 Good morning, Think Tech. I'm Jay Fidel. This is Talking Tax with Tom this morning, and Tom Yamachika is the president of the Tax Foundation of Hawaii, and he joins us, as he often does, talk about what's happening in the legislature, and in this case also what's happening with the governor in this time of COVID. Welcome to the show, Tom. Nice to see you. Thank you, Jay. Thanks for having me back. Well, let's address something we talked about before first, and that is the shortfall in the legislature. They're in a three-week period now, I guess it'll be the last, you know, in-and-out period of their strange 2020 session, and I guess one of the big problems they have is dealing with the shortfall. Last time I looked it was $2.3 billion, and last time I looked they just spent $150 million on giving raises to HGEA union members, of which there is a certain amount of controversy about that. But, you know, how is the shortfall doing, and what can they do? What are they doing to satisfy it? You know, so far from the bills that I've seen, it's all about spending money not raising anymore. So I guess the good news is that there are no obvious revenue azers in there that we're, you know, that we're tracking and worried about, and the bad news is, okay, well, that means how are they going to balance the budget? You know, it may be rating special funds, it may be, I don't know, cost cutting. We don't know. It's certainly not cost cutting as far as HGEA or UHPA members are concerned because, as you mentioned, there was a bill to give them previously negotiated raises, and that's on its way to the governor right now as we speak. Chances are he'll sign it then too, eh? I don't see why he wouldn't. But then, you know, other things may happen. Like, you know, he may take up his furlough pen or, you know, do some budget restrictions, you know, stuff he can do on his own without the legislature's help. Yeah, well, to the average Joe in the street, hearing there's a shortfall of 2.3 billion and then seeing them actually pass a bill to spend 150 million on a union raise when so many people are out of work and don't have a farthing really sounds pretty strange. It sounds like the union put plenty of pressure on plenty of people to get that through. It's not an appealing move by the legislature, and it would not be an appealing move by the governor if he signs it. True, but there will be consequences if they don't, you know, behind the scenes perhaps, but there will be consequences. So that's kind of, I think, the message that they were trying to convey over there. We don't see most of this happening because it's in the back room, but obviously stuff like that's going on. That does not endear me, and I don't think it endears anybody to state government, actually. If you want to look for a time when we should be having more confidence in government, this is not the kind of thing that generates more confidence in government. I agree. Anyway, let's go to the other thing you mentioned you want to talk about, and I want to talk about it too, and that is the various proclamations that have come out of the fifth floor from the governor in this time of the COVID, this time of unpredictable, what do you want to call it, sign curves, V curves in the chart of new cases and tests for that matter. So plenty of proclamations. Right. Since the initial COVID declaration of emergency, there have been a series of proclamations that have come out of the governor's office suspending a whole raft of laws. We are now on the ninth supplementary proclamation, which means the tenth one in the series. An emergency proclamation is supposed to last no more than 60 days, but they got around that by basically amending and restating the whole thing again and again and again and again and again. So what's happened is there's been a whole series of laws that have been basically wiped out by the stroke of the pen. The list of laws that has been suspended is 20 pages long. Let me show you some of them. So can I have slide 13, please? Okay. So what you're seeing now is basically two sentences out of the proclamations, an 80-page proclamation. And what those two sentences say is that the protections that we're used to having regarding open meetings of public agencies, that's been basically shredded. And notice of, you know, timely notice of public agency meetings that's been shredded. The second one relates to open records. So you as a news organization or myself, we can go in and ask the government for records that are funded by our tax dollars. Now, what the proclamation basically says is that an agency can basically respond to, it may have to acknowledge that it got the records request, but it doesn't have to respond to it in any particular deadline, which means it means your request can languish for months. For what? Put in a records request to the Department of Taxation. I wanted to see certain correspondence and emails relating to a particular provision that we're going to go into in a little bit later. It was April when I sent the request. I got a nice polite acknowledgement, but I haven't seen anything in terms of fulfilling the request. It's been a couple of months. Well, so far you've talked about, you know, public meetings and notice of public meetings and, you know, responding to requests for information. Working backward, it doesn't seem to me that requests for information are connected in any way to COVID or the epidemic. But it does seem that public meetings, you know, that there is a connection there. I wonder if it's what he did is the right thing, but there is a connection between having a meeting, having a government meeting, having a public government meeting and COVID. Yeah, the idea behind the emergency power statute was to allow the governor to suspend things that get in the way of emergency response. Okay. But we're talking about data, the operations of government, like boards and commissions, giving the news media what they want in terms of information that the government generates. How is all of that blocking emergency response? I'm sure they're going to say, oh, we have to respond to it. That requires work in our part of that. That's work that otherwise could go to emergency functions. Oh gee, that's pretty lame. Isn't it? And not only that, but there are other proclamations or other parts of the proclamation that are even more questionable as they relate to, you know, whether they're justified by emergency powers. Let's take a look at slide 14. Just one thought before we do, and that is, you know, you say that they might have argued that it took too much time by government to respond to information requests. How much time did it take by government to write an, I would just say, 80, 90-page proclamation? Including things that do not really relate to the need to suspend laws that stand in the way of emergency response. In other words, I suspect this is really overkill to the nth degree here. And somebody spent an awful lot of time in an overkill. Yeah, and then it's copied and copied and copied. So it's extended and extended and extended, basically. That's not efficient. But then we can go further than that. So what's your next one, please? Let's go to that. Okay, so do you know about tax clearances? Tax clearances are required for a number of things, including when you are trying to sell services or goods to the government. 103.53 is the statute that requires tax clearances. And it's been suspended. So what that means now is that the government can do business with whoever it wants, whether they've paid their taxes or not. And again, what does that have to do with impairing emergency functions or blocking emergency services? Well, could it also mean, I don't know if this has been fleshed out, but could it also mean that you don't get tax clearances? There are no tax clearances. Therefore, you can't do business with the government because there must be provisions somewhere else that says the government cannot do business with you without a tax clearance. That's the one. That's the one that's been suspended. Oh, that's what we're talking about. Okay, so they don't give you the tax clearance, but they still do business with you. Yeah, that's what it says. So an agency can do business with somebody without a tax clearance. Now, that doesn't apply to like relicensing. If your regulatory statute requires you to be relicensed, that's not 103.53. So that may still be in effect. But it seems like the intent was to say, oh, department taxation is doing too much work. So let's not bother them with tax clearances. Of course, as you say, you could have a situation where somebody doesn't pay tax. And in these days, some people can't pay tax, then they can still do business with the government. You lose control, but maybe in the time of COVID, it's justified time. What do you think? Perhaps, but I still have a great deal of puzzlement about how this is really this emergency functions. Yeah, it's way off the core point of the proclamation. And again, somebody spent 80, 90 pages writing it up, that must have taken a long time. Okay, let's go to page 15, if you would please. Okay, so here's where they hit the tax code. What this one sentence says is that you know how we have the hotel room tax? It's already down 99%, but what they're saying is however it used to be distributed, those rules are now off the table. Distributed where? One significant part of it was supposed to go to the counties. And now the counties are not getting a single red set for the transit accommodations tax. That's a pretty significant change. That was a chain, that was a rule or distribution rule, which was highly, highly publicized, much discussed, negotiated, what have you, and now push, it's off the table. That's right, it's off the table. So, you know, funding for the convention center or the Hoy tourism authority that's been suspended as well, the governor can kind of like send the money where he wants to. The, you know, repayment of the turtle bee easement that was in there as well, that's off the table. You know, that distribution provision, this transit accommodations tax started to look like a Christmas tree because there's all kinds of little presents in there. Yeah, but are they temporary? Are they permanent? All of them are. Are they temporary? They were permanent. No, I mean there's the changes that are made by these proclamations. Are these proclamations indefinite or do they have a sunset? Like I said, the proclamations are supposed to last no more than 60 days. Okay, so they must be, well that's not very long, and I see he's been repeating them, is that it? He's been republishing them after they expire? Or before, but it basically starts the clock again. So right now we're in the in the 10th iteration of clock restart. Does the proclamation change each time he republishes? Yeah, there's a few things that are added each time. I think this current one added the tax clearance suspension because I didn't see that one before, but you know I I may be wrong, but it's one of the more recent ones to appear. How about the others? Anything withdrawn, deleted when he republishes? They were just repealed, period, or suspended period. It was only I think up to the 6th or 7th one, but they said yeah well maybe that was a little overkill. We ought to you know roll that back a little bit so they went to what's called exhibit each. Okay. Which actually came about as a result of several non-profits including ours, the leap of which was a civil beat law center, they negotiated with the attorney general's office to get some of that back in place or else. Good for them. So you know is this these kinds of proclamations that they happened in the past we have had emergencies in the past. Oh yeah. But have governors regularly issued proclamations and if so how does this one differ from the ones in the past? Usually you have a one-time natural disaster like you know a hurricane or a tsunami, but this one is kind of like a continuing state of emergency or at least that's what they would have us believe. So it's been you know it started in I think March or April and now it's and now it's July and it's still a state of emergency. That could happen. I mean I'm just thinking for example you know we're learning about this, he is anyway, and we will have emergencies in the future. In fact this whole COVID thing may turn out to be a much longer term emergency than already because we haven't solved it and because we have the risk even an increasing risk of COVID infection here. Well yeah perhaps part of it's because our country hasn't solved. Yeah I mean there are massive hot spots all over the mainland some of which are in California and so it's closer than we think, closer than we want. Sure, but you know I mean there's other kinds of emergencies that have taken place and will take place. For example in the time of climate change even this summer you know during the hurricane season we could have a really bad hurricane that would do you know what Iniki did for example and in that case you know it sounds to me like a declaration of emergency would be appropriate, a proclamation probably, as in the past would be appropriate. That's what John Whyay did in response to Hurricane Iniki and it's interesting because you know there are tax benefits that get triggered upon emergency proclamations. For example I had a client once who was growing guava trees in Kauai and normally they would sell them to a whole sailor like you know a guava juice maker. Okay so the fruit would be wholesale sales to the to the guava juice maker along comes Iniki blows the fruit off the trees and obviously there are no sales but fortunately or unfortunately the client had crop insurance so the crop insurance comes in and pays for the lost crop. In comes the Department of Taxation and they say oh by the way your insurance has replaced your income so it's it's taxable for GE purposes and they go okay that's fine and by the way the rate's four percent because you're not wholesaling it you're just getting it directly from the insurance company. Well fortunately there was an exemption that the auditor wasn't aware of that said if you have damages from a gubernatorily declared emergency then your then your insurance proceeds are exempt. Hey Tom you're a good lawyer. Yeah but this this shows you in a larger sense this shows you that when you have disruptive events that are emergencies and you have proclamations there are consequences there are consequences this side and that side it's not only the the raw economic consequences of what happened and how that might affect a given business it's the tax consequences too. And not to say that this this particular emergency is going to teach us about all the emergencies to come later but it does teach us I think as your experience you know with the that was the insurance company is that there are a lot of issues that pop up. There are a lot of disruption and creates a lot of legal issues. There are so if if there's maybe what we should do now is take a look at the 636 million that was uh you know squirreled away into the emergency and budget reserve fund and let's kind of figure out how the how our lawmakers are going to spend it. Please. So the so the current plan which is in Senate Bill 126 appropriates the whole 636 million and what it what it does is you know right now we have an extra $600 benefit for those who are out of work that's going to dry up but 230 million is going to basically be used for a hundred dollar a week benefit that's going to replace the 600. Here for people who are still on work there is a an appropriation of $100 million for rental assistance up to $500 per month for families who need it and the target is 34,000 families. There is a an appropriation for $100 million for a personal protective equipment distribution system. I'm thinking $100 million that's that's that's a lot of money uh just for a distribution system what are they going to do um I mean don't don't you need I mean all you need is you know a few trucks and a few people to to drive around to hospitals and hear homes and whoever else you need to to go to and just drop off this stuff. I don't even know if the 100 billion is is for buying personal protective equipment I hope it is hope it is too yeah uh there's supposed to be 90 million dollars going to the airports for screening testing monitoring um there is 36 million dollars for workforce development that the target is to preserve or maintain 2,000 to 4,000 jobs. There are innovation grants for cleaning supplies and PPE of $15 million. There is a $15 million subsidy for child care facilities because they're they're getting hit pretty hard um 900 facilities are supposed to benefit from that. A $5 million appropriation for food distribution matching grants I can't argue with that. A $3 million subsidy for the fishing industry. A $2 million appropriation for 2020 graduate education support. You know I mean I guess I guess we can pay him money because the last half of their school year has been kind of ravaged and $40 million dollars for governor's discretionary funds. Interesting huh yeah especially especially because you know even if the governor were to sign this he could take all the money the next day by writing a proclamation suspending the law. We are learning about the ins and outs of proclamations so that's it remains to be seen how well this distribution you know this this allocation of the funds is going to work then we may find that some have too much and some have too little and they have to be changed so is does he have the power to change him or has to go back to the legislature these probably will need to be tuned up don't you think? Yeah no I mean he just changed everything with the stroke of a pen and that's what he's done in a number of instances we talked about what he did with the public records and open meeting suspension yeah so he just changes the text in another proclamation then. So so Tom here we are here we are and it's very clear that COVID is is back you know Trump said you know we had prevailed it was gone and it'll magically disappear magically disappear I mean you know and without commenting on him or his judgment or his leadership or lack in Hawaii we suffer the end of the you know the the raw end of that because you know if COVID is is raging on the mainland we're going to have fewer tourists and the tourists who come here are more likely to be sick despite all our best efforts to the contrary and we are very likely to you know at least as a substantial possibility well we are having a spike right now having a spike relative to our own numbers so how does that affect things you know at first it seemed okay well we can we can have a reopening of sorts although people in Hawaii are conservative and they're not likely to run back to the same things they were doing most of them I think a lot of them but now we're having a spike how is that going to affect fiscal policy and by the way the legislature won't be in session when this emerges I guess you're saying that the governor will have the power to do stuff in the event of a serious resurgence because the whole thing about lockdown you know comes back into into the fore you may have to lock down again yeah he might have to lock down again he might have to you know dial back on on the reopening he could he could do a number of things all of which are very scary because a number of them are threat to civil liberties and economic freedom yeah and if he keeps republishing that same long proclamation there's more incursions on civil liberty and economic freedom all the time because he's he's not he's not really going back and deleting things off the list he's just building the list he's remaking the Hawaii Revised Statutes in many in so many ways so what happens to the fiscal policy though because our economy is going to be further in the tank it's already in the tank in many ways tourism hasn't really come back the restaurants haven't really come back a lot of these small businesses and not only have they not come back but the determinations of employees they made have become permanent and they're not going to get another tranche of money so soon from congress and some of these businesses are gone gone gone what happens if there is and when there is a second reopening we're going to have a another problem we're going to have a another economic problem that's going to be bigger than than what we've had so far am i right well we have a we have a big problem now and it doesn't seem to be going away yeah so what you know what happens in between sessions does he have enough power to deal with this sure he can do a lockdown but what about statues and initiatives and things that will incentivize the rebuilding of an economy that's going to be an issue it definitely will be an issue and hopefully he can do some good out of this but it's going to take you know lots of effort and we're just kind of hoping that it's not going to be you know too much of an encouragement everybody's freedom because that's that's kind of what it yeah has looked like it's on well the other thing is that you know now everybody files their tax returns on tax day a lot of people seek extensions this year i think a lot of people just turned turned away from it they haven't they haven't paid their taxes and we don't know the full thrust of that just yet but chances are that the revenues the state receives this year are are going to be even worse than we imagined because covid is worse because the economy is worse the reopening is worse than we imagined so the state's not going to have a lot of money and that and that shortfall is going to be a real problem first of all you know it violates the constitution i don't know what happens that i don't know if there's somebody in the wings who's going to try to enforce that somehow but there you go we don't have enough money to meet the constitutional balance of budget provision um and then of course the government has no money to do things the initiatives incentives ways to rebuild the economy well i don't see a good thing on the horizon here how is this going to play out well like i said we we're just we're just hoping for the best um oh we we have you know governor who's in power who can do these emergency proclamations we may get some relief in november uh because the there'll there'll be an election changing the makeup you know likelihood of the people will have to deal with uh and and hopefully between some or all of them we can get to a better place than we are now that's very optimistic of you tom and i appreciate the optimism well thanks for having me on the show okay we'll see you shortly we'll see you next time around and hopefully things will be better than maybe there'll be some light at the end of the tunnel uh maybe things will be clarified in some way thank you so much tom yamachika president of the tax foundation for hawaii