 billion state budget on Tuesday.

That includes $5.4 billion in general funds and $11 billion for other means of financing in 2012; and $5.5 billion in general funds and $10.9 billion in separate financing for fiscal year 2013.

The biennium budget is $654 million less than proposed by newly elected Gov. Neil Aberombie, but still an increase over previous state operating budgets.

The Senate also authorized $2.94 billion in capital improvement project spending, increasing the governor’s capital budget from his proposed $2.7 billion.

Before a hearing room packed with lobbyists, union organizers and state department heads, Senate Ways and Means Chair David Ige gave an overview of the budget, which still falls short of the $1.3 billion needed to operate government from now until 2013.

All Democrat lawmakers on the committee voted for the bill, with Sens. Donovan Dela Cruz and Pohai Ryan voting in support with reservations. Sen. Sam Slom, R-Hawaii Kai, was the only vote in opposition on the basis that state expenditures need to be cut further.

To make up the difference, Senate leaders are pushing for a 1 percent tax hike to the state’s General Excise Tax to generate a half a billion dollars. The tax increase would impact all residents and visitors at all income levels because it taxes consumption at all levels of goods and services.

The committee will hold a hearing on HB793 SD 1 on Wednesday, at 9:30 a.m. in the state capitol’s auditorium.

While the House leadership – both the Democrat majority and Republican minority – are opposed to the GE tax hike, and Abercrombie campaigned on a pledge not to raise that tax, the Senate leaders see it as a way to bring in a large source of revenue with one substantial increase. The Senate also will remove General Excise tax exemptions for some businesses and add food and childcare credits.

Hawaii already has one of the overall highest tax burdens in the nation.

Lowell Kalapa of the Tax Foundation of Hawaii said the tax hike would be devastating to Hawaii’s already fragile economy and likely send it into a downward spiral just as there are hopes of recovery.

But public union leaders are rallying for the tax hike. Tuesday, the Hawaii Government Employees Association sent a letter to their members asking them to send in testimony in favor of the GE tax increase.

“The state cannot address the budget shortfall by simply continuing to cut vital government programs and services. These tax proposals are needed to help generate revenue to close a $1.3 billion budget deficit, and are a better approach than piecemeal tax increases proposed by the administration and House,” a memo from the Hawaii Government Employees Association said.

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