What a Gas! -But Hawaii Isn't Laughing

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”’Reprinted from the Wall Street Journal’s Aug. 25, 2005, edition. To see an Adobe Acrobat pdf version, go to: “Wall Street Journal Article file””’

KAUNAKAKAI, Hawaii — Several hundred families on the normally sleepy island of Molokai lined up in their cars for more than a mile on July 28, desperate to buy gasoline before the pumps shut down. There were still two more days before a barge would arrive with a month’s supply of gas, and by nightfall the island’s only three gas stations would be dry.


Many of Molokai’s 6,800 residents are too young to remember Richard Nixon as their president or the gas crises of the early 1970s. But they may soon be seeing more Nixon-era-like lines, gas shortages and even rationing. In a thoroughly misguided attempt to stem the rising price of gas, Hawaii is set to impose Nixon-style price caps on all the islands’ pumps. The law, set to take effect Sept. 1, ties the price of gas to the wholesale price of gasoline at three price points on the U.S. mainland.

Charged with the unenviable job of implementing the gas-cap program, Hawaii’s Public Utilities Commission says local industry expects the caps to increase prices by an estimated 30 cents a gallon, with costs on Oahu rising from the current price of $2.68 a gallon to more than $3. PUC says industry leaders also expect more shortages (especially in remote areas), the closure of one of two oil refineries, the halting of wholesale marketers’ operations, and reduced investment in the state after the caps go into effect. Owners of gas stations on remote neighboring islands say prices will likely soar after Sept. 1, from just over $3 a gallon to more than $4.

Lowell Kalapa, president of the Tax Foundation of Hawaii, says the consumer will see a big jump in price because the markup, applied by retailers or the gas station owners, is not subject to the cap.

The Democrats in control of Hawaii’s Legislature admitted back in 2002 when they passed the legislation capping the retail price of gasoline, and again when they revised it in 2004 to cap the wholesale price, that regulatory measures might not lower gas prices when implemented this fall.

So why bring back price controls more than 30 years after Nixon tried them and failed miserably, causing shortages, rationing, inflation and an economic crisis? It’s hard to find a reason, other than to retaliate against the big oil companies, namely Chevron, which many Democrats tried to punish unsuccessfully in court.

Made up primarily of liberal Democrats with no economics training, no business background, an open disdain for the free market, and a lust for price caps (except on state taxes), lawmakers say they have to “do something” about the high price of gasoline. Never mind that oil prices have skyrocketed everywhere thanks to increasing demand in the world market and rapid growth in China and India.

Led by Rep. Hermita Morita and Sen. Ron Menor, who delivered lengthy speeches on punishing the “greedy” oil industry, the Democratic majority passed a version of the bill in 2002. Sen. Paul Whalen, much to the horror of his Republican peers, helped introduce the measure.

Brian Barbata, a jobber for Molokai and Lanai, fought against the proposed legislation, telling lawmakers they’re just plain wrong about the causes of higher gas prices. “High prices in Hawaii are a myth,” he says, “perpetuated by the media to the level of urban legend.” Mr. Barbata believes Hawaii’s sky-high gas taxes (the highest in the nation) are driving up prices. Maui County, he explains, has the highest taxes in the state at 60 cents a gallon, compared with 29 cents a gallon in Alaska. “Subtract the associated taxes and you will find Hawaii is not out of line at all,” Mr. Barbata says.

Despite extensive studies pointing out why caps wouldn’t lower prices, the bill was enthusiastically signed into law in 2002 by then-Gov. Benjamin Cayetano, a Democrat who focused much of his energy on bad-mouthing Chevron and the business climate during his 28 years in government. Gov. Cayetano worked years to earn Hawaii the distinction of being the most costly, the most business-unfriendly, and the most taxed state in the union.

Many consumers are pessimistic about the caps, especially those who remember the failed regulatory schemes of the ’70s, for example waiting for their assigned day to buy gas based on their license-plate number. Strangely–and to the dismay of many citizens of Hawaii–Gov. Linda Lingle, elected in 2002 as the first Republican governor in 40 years, has refused to use her emergency powers to halt the gas caps.

Gov. Lingle says she’s against the gas caps but is required by law to wait until a “crisis” occurs before revoking the cap–she also notes that the Legislature could call a special session to make adjustments. But Republican lawmakers say she can–and should–stop implementation.

Despite dire predictions, Hawaii’s Democrats are putting on a happy face. House Speaker Calvin Say recently told the Honolulu Advertiser that despite the possible rise in prices, the gas cap legislation should go forward. “We should give it a chance to see how it goes,” he says.

Economist John Rutledge of Rutledge Capital, a resident of Maui, says Hawaii may not experience a crisis immediately, but any major event in the world could affect the market and lead to a shortage and rationing. Mr. Rutledge warns the caps will “knock the economy down,” a prediction many experts agree with, including Mr. Kalapa, who says outside investors will steer clear of the islands, and Mr. Barbata, who says many small distributors and businesses will be hurt or, worse, forced to close.

Living in Hawaii often feels like being part of a bad social experiment. If lawmakers truly wanted to reduce gasoline prices, they’d eliminate or drastically reduce state and county gas taxes. Instead, they continue to pass laws like the gas cap that not only will be ineffective, but will hurt Hawaii’s consumers and business, and most likely raise the price of gasoline even higher. Put simply, it’s hard to hang loose when your state lawmakers are headed toward a major economic wipeout.

”’Malia Zimmerman is editor and president of Hawaii Reporter Inc. She can be reached via email at”’ mailto:Malia@hawaiireporter.com