 another episode of Talking Tax on the ThinkTech Hawaii Broadcast Network. So I'm Jonathan Helton, I'm a Policy Researcher at the Grassroots Institute of Hawaii, and I'm standing in today from Mark Coleman. So joining me as always is the President of the Tax Foundation of Hawaii, Tom Yamachika. Tom, how are you doing today? Great, a little bit waterlogged because of all the rain that's been happening, but I'm okay. Good to hear it. So today we're going to discuss the Lahaina Recovery Fund that Governor Josh Green announced earlier in November. So let's jump right into it. What do we know right now about what the fund is going to do? Well, I think it's kind of one of the more innovative items that's been announced by the governor's office with regards to the disaster relief measures. It's supposed to be, at least according to the governor's press releases, the concept is supposed to be similar to the 9-11 fund created in the aftermath of the destruction of the World Trade Center. The idea is that the people who have been accused of liability in regards to the wildfire incident pay money into the fund. Claimants who want an distribution from the fund would agree not to sue the fund contributors. So the primary advantage of doing that would be that you would get money, if you were claiming you would get money in your pocket within months rather than years, the others have filed lawsuits and lawsuits take time to resolve, maybe a couple of years at minimum. But there are still people who don't think it's a great idea. Typical of the opposition was this post on X. So in other words, what our state government deems is the value of your losses, all you will receive, because you sign your rights away to sue for more. Don't do it, Lahaina. That's what the post said. So Jonathan, what do you think of this and have you had experience with claimants talking about this? I think on our side, we're going to be very interested in the details of the fund, which I think are still being worked out. Just to give some background to viewers, we know that the state has pledged $150 million toward the fund. We know that Hawaiian Electric has pledged up to $75 million. And we're expecting Kamehameha Schools and Maui County to put money in as well. So it's going to be a lot of money there. I think our major questions are, where's the money going to come from? Who's going to be eligible? Overall, I do think that something like this is probably going to be good for the state and the county and the utility. It'll just save everyone a lot of time and headaches, because the more people who decide to participate in the fund, the fewer lawsuits that tax payers are going to have to pay for and the fewer lawsuits that people are going to have to wait on in order to get money to maybe start rebuilding their lives. Yeah, let's not forget the attorneys that got to be paid, right? I mean, of course. Attorneys who do contingency fees in this kind of situation may take maybe up to a third of the recovery. Okay, that's not atypical. So there's more mouths that have to be fed, obviously. And then people can get on with their lives instead of going through the necessary stages to get to where a trial can be had, namely in civil litigation, you've got discovery depositions. And let's not forget the possible appeals if the verdict doesn't go and satisfy both sides, because either side has the right to appeal. Yes, and that's something we've seen regarding attorneys' fees in the campfire, the camp paradise fire in California back in 2018. People who filed lawsuits against the utility or who were part of the settlement that the utility ended up giving out, they're having to shell out tens of thousands of dollars to their attorneys. And that's good for the attorneys, of course, but it's not so good for the fire victims who get a lot less money as a result. So I do want to ask, though, do we know whether or not the fund is going to be targeted only at people who lost loved ones or who were injured themselves? Or is this going to be something broader that is also focused at people who lost their houses or lost their businesses in Lahaina? From what I gathered from the press releases, it's for people who sustained property losses as well, not just loss of life or loss of a loved one. And what the governor was saying was that the payout per claimant is going to be in excess of a million dollars. So it's not like these kinds of class action settlements where you go in and you get lucky to get a $20 gift certificate for McDonald's or something. This is much more substantial. And if there is a place where the payout would be unfair to the claimants, I kind of think that that number has been passed. If the statistics that have been true so far have been maintained. So I mean, if there's no major claimant pulling out, for example. Yes. So right now, we're looking at probably close. We're looking at upwards of $200 million that's already been pledged toward the fund. So I don't have any idea right now what Maui County or Kamehameha Schools are looking to put in. But I think that for the people who did lose a loved one, I think that the governor's pledged that people are probably going to get over a million dollars that certainly seems within the realm of possibility. But I do want to ask, I do want to ask a question. I know in your article you'd written about how the Star Advertiser kind of had a big question poll and it showed, you know, about twice as many people supported this idea as opposed it. So in addition to what you read, you know, the post from Twitter or X, where is the opposition coming from? Is that typical? Do people have other concerns that they'd expressed? Well, as of right now, the big question poll that you mentioned, I just kind of pulled it up on the advertiser site. There was 245 votes in favor. They say yes, it enables quicker legal compensation for victims. There's 104 saying no doubt for lots of positive. And 80 people saying undecided need to hear more, which is probably kind of the camp you were in. But I think what that poll represents, and it's not very many, you know, votes overall, I mean, in a state with like a million people in it, you know, this is less than 500 votes. But I think what it does show us is there's some distrust of government, which perhaps is healthy. And it really does show us that the claimants do need, you know, some circumspection in evaluating the terms of the settlement before they sign their claims away. And I certainly understand that. But at the same time, you know, my feeling is that, you know, they're adults in the room. You know, they're not babies. They can decide whether they want to sign their, you know, their claims away or not. They have, you know, a choice whether they want to engage a legal counsel. And maybe, and maybe they do engage legal counsel anyway, just to kind of give them, you know, advice on, you know, the different aspects of what they're agreeing to. But, you know, a third of the recovery, I'm not really sure about. I mean, I'm not really sure that a claimant is better off going through that route, especially when we have a recovery amount that's north of a million dollars for. Yes, I would imagine that, and unless someone has the resources to fight this out in court over, you know, however many years this takes, it's going to make a lot more sense to take the settlement because for a lot of the people who lost loved ones or their livelihoods in line, they're probably not going to be able to afford to both stay in Maui and fight numerous lawsuits at the same time. So, you know, I do think, I do think you're right, I do think people, a lot of people are probably going to be the adults and they're going to say, this is better for me and my family. But of course, you know, we'll see what the terms and conditions are and how much money gets put into the fund. That's right. And I think, you know, it is important to, you know, to give people the freedom to make these kinds of choices as opposed to saying, well, no, I mean, you're not competent to make the choice for you or something like that. Yes. Which is I think what some people are saying that, you know, that's the amount in the line of recovery fund is categorically not enough, so people should really, you know, say, oh, you know, get out, get out on my side. Right. Do we have any idea whether or not this is something that needs to go through the legislature and where the governor plans to get the state funding for this? I think there is parts that will have to be enacted into law. Yes. Yes. I think the legislature will have to buy in. That was my understanding. I know that this month as well, Governor Green had moved something over 170 million out of various departments, I think he was mostly deleting capital improvements to move that toward Lahaina relief. But I don't know how much of that has been earmarked, so to speak, for this fund and how much is going toward other efforts. So it is very possible that the legislature would have to appropriate more money during the next session for this fund. Okay. And there, of course, lies the danger. Not necessarily for this fund, but overall, yes, you have seen the governor move money from various other places to Lahaina relief or to wildfire relief in general. And the projects and line items that money came from are going to have constituencies, and they are going to want to be made whole. And then you have to kind of contend with the overall truth that, you know, government doesn't pay taxes, taxpayers pay taxes. So if you want all this extra money, where is it going to come from? Right. And the answer is you and me. And everybody else similarly situated. So is this kind of, you know, something that we want to see? Do we want, you know, as society to be in a position to make everybody pay more for Lahaina relief? Are we content to let the, you know, the people who are generating, or I'm sorry, donating generously to continue to donate generously? Or is it something that we're going to have to get whacked for in the end? Yes. And I think you wrote about this. It's been several weeks now. But when you originally discussed the idea of creating some sort of settlement fund, you mentioned, and I completely agree, either way, state of Hawaii taxpayers are going to probably be paying more, whether or not you create this fund, or if it's all litigated in court, that money doesn't come from nowhere. That's money that the state government and the county government have to pay for the lawsuits. So and, you know, that's that's on top of the fact that rates for HECO and for electricity may very well go up. So at the end of the day, taxpayer and the consumers, they're going to be paying kind of no matter how you cut it. So yeah, no, that's that's an excellent point. Under the public utilities commission statutes that govern HECO, when you have a very large disaster like we had in Lahaina, they don't have to confine the hit just to Maui ratepayers, they can go statewide. And I believe they're going to do that. And I think they've already indicated that they will. So yes, we're going to be taking a statewide hit anyway. Hopefully, if they just use insurance money, it won't be that bad, because that's presumably been already paid for. But then that kind of leaves the question of, okay, well, you got the other you get the other lawsuits, you got the other things that HECO has to do to kind of shore up their infrastructure on Maui and other and other places where there's wildfire risk. Yeah, that's going to that's going to be money and that's going that money is going to have to come out of somewhere. And it's going to come out of electric bills. I want to say there was a civil beat article that discussed HECO's insurance. And it looked like that up to 75 million they were going to put for this fund was about half of one of their insurance policies. I don't I don't remember if the article discussed further than that they had others. But so so part of this will probably be funded by insurance, which which is good for ratepayers. But it's it's very likely that that won't be it. And I do want to ask, because I know you and I discussed this offline about the what about whether or not this fund is likely to be taxable. So if I am a resident and I agree not to sue the state in exchange for a million dollars, we'll have to pay state income tax on that? Well, again, that it depends on what the the money replaces. If it's for like personal injury or sickness, then then there's no there's no there's no tax. If it replaces property, for example, you know, there's a the house that's burned down to the ground and you buy and you got to buy a new house. The the amount goes into the basis of the new house. So so you don't get taxed, but at the same time, you're not completely exempt from tax if you if you kind of sell the property and run right. I think that was an issue that they've dealt with in California, going back again, where the utility created a settlement fund. And people my impression is there was not the same level of loss of life in the 2018 fires, but it was a lot of properties were destroyed. And the settlement fund, people have gotten their settlements, but they're finding out that, oh, wait, I have a tax bill, whether or not that's federal or state. And I know this this state of California made action to ensure that that that fund was exempt from the state income tax. And what I think will be interesting in this may affect Hawaii, there is a an attempt by several California lawmakers at the federal level to exempt all of the to exempt the settlement funds from the federal income tax. And there's all sorts of legal complexities there, in addition to the complexities at the state level. But if whether or not that bill is going to move forward could have an effect on Hawaii and whether or not this this settlement fund is going to be subject to the federal income tax. I don't know if you have any thoughts you want to add there on the federal side of things. Well, no, I mean, that it if the dollars that come out of the fund are considered to be replacing income, then the normal rule is, you know, those dollars are taxable. I mean, typically in a in a casualty situation like, you know, like wildfire loss, you don't have any of that. But the issue has come up in in instances where, you know, businesses are claiming that they've lost income as a result of, you know, being shut down. And then the issue might come up there for but for normal individuals with homes or who've lost family members or who've gotten injured. That usually is not a problem. My impression is that for damages that are awarded for something like emotional distress, that would also be counted in someone's tax bill. Is that is that correct at least for Hawaii state law? Well, it's federal law and those those types of damages are normally exempt from income tax. It's where you get punitive damages that those are normally taxable. But I don't think anybody's talking but I don't think anybody's talking about punitive damages. Right, at least as part of the settlement. Yes, right. You wouldn't expect there to be any kind of punitive damages component of a settlement. And so just to extend this discussion on taxation a little bit further, how do how do attorneys fees factor in? Does someone who ends up paying an attorney 30% of their settlement, would the amount that they paid their attorney be calculated for any sort of tax liability, whether or not it's for replacing the home or something else? No, I think that would be it would be netted out somehow. Okay, so so what I'm hearing is overall good news. This settlement fund in most instances probably won't be taxed, although I I know that will depend on the individual circumstance. So it's it's it's not something that we can say as a blanket statement, but you know, it's it's better than paying, you know, eight, nine, 10, 11% of this settlement fund to the state or federal government. Right. And that's better than paying 33% of it to attorneys. Yes. Yeah, I mean, I'm an attorney myself, so I can I can kind of say that. You know, perhaps some of my colleagues wouldn't want me to say stuff like this, but that's kind of how I feel. Right. So I don't know if you have anything else in particular you want to add to this discussion. I think that we're going to be looking for details on this. And I hope that they're going to be I hope that they will come out relatively soon, at least before the legislative session, because Governor Green has now announced the the plan to incentivize short term rental owners. And maybe that's the the topic of one of your upcoming columns. But that's going that has to factor into the state revenue discussion as well. Well, of course, if I mean, I think there are components of the Lahaina Recovery Fund and other, of course, other aspects of the disaster relief that are going to have to be acted on by the legislature. Certainly, they've got, you know, the overall power of the purse. So they can, you know, change appropriations as they see fit. Hopefully there's some good discussion, you know, between the governor and legislative leaders as to how that's going to shape out. But but I think there is going to be, you know, some overall relief and and I think it'd be, you know, foolish for legislative for legislative tours to to completely poo poo that in an election year. Certainly, you know, voters are going to be looking to them for, you know, appropriate leadership and an appropriate response by the state on this, including possible revenue enhancers. And when those come up, we'll be reporting on those definitely. I don't expect I know the governor had discussed adding or reintroducing his tax reduction plan with the state revenues. I don't know that that will be possible in 2024. But of course, if there's any discussion of higher taxes at the state level, Grescher Institute Tax Foundation will be be sure to let everyone know. So I guess to just to wrap up on my end, I think that we'll be very interested in what the details are. I know the governor announced that he wants to have this fund ready to go and paying out money by middle of next year. So we should be seeing details hopefully within the next couple of months. And it's going to be up to everyone who was affected by this fire to make a decision on whether or not this is best for them. So I'll leave my thoughts there. I don't know if you have anything you want to do to conclude. Yeah, no, I didn't just kind of to follow up on that just a little bit. There will be obviously a discussion in the upcoming latest nature, which starts in January about what these recovery efforts are and how they work. These discussions will be at least to some extent open to the public. So this is kind of a way for the public to A, keep tabs on what's going on and B, if they want to try to shape the discussion by influencing or discussing this with their with their legislators. So if you are a concerned citizen, you will have the opportunity to weigh in. And I'm sure that the people who are going to be affected by this will want to weigh in as well. If they maybe people have the concern it's not been addressed and that can be added to or subtracted from whatever bill they have to discuss. So it's with the other complications of how our government works, it's reassuring that people's voices can still be heard on matters like this. So with that, Tommy Omichika, I really appreciate you participating in this discussion. I will be back next week in the next couple of weeks with another episode of Talking Tax. So aloha to everyone.