 Aloha and welcome to Hawaii Together on the Think Tech Hawaii Broadcast Network. I'm your host, Kaylee Akinna, president of the Grassroot Institute of Hawaii. One of the things that Grassroot Institute does is research and education on matters that concern our laws in the state of Hawaii. The state legislature has just finished its 2019 session, and we want to take a look at some of the more notable bills that were passed and how they might impact your life and our economy. Someone summed it up and said, well, it wasn't as bad as it could have been, but it wasn't as good as it should have been. Well, I've got a couple of people here today to help us take a look at some of the key bills. The first is Executive Vice President of the Grassroot Institute of Hawaii, Joe Kent, who in that role manages the tremendous team of people who are researching and analyzing and coming up with better solutions for the economy, government, and society. Joe, welcome back again to the program. Always good to have you. Yeah, thank you so much. You're doing really good work. Thank you. And then along with Joe, we've got another member of the Grassroot team from right outside of the city of Washington, D.C. right now. She is our policy director, Malia Blomhill. Malia takes a look very carefully at the various bills, especially from a legal point of view, a financial point of view, and gives us great input. Malia, welcome to the program. Hi, thank you. Good to have you back. Wish we could have you more frequently here in Hawaii. Well, together, I want to introduce these wonderful members of the Grassroot team and really dig in and learn a little bit about of their mana'o, as we call it in Hawaii. They're thinking about what took place in the legislature. First a question to either of you. What was the session's final result? Was it as bad as it could have been? Was it as good as it should have been? Malia, you were watching from afar very closely. What did you see? Well, in a sort of half-full way, it could have been a lot worse. It could have been much, much worse for the average taxpayer. One of the things that we dodged was an excise tax hike that would have been relatively substantial, going up from 4 to 4.5%. That was a sort of narrow escape. And then the other thing, the minimum wage bill, which kind of went back and forth and back and forth, and it looked like it was going to go through and really, really hike the minimum wage a lot in a very little bit of time. That also got defeated. There were a lot of big spending bills that did not actually materialize. So from that perspective, it could have been worse. Well, that's a faint praise, but at least praise is worth something, and we'll pass that on to our legislators. Joe, how about you? As you looked at the session, what did you see? I think it could have been a lot better, and that's because there were some taxes that actually passed this year. We had the REIT tax, which is the Real Estate Investment Trust tax, and we had the estate tax pass, and we have a new tax on vacation rentals as well. So we've got a whole flood of new taxes to think about now. And it would have been better if more of Hawaii's people could keep their money in their pockets. We'll talk about that a little bit more, but one of the things that makes the legislature work is the way it conducts its business. We had been very concerned about a practice called Gut and Replace, whereby a bill is introduced by one title with very little content actually sometimes remaining by the end of the cycle of that bill. So it doesn't necessarily get all of the scrutiny it deserves from the public. This practice had a little bit of development in this legislature. Joe, how many bills were actually involved in what we would call Gut and Replace? Well, we tracked about 14 Gut and Replace bills, and those are bills that changed dramatically, and they were completely gutted and completely replaced with other language. We had one bill that was about computer science, and it turned into kind of a collective bargaining type of bill, and so those are very different concepts, and they change right at the end of the process where people don't get as much chance to comment on them as well. So it's kind of a transparency democracy issue. We also had six Frankenstein, what we call Frankenstein bills, and that's when you have the contents of a bunch of different bills all kind of stitched together into one what we call Frankenstein bill, and that's similar to the Gut and Replace issue where we don't have enough time or means to comment on that, and so the public doesn't have a chance to participate. Malia, citizens have been so alarmed by this that many of them have launched a suit that went to a certain degree. Well, tell us a little bit about that suit that was brought in and what we can expect in the future. Well, the Civil Beat Center for Law and the Public Interest and along with the League of Women's Voters, Common Cause Hawaii, they've all been very vocal about their issues with Gut and Replace and Civil Beat and the Common Cause launched a suit challenging one of the Gut and Replace bills from last session. I need to go check exactly which one. The point was that it had no, like a typical Gut and Replace bill, no actual relationship between what the bill was, what it began, and what it was when it actually was passed inside. So they challenged it in court saying that it basically was unconstitutional. It defied the Constitution's requirements for free readings. The legislature defended the practice. And they even tried to follow it. They filed an amicus brief in favor of it, you know, basically arguing that it gives them certain flexibility to deal with things and so on and so forth according to their processes. The problem is, is that if that was what the legislature used Gut and Replace for, if they used it to deal with a sudden emergency that appeared halfway through the session, I don't think people would have such a problem with it. It's really the practice of taking a bill that, you know, was actually probably defeated, you know, in one house and jamming its contents in at the very last minute to a bill that had already passed that house that didn't like it and kind of sneaking it through that way. It's that element of it that really is a transparency accountability problem. Well, the lawsuit against the lawsuit charging this practice is unconstitutional. It lost at the circuit court level, but they have filed an appeal or an intent, a notice of appeal. So they will be appealing the decision. So we will be watching very closely and inputting to that to see that we have greater measures of transparency for the public. Now, there's another issue that came up in the legislature. It didn't get as far as some people wanted to do. It had to do with the minimum wage laws. Now, let me say at the outset that the Grassford Institute were committed to a couple of things. One is improving the economy by bringing down the cost of living. That would help people to be able to afford to live here. And there are things government does that helps that and hurts that. We promote those things government does that actually helps to bring down the cost of living. Another thing that we're promoting is putting more money into the pockets of workers, especially those workers at the lower end of the wage spectrum. And I think that's the same goal as those who want to raise the minimum wage, but the research we have discovered shows that raising the minimum wage by forcing businesses to pay a certain amount actually hurts the very people it's aimed to helping. You want to give a little explanation to that, Joe? Sure, it does. We looked at two decades of research on the minimum wage studies and we found that it generally hurts the people it's supposed to help. If you have low skills and you're trying to get a job, whenever they raise the minimum wage, now you have to compete against people who have higher skills and that might price you out of the job market. And we see this again and again where people actually have a harder time finding a job when the minimum wage is raised. At the same time, you have businesses who sometimes go out of business because it's harder to pay those higher wages for the same work. And that means less jobs. So when we looked at all the studies, they concluded that the minimum wage doesn't help. In fact, it might hurt the people, especially with low skills. You know, as we take a look at this issue, it's one of the areas where we want our legislators to follow the best practices of other states, what they've learned through experience as well as research that we've garnered from across the nation. And I guess the finding you're talking about, Joe, seems a little bit incredulous. If you really care about people who are at the low wage end, it's easy instinctively to think forcing businesses to raise their salaries would be helpful. But Malia, why is this counterintuitive claim not really true? What are some examples we've actually seen in cities across the country of what happens when businesses are forced to increase the minimum wage? Well, you know, it's a sort of unfair assumption at the basis of these big jumps in minimum wage that businesses have the ability to pay these higher payrolls but just choose not to. In reality, what they're finding is that, you know, the money that they have allocated to payroll is what they can afford. So businesses try to adapt to the higher minimum wage by keeping their payroll relatively the same. That means cutting hours, basically laying people off. And in certain industries, you'll see unemployment rise and hours get cut drastically. So the most notorious example is Seattle when they went to $13 minimum wage. What happened was that workers ended up taking home less money despite the higher minimum wage because the hours, their overall hours decreased. Businesses basically had to decrease overall hours work in order to make up the difference. When New York City was contemplating a similar $15 minimum wage, polls of the restaurant industry, the hospitality industry, showed that the majority of businesses plan to lay off workers or cut hours to make up the difference that they just couldn't handle in terms of payroll increase. The other thing that people believe is going to happen, and we're going to see more and more of as this push for a very high jump in minimum wage cuts, is automation. It basically makes automation a better option for certain jobs. And so we'll see more automation-replacing jobs so that businesses can again maintain that payroll. Well, we'd not see the end of the minimum wage push, and it's likely that although it failed this time to reduce, to increase minimum wage from a little over $10 to $15, that that proposal will be back again. There's another proposal that comes up perennially, and that is the increasing of our general excise tax. And that's probably because that's an easy one to sound small. That is to say, increase the general excise tax by about half a percent and you may go from 4.5 to 5, and it doesn't sound very big. But in reality, it's a huge impact upon the general public, as well as upon those least able to pay taxes. Joe, do you want to tell us what happened with GE tax to increase attempts this term? Yeah. Well, there was an attempt to increase the general excise tax by 0.5 percent across the state basically to pay for education. If low education is a sound need, the tax increase would hit a lot of people who are on low income. In fact, they call it a regressive tax, and regressive meaning it kind of hurts the poor. And this general excise tax is even worse because it pyramids. In other words, if you can imagine a snowball starts to roll and it becomes a bigger snowball and eventually becomes an avalanche, that's kind of how the general excise tax works, because as the tax is taxed from thing to thing in Hawaii, it grows and it hits the taxpayer at the end. And that means that the consumer at the end who may be on a fixed income or may be struggling to get by has to pay quite a big proportion of their income off just for the general excise tax. It's a very regressive tax. And in addition to that, there has also been a push to pouch increases in general excise tax in worthy causes. Perhaps one of the most worthy causes is our educational system and paying teachers more, and certainly teachers who work well deserve to be paid more. But there were a couple of problems with this GE tax being tied to that. Number one, the increase in GE tax actually hurts teachers themselves and the families of students who have to pay the taxes. The second problem is, as we've shown in previous Think Tech programs here, we're not sure that the lack of money is the problem in our school system. It could be the problem, but the data is not there that shows that the reason teachers don't get paid enough and that programs aren't funded enough. The data is not there that says it's the lack of money. What we need is more transparency to see how the $3 billion or so when we consider all the costs of the educational system are being used. And if it's a lack of money, we can solve that problem, but it may very well be something else that could better be resolved through more efficiency and accountability and so forth. There's another issue which we want to talk about. It's a bill that got transformed in different ways, but it was also for a worthy cause called Aloha Homes, or homes that would be actually on land owned by the state government and provided as long-term leases for those in need of that. Joe, let me go to Malia. Malia, do you want to tell us a little bit about that before we take a break, maybe take a couple of minutes? Of course. So Aloha Homes was a really sort of revolutionary approach to the affordable housing crisis in Hawaii. The idea was that they would create a program that would build and offer 90, I was going to say homes for sale, but that's actually one of the big issues, is that it would offer homes to presumably low-income residents for 99-year leases. And Grassroot identified this bill as one of those bills that has really very good intentions, but some sort of problematic execution in regarding the 99-year lease holds, the probable spending, what it would cost to build these homes. Well, SB 1, the Aloha Homes bill, the original one passed the Senate but stalled in the House. It's one of, it became one of our gut and replace bills because a unrelated House bill that passed the House did not include Aloha Homes, went through the Senate and somewhere in its journey through the Senate picked up the Aloha Homes, all the Aloha Homes language. Now it eventually turned into, let's just do a study, which there's the morphing of a bill for you, incidentally. So you got a lot of lessons here, huge spending, and also got new plans. So instead of implementing a program, it's just a study, but it could come back this coming year. And after we come back from a short break, I'd like to ask you each to discuss some of the elements of the Aloha Homes bill, although we don't know exactly what will come out of the study, some of the elements that may be a little problematic for Hawai'i's taxpayers and for the people who live there. I'm Kili Ikeena on Think Tech Hawai'i's Hawai'i Together. We'll be right back with Joe Kent and Malia Hill after this short message. Don't go away. Aloha, I'm Cynthia Sinclair. And I'm Tim Appachella. We are hosts here at Think Tech Hawai'i, a digital media company serving the people of Hawai'i. We provide a video platform for citizen journalists to raise public awareness in Hawai'i. We are a Hawai'i nonprofit that depends on the generosity of its supporters to keep on going. We'd be grateful if you'd go to ThinkTechHawaii.com and make a donation to support us now. Thanks so much. Thanks so much. Hi, I'm Mabuhai. My name is Amy Ortega Anderson, inviting you to join us every Tuesday here on Pinoy Power Hawai'i. With ThinkTech Hawai'i, we come to your home at 12 noon every Tuesday. We invite you to listen, watch for our mission of empowerment. We aim to enrich, enlighten, educate, entertain, and we hope to empower. Again, maraming, salamat po, Mabuhai, and aloha. Welcome back to Hawai'i Together on ThinkTech Hawai'i's broadcast network, and I'm just delighted to have Joe Kent, executive vice president of Grassroot Institute, and Malia Blomhill, the policy director with us today talking about some bills in this past legislature. One that I'd like to ask a little more inside on is the aloha homes. You know, really, we don't have a lot of detail to fix on that right now because it's in study form rather than an actual law. But there are some concerns about some of the elements of that bill. But first, you know, what could be wrong? You know, what could be wrong with the government operating a program to provide homes through a 99-year leases for people, just like Singapore? In fact, that may be one of the first questions I would ask. Joe, Hawai'i in many ways models itself after practices elsewhere. Why is it a good idea or not a good idea to look at Singapore as the model for our housing solution? Well, Singapore is a good place to look for policy issues, generally, because it is one of the most free-market economies in the world. I think it's number two, Hong Kong's number one. So I don't mind looking at Singapore or anywhere else for policy solutions. The problem is that a Singapore's housing solution may work for Singapore, but here we're bogged down by so many regulations. Our island is different and everything, and it would be kind of a government housing project. And in the past, government housing projects haven't fared very well across America or even in Hawai'i. A lot of times with a government housing project, it takes away the incentive to take care of the property, and so the property falls into disrepair. They call that light. And so a lot of these projects, after a while, they get so much light that the government either has to tear down the project or find a different way to do it. We're concerned that that may affect this Aloha Homes bill, but also there's so many ideas built into this Aloha Homes project. It's kind of the junk drawer of ideas. And there were so many ideas, it was getting so complicated and unwieldy, you might say, that maybe that's why they did all that gutting replacing at the end. Well, I think you're right. Singapore is a tremendous model of a free market economy, but Singapore has certain dualisms, I won't say contradictions, but dualism. On one hand, they've got a phenomenally well-developed free market economy that allows businesses basically to flourish, and we can learn a lot from them, especially according to the economic freedom of the World Report that ranks them as one of the two best free market economies on the planet. We also have a massive government sector, which is very, very wealthy and capable of doing things that our Hawaii government is not capable of doing because of that wealth base. And so more than 50% of the people, in fact, the vast majority of people in Singapore are actually on government subsidized homes. We don't have anywhere near that amount of wealth. But the other thing is we've got a commitment to letting free markets compete, especially in the housing industry as well as other industries. And what we're looking at and failing to see is that in Singapore, we're looking at a model in which the government actually is the major player and the controller of the housing market. And that is something that could be very problematic. Also, if you're looking for a home, getting a 99-year lease may not be the best solution. Maybe I could ask Malia to address this. Absolutely. One of our concerns was these 99-year lease holds have the potential to trap you in the home because according to the original plan of Aloha Homes, if you sold your home before your lease hold was up, you wouldn't actually get most of the sale profit. 75% of the sale profit has to go to the state. So rather than basically creating a flourishing market in homes, what this idea does is it traps people in a home that maybe they would like to move on from, but can't because they're stuck in this 99-year lease. They have forfeited any of the opportunity to make any money off of the sale. We usually talk about home ownership as a route to the middle class. This first step into equity, this first step into being able to have the ability to strike out entrepreneurship and businesses and so on and so forth. But Aloha Homes doesn't really do that. It doesn't provide the benefits of home ownership other than just a roof over your head. And that's not nothing. There is value to that, but it's not really providing what it's advertised as giving. It's not going to give people who buy in Aloha Homes that upward mobility, that equity, that sense of that opportunity. In another move, the legislature passed a couple of measures that had the favor of people who feel it is important to tax the rich and tax corporations. And that has to deal with a couple of measures. The first one was the real estate investment tax, which we saw increase in terms of its impact upon businesses. And the other one is the estate tax, for which we now will have the distinction to the governor sign it of being the most expensive state to tie in in the nation. But critics of those who would caution against these two measures say that these only would hurt the rich. They would help everyone else. But what are your thoughts about that? Maybe before we answer that question, Joe can explain a bit about what REITs are and what the legislature decided to do. Sure. Well, REIT is a real estate investment trust. That's what it stands for. Basically, it's a company that owns real estate. So you can think of a company that owns a mall or a hotel or office buildings or even apartment complexes. Many of them are REITs. Not all of them, but many of them are REITs. And with Hawaii and the rest of the nation, except for one state, they allow an exemption for the REIT income tax. But now this bill will get rid of that exemption. So now REITs in Hawaii and in New Hampshire will have to pay the tax. And also those in New Hampshire have already have to pay this tax too. So now we're one of two states that pay the tax. And that's going to make everything more expensive, really, in the state. I mean, think about folks in apartment buildings that are owned by REITs. They may be passed this tax. And that's going to hurt them. It's going to hurt tourism as hotel prices go up and mall prices and retail prices and everything else. So, or companies may just elect to leave the state too. So that's a REIT. Critics of the REIT tax say that it's like killing the goose that lays the golden egg. That this REIT process actually allows companies to have the resources to operate in Hawaii by financially well off so that they can actually pass on those benefits in the economy. Malia, the estate tax has been characterized as something that will only affect those of fairly high income levels with large wealth bases. But how does the REIT and the estate tax actually affect everyone? Yeah, there's this idea that you can tax the wealthy and there will be no repercussions. But the wealthy don't live on a separate planet from the rest of us. Our economy sort of depends on the idea that wealthy people's wealthy companies want to invest in our state, in our people. They want to be here. They want to spend money. So when you kind of hit this point where you're taxing the wealthy too much and you drive wealth, you end up driving wealth out of your state. And that has a downstream effect. We still need tax revenues from someone if there's no wealthy. They're going to come from the next people down. We still need investment. We need entrepreneurs. And all of this stuff sort of trickles down. These companies that own malls and such, they need to raise rents. They're not raising rents on just other wealthy things. They're raising rents on mom and pop store owners. So you don't tax the rich in a vacuum. Any taxation trickles down to everyone. And we will end up paying one way or the other, either because we've driven wealth out of our state or because those taxes get passed down to us down the line. Well, very good. Just a couple of other bills before we close off for the day. How about a quick response in terms of one issue, the rental car surcharge. Joe? Well, that passed. And now Hawaii residents are going to have to pay $5 for that surcharge if they rent a car. So that's not good. And that's just going to make everything more expensive too. Well, Malia, maybe we'll end on this happy note. We had some of the worst civil asset forfeiture laws in the country, which would allow police to seize property even without a felony conviction. How did that turn out this session? Well, we are actually grassroots committed comments in favor of reforming civil asset forfeiture. And that did pass. And it was very needed. The audit of our civil asset forfeiture showed that there were people who are losing property and weren't even convicted of a crime. So there's stronger measures in place to protect that. The money from civil asset forfeiture is no longer going to go directly to the people who had benefit to police agencies, but to the general fund. So there's less of an incentive to pursue civil asset forfeiture. So that was a good outcome. Very good. Malia, thank you very much. Malia Blomhill from the East Coast reporting to us today. And also Joe Kent here in Hawaii with us at the Grassroot Institute. And in closing, if you want any copies of our research and our reports on these bills or any other bills, go to grassrootinstitute.org. That's grassrootinstitute.org. Until next time on Hawaii Together, I'm Kelea Akina here on the Think Tech Hawaii Broadcast Network. Aloha.