 Okay, we're back. We're live. I'm Jay Fidel. This is Stank Tech on a given Thursday morning, here on Talking Tax with Tom. That's Tom Yamachika, the handsome guy on the screen. And Sylvia Luke, she gives us the honor of joining us this morning. She is a state representative since 1922. Am I right, Sylvia? Welcome to the show. And she's the chair of House Finance, which is very important. And she's been doing that for a long time. So I'm so happy we could talk about the 2020 session, such as it is. I call it the on again, off again session. Maybe we'll call it the Swiss cheese session. But let's talk first about, you know, your side job this session, which was the COVID, the special select COVID committee. Can you talk about it? You have some slides. Can you tell us what's what happened? Right. So as you mentioned, this was a session that was really lengthened due to COVID. And what had happened is as soon as the capital and session was initially locked down in the middle of March, the house created a COVID committee to deal with variety of items, including health and safety, including business needs, including the needs of the various residents. And thanks to the leadership of speakers got psyche, the committee has done tremendous amount of work. And the committee was instrumental in assisting the governor to come out with the reopening plan as well. So if we could just I don't know if this is the time to talk about some of the things that was presented to the committee right now, or you talk about it later. So one of the things and that the committee did was, you know, they had business folks, they had Carl Bonham, you know, they had various sectors, non props, come together and talk about various things. And one of the things that we presented to the committee was what the CARES money was supposed to be used for. So if we can just point to the guidelines. Okay. So the guidelines say that Congress acted around April and it provided tremendous amount of funds to the various states, the state in addition to the 1.25 billion that it received, it received, you know, close to $13 billion in other ways, direct subsidies to taxpayers and businesses, hospitals and other needs. The committee, the COVID committee is tracking all these things because one of the things that we want to make sure is we want to make sure that we use up all these funds. And there's time table attached to the use of the funds. So for instance, the 1.25 billion has to be used by the end of the year. You know, a lot of times we think, okay, you know, how easy it is to just spend money, it's not as easy as people think because in allocating the funds, the executive branch and the various department need to figure out, okay, how do we get the $500 rent subsidies out to the people? Or how do we make sure that, you know, people have the snap benefits? So it's been very difficult and challenging in order to spend the 1.25. The good thing is we're relying a lot on the counties. The counties have received about 45% of the 1.25 billion. So the counties are working directly on the needs of their various islands as well. Okay. Well, wow, you've had your hands full. I know that even though the legislature has come and gone, there have been a lot of committee meetings and a lot of discussion, a lot of outreach, if you will. I get emailed from Sharon Noriwaki every 20 minutes. She's telling me what's going on. I'm sure she's not the only one. So I'm looking from a fiscal policy top. What have we got going here with all this? I mean, this has a tremendous dramatic effect on a regular budgeting cycle. That's right. I mean, one of the things that we're following very closely, and I'm sure Sylvie is too, is how we're going to spend that 1.25 billion dollars. As she mentioned, a lot of it went to the counties, but a lot of it is being kept by the state to spend on various things. One of which is that there is a supplemental unemployment benefit that the state's going to provide once the $600 a week that the feds are now providing goes poof at the end of this month, which is in a couple of days. So the state doesn't have the means to put in the 600, but they can and did put in 100. And so that's going to kick in on I think the 1st of August. There is talk of continuing the federal benefits, but I don't think the good folks in Washington get their act together in time. So they'll have to rely on the state benefits for a while. Right. So as Tom pointed out, that is a major concern. The unemployment plus, which is the $600 runs out this week, and it will be a huge impact on many of the unemployed population whose paycheck will go from 1200 to 600, or if somebody was getting about 1000, they're going to go from 1000 to 400. That's a huge impact on individuals who need this money to make ends meet. The unfortunate thing is that the governor has just alerted us that he will align item veto the $100 state plus up because he would like to wait to see what Congress does. But as Tom pointed out that right now the Republican in the Senate and the Democrats in the House are still battling to figure out what to do for the needs of the community. And it's going to be a while before they come to an agreement. At the same time, tons of millions and millions of American citizens will continue to suffer unless Congress get together and come out with another relief package. Yeah, and the line iteming the $100 plus up really makes no sense, I think, because there's an automatic provision that knocks it out if Congress comes through with $300 or more. So what's the sense in that? Yes, that's something that you need to ask the fifth floor. Well, they're batting heads today, or at least the Republicans are batting heads, they can't get it together. But I saw something just on the fly this morning to the effect that they reached some sort of agreement today. They're under enormous pressure nationally for Republicans to do something right now immediately because if it goes off a cliff, it's going to be terrible. And they need to do something right away. Yeah, another thing that came up during the CARES Act, this person is this housing relief and resiliency program that HHFDC is supposed to administer. And the relief amount is supposed to be half of rent up to $500 a month. And supposedly, people who are paying this rent can go to HHFDC. How's that supposed to work? Yes. So that was a significant part that came out through the discussion of the House COVID Committee because housing was a big component. And in as much as the various counties have tried to do a lot of rent subsidy, rent is by far the number one cost driver for a lot of the residents, especially with the high cost of living and the high cost of rent in Hawaii. So we recognize that a big portion of the state's portion of the CARES funding had to go to rent subsidy. So the $1,000 or $100 million in rent subsidy, as you recognize, the cap is $500 or half of the rent will go to individuals. HHFDC itself will not be administering. It has already reached out to various nonprofits to help administer because many times a lot of the rent subsidy programs go through nonprofits because it will help us allocate the funds quickly as opposed to going through one department. So they're already talking to many of the nonprofits and they should be ready to go. Yeah, but then they can't do anything until the bill is signed, right? Right. So that's actually the holdup. So a lot of the programs that we put in the CARES funding bill, including the $100 plus for individual, for UI, the $100 million for rent subsidy, the $100 million actually for PPE, which is really important for nonprofits, for schools, for healthcare. We've put in a large amount of relief. We're still waiting for the governor to act on these bills. And the unfortunate thing is, unless he sign it quickly, the departments don't really know whether they're taking the steps to implement, but they can't do the complete go ahead until he gives the go ahead. Right. And that program you just mentioned was supposed to be administered through Hi, Emma. Hi, Emma. Yeah, the Emergency Management Association. How's it going to work? I mean, did they tell you how it's going to work? Right. So what they have already been doing is they have been purchasing many of the disinfectant products and PPE, personal protective equipment, and they have a lot of the products ready to go. What they will be doing is bulk buying the product and then distributing it to businesses, small businesses, either through the chamber or different type of non-profit. We'll also be distributing it to the non-profit. So the Hi, Emma's work is not the actual distribution. Its job is to bulk purchase a lot of the materials and then they will they're already in contact with major organization and non-profits and then ready to go. But again, as you recognize, Tom, the governor needs to sign the bill. Okay. So the idea is to have Hi, Emma be a Costco, for example, and just buy everything in bulk and then just get it out. Buy it in bulk and then give it out because, you know, I think the last thing we want is, you know, while small businesses and non-profits and even child care facilities are suffering and, you know, they can they have other limitation on the number of patrons that go to their facility. The last thing you want is for them to also worry about PPE and disinfectant. So we want to make sure that when they're ready to open, especially child care and long-term care facilities, we want to make sure that the state provides those needs. Great. What are the other, you know, big or significant expenditures in this CARES Act money sent up to 126? Right. So one of the things that has been missing is some type of economic driver and as opposed to buying a lot of the disinfected products or PPE from the mainland or overseas, we will be in this situation for a while. So we need to make sure that we grow our own and make sure that we create an industry that provides disinfected products and PPE. So we have set aside, I believe, I think $30 million. $15 million for the supply chain grants. Right. So $15 million in grants if there are businesses, you know, willing to make PPE and make disinfected products for our local community. And then, you know, this is an opportunity. It's twofold, right? So we're taking care of the needs of the community by providing these needs. But at the same time, we're making sure that, you know, we try to, you know, put in some economic activity because a lot of the economic activity is missing or reducing it at a substantial rate. So the way this is going to work is D-Bed has already looked at how to implement. And because D-Bed through HTDC has been pretty successful in allocating HTDC innovation grant funding and high-tech funding, they're very familiar how to do this. And, you know, when you look at local breweries, they quickly went into the hands sanitizer and disinfectant work. So, you know, this is an opportunity for us to help those local businesses as well. Yeah, as long as you can do something about the liquor commission saying, you know, you can't do this. Right, right. A million balls in the air, Cynthia, you know, this is a universe, a constellation of things that the legislature has never been faced with before, never, ever. And so the question I put to you with all of this, you know, with all of this happening, how do you manage to balance the budget? And, yeah, tell me about the budget. You started out with a $2 billion shortfall. How did you deal with that? Right. So this has been a very, very challenging to say that this is a challenge. This was a challenging session. It doesn't even explain the type of needs and the stress that, you know, the community and the legislature had to go through. And we rely a lot on people like Tom to help us sort through some of the tax bills, but just to balance the needs of the community plus balance the budget plus looking at the revenue shortfall and what is the impact for the future? It has been tremendously difficult. So what we're looking at is, as you know, the council on revenues did a projection of what the revenue loss was going to be for this year. They projected a negative seven loss, negative seven. One point, J is equivalent to about 65 million. So if you think about that 65 times seven, that's about 500 million, right? A little over 500 million. So that's automatically a 500 million loss for fiscal year 20, which is ending June 2020. We just got the actual revenue picture from the tax department, what the revenue loss for 2020 was. And that came out to negative 6.2. So the council on revenues was very close because negative seven versus negative 6.2, you know, I mean, that's relatively speaking, it's not a big difference. But the concern is for next year, the council on revenues projected a negative 12 loss, negative 12, if you times that by 65, I mean, you know, that's what is that? That's like 780? Yes, 700 to 800 million dollar loss. I think it's good. Yeah. And so the question is, okay, how do we balance the budget? The good thing is after I became finance chair about eight years ago, we have put in a substantial amount into rainy day fund. And that's because we did not want to do what happened in 2009. You know, in 2009, we had to do furloughs, we had to and we had to shut down schools, we had to shut down essential government service. And that actually exacerbated the economic rebound. So in 2009, we looked at, I think, over a billion dollar loss. And so one of the things I made a commitment was we will make sure that we put a substantial amount into rainy day fund. When I first became finance chair, we barely had about 30 million dollars. As of this year, we have close to 400 million dollars, 400 million dollars go a long way in helping to balance the budget. The other thing is, we put in, we made a commitment to reduce the unfunded liability so that that in itself is about, you know, in addition to what we have to pay in all of these unfunded liability needs, we pay about 400 million dollars more on top of that. At least for the time being, that's not something that we need to pay right away because it's not a specific thing. So we made huge investments that we can try to swap out in the meantime. The other thing is vacancies. I've been very critical and Tom has to on a lot of the vacancies that are existing in state government. And so the departments use the vacancy amounts for other expenses or other needs. You know, I've been very critical of that. So when we reduce all the vacancies that came out to about 100 million dollars. So if can you imagine 100 million dollars of monies in state government that should have been filled by position and it hasn't. So we reduce all the vacancy that was another 100 million dollars. The other thing is we made cash investments into things like rental housing trust fund and a lower stadium, which we were able to quickly swap out with bond funds. So that was in reduction in the programs, but we were able to just swap out, borrow funds with real cash. So immediately we were able to look at about 800 million dollars worth of cash that we could allocate to balance the budget. 800 million dollars is a huge amount because as you can see that's close to 13 percent. Because if you're looking at 65 million dollars as one point. So I think we were able to, because of some of the smart money choices that we made in the past, we were able to be in a position where we're not looking at shutting down schools, shutting down services, shutting down ambulance service or other type of hospital services. So we are very thankful for the foresight that the legislature has had in making sure that some of these things are done. And Tom and my special pet pee, which is the special fund, we haven't even got into looking at reducing special funds. And that's been so on. That's been a pet project for Tom and I for years now. And you know, about 40 years ago, we started out with just a dozen special funds. And now we have hundreds, close to 1000 special funds in all type of departments. And this is not very budget transparent. And we've been very critical of that as well. So we have not even started tackling in reducing some of the special funds where we can reallocate all those special funded needs for two general funds. How much money is in those funds? Well, we are doing an analysis, it depends, because some of the special funds, we won't be able to convert to general funds. So for instance, highway funds, highway funds are especially there for the needs of highway repair and improvement. So it really depends. So we are doing an analysis of every special fund. Yeah. And in the, on the lines of balancing the budget, I know there was a big controversy earlier in the year where the governor said, well, okay, we're going to be reducing everybody's pay by 20%, 10% of your first responder. And then in the midst of that, the legislature passes a bill that funds the collective bargaining increases. What kind of dynamic has gone on there? And where do we stand with that, Sylvia? Right. So, you know, as far as the pay raises, I understand there were a lot of concerns around the pay raises, but when we looked at, when we looked at all the collective bargaining units, and then when we look at the HGA units versus UPW versus UFA and HSTA, the reality was that HSTA and UPW already got their raises. So for instance, those raises are already calculated into the budget, whereas HGA, because they were late in submitting the request, they didn't get their raises. So the intent was, okay, if we are going to do across the board pay cut or furloughs, which the governor is talking about, then you have to equalize everybody and get them at the point where they all start. Otherwise, you know, if you're a HGA member and you get hit with a furlough, it's furlough plus a pay cut because they never realize those raises unlike the UPW and HSTA workers. So it was really about fairness. So going back to furloughs and pay cuts, I mean, the governor has talked about those things. He has yet to have a discussion with the unions and we're still waiting for updates on what his plan is in balancing the budget. I think they're struggling with a lot of things because, you know, I mean, as you recognize, J, this is not something that, you know, we've ever faced and this is not going away. Our budget problems will continue for the next, at least I think the next two years. So this year, I think we were able to finish the legislature, balancing the budget, take care of the needs of the community. When we come back just six months or five months from now, we will have a huge job ahead of us at that time. Yeah, I see the worst case analysis is pretty bad on that. I mean, first of all, you have dramatic increase in a number of cases, coronavirus cases, and Congress is a little bit locked up and we hope we need more money from them. We may not get as much as we need. The economy is in the tank and that's going to increase in a significant way as far as I can see. And next year, businesses, in fact, you know, every day in Pacific Business News, you see that this is closing and that's closing and they're closing permanently. They're not coming back. Substantial businesses. So by the time we get into 2021, it's going to be worse and it's going to be tougher on the legislature because your tax receipts are going to be less. So where does that go? I mean, what's your feeling about that? Your house finance, Sylvia, you've got to be thinking about the worst case analysis going on in 2021. Right. So I am very worried about 2021. You know, vaccine is not going to come out for at least another six months. And I would think the first round of vaccines will go to first responders and people who really need to have vaccine right away. It is going to be very difficult and, you know, I think next year when we see 12% decrease in revenues, it is going to be a huge impact on services. So we've just got to do our due diligence and make sure that we can balance and provide services at the same time. Do you think businesses are prepared for the, I mean, there's going to be some automatic tax increases that hit at the end of the year and I'm specifically thinking about unemployment insurance tax. How do you, what advice would you have for businesses to see if they can cope with that? So that's why one of the things that we did in the CARES funding is that any remnants that we do not use, we put it into the underlying state UI so that the impact on businesses will not be substantial. What about the conforming bill with the federal changes? Have we talked about that? Yeah, we only have a minute left. So I was just kind of noticing that we conformed to some things in the federal income tax changes. Some of the things that we left on the table were adjustments to net operating losses and the ability to monetize them. That was kind of deemed important at the federal level, but we didn't adopt them here. The tax department testimony really gave no reasons for that, but I think it's just, you know, we can't afford it. Is that how it played out? Exactly. And so the tax conformity bill was, you know, the decision whether to conform or not conform, unfortunately, was very run by revenue picture as opposed to ease of taxpayers. So that was kind of the unfortunate thing. I'm thinking, you know, that will be the reality for the near future as well. And the TAT, last time I heard the TAT that the state was collecting was not going to the counties. Is that still the case? Yes. Apparently the governor has postponed or put a stop on any kind of TAT allocation. So I think that's no TAT to the counties and HD at the same time. You know, Sylvia, I just wanted to mention that I voted for you. Oh, thank you very much. But you're unopposed. It was a very easy choice. At least you didn't vote for blank. You know, there's a whole thing going on now with PACs and PAC funding from outside the state on state races for reasons that are not clear and by donors who are not clear. And there was an article in Civil Beat a couple of days ago about huge amounts of money that are coming, for example, to mayoral races and to city council races. And I'm sure that's that's going to be or is the case for the state legislature. What if you could comment on that? All right. You know, anytime outside forces get involved in races, I don't think it's a transparent way. I think candidates should be able to raise their own money and should use their own money to either be in favor or in opposition or, you know, state your position. And it's always not right when PACs get involved. I do not agree with that approach. And I had an aggressive bill introduced, which would penalize PAC and independent expenditure activity. Clearly, that has some constitutional issues. But I think it's worth looking at because we will continue to have influences, not just nationally, locally as well, that guides under the PAC to influence races. And I don't think that's something that Hawaii voters will continue to tolerate. Yeah, I agree. Hopefully next year we can get into that. Sometime if you got any last questions or maybe some broader thoughts about this session and how we did and, you know, how we will do. Well, it was, like I said, a very abbreviated session. You know, only the most essential things were considered. I think we put out like 80 bills as opposed to the usual 250, you know, send up to the center to the fifth floor. So on the tax side, only two bills passed and went upstairs as opposed to the usual, you know, four or five pages worth. So there's been, I think, a lot of deferred activity and we're going to see, I think, a lot next year. And what happened to vaping? That got deferred and it's going to be considered next year. I'm happy that it got deferred. It's simply not a priority. Well, thank you, Sylvia. It's great to have you here. It's great to be able to talk to you about these things. I hope we can circle back and then do it again. Very valuable for the public, very valuable for our viewers. Yeah, no, thank you for doing this. This is very informative for your viewers. And so I appreciate it. Thanks, Jay. Thank you, Sylvia. Thank you, Tom. Aloha, you guys. Thank you, Aloha.