The Senate is essentially relying on its own initiatives to stimulate the isles' stagnant economy and balance the state's budget for the fiscal biennium that begins July 1.
And with both chambers poised to advance scores of bills tomorrow in preparation for House-Senate conference negotiations during the legislative session's final three weeks, it appears that the Senate will be relying not just on the merits of their initiatives but also on bill maneuvering.
Consider, for example, the measure that contains the administration-sponsored proposal to grant Continental Airlines nearly $2 million in tax breaks to entice the Houston-based
carrier to build a Pacific-hub maintenance hangar here for its jumbo jets. The House Finance Committee also backs that initiative, which emerged last week.
But the Senate Ways and Means panel inserted into its Continental tax-break bill provisions a plan to tax time-share condominiums. The House, however, bottled up the Senate's time-share tax measure, which would raise between $20 million to $30 million annually.
House Finance tied the Continental tax breaks to a bill that also offers tax incentives to film companies to come to Hawaii. But Senate Ways and Means isn't offering film-production tax breaks. Instead, it is proposing that the state film studio at Diamond Head be privatized through a sale or lease.
Given the state's "severly lowered" revenue projections, Senate Ways and Means Co-Chairwomen Lehua Fernandes Salling and Carol Fukunaga said it is imperative that lawmakers focus on stimulating the economy rather than just fine-tuning existing tax laws.
That's why Fernandes Salling (D-Kapaa) and Fukunaga (D-Makiki) gutted a House bill clarifying provisions of the general excise tax for certain businesses and turned it into an omnibus tax-relief measure. The bill attacks -- as does a House measure -- the pyramiding aspect of the general excise tax, in which the tax is imposed on every transaction.
The Senate draft cuts pyramiding in property leasing arrangements. It also seeks to spur new economic activity by exempting new businesses from the general excise tax for one to four years, depending on the size of the investments. It would also allow small businesses on Kauai, still trying to recover from Hurricane Iniki after nearly five years, to defer excise tax payments for 18 months. The measure also provides a deduction for wholesale services under the general excise tax.
Giving a boost to the restaurant and transportation industries is also a part of the Senate plan.
The Senate is advancing a bill that would increase the allowable deduction for business meals and entertainment expenses from 50 percent to 80 percent.
There's also a Senate measure that would offer lease credits to firms renting or leasing airport terminal space from the state Transportation Department. The credit would be based on the number of years a firm has rented space from the department.
The Senate is ready to go farther than Cayetano in granting exemptions to the general excise tax for exported services, work meant for anywhere outside of Hawaii. Cayetano wanted the exemption limited to work done by architects, engineers and planners as a way to boost the stagnant construction industry.
Senate Democrats, however, wants the exemption for all services sold or exported out of state. That troubles Senate Minority Leader Whitney Anderson (R-Kailua), who has expressed concerns over how much tax money the state might lose since the state Tax Department wasn't able to provide a solid estimate.
All of the tax breaks that the Senate wants to offer could lead to tough negotiations with the House.
House Finance Chairman Calvin Say (D-Palolo) wonders if he can hold on to the two Cayetano tax breaks still in the House plan -- for hotel renovations and for construction-related export services -- given that the state's projected $257 million revenue shortfall for the fiscal biennium must be covered.
However, Say and many others believe the House has the upper hand in resolving the most important privatization issue facing the state: whether, as a result of a Hawaii Supreme Court ruling following a public-workers union challenge, the state and counties can still contract out a wide variety of public services to private companies and agencies.
A bill that House Finance moved clarifies that government entities can still do so. Otherwise, said county officials, the size of government would mushroom.
The state and counties, for example, would have to have construction workers permanently on the government payroll so that they, not outside laborers, could build government buildings.
The Senate measure calling for a yearlong moratorium on legal challenges to public contracts doesn't address the problem, Senate Republicans said.
"Contracts would have to be negotiated or renegotiated, taking into consideration possible invalidation within the year," a Senate GOP analysis stated. "This would result in higher costs. Neither government officials nor private contractors will be willing to make commitments extending beyond the moratorium."