 Yeah, Talking Tax with Tom Yamachika. I'm Jay Fidel. This is Think Tech. We're going to talk about building permits on repairs. You may wonder if it sounds like a non sequitur, but Tom is going to tell us how that works at DPP. Good morning, Tom. Morning, Jay. Thank you for having me on the show. So what's the history of this? You know, you have a repair, and I guess theoretically, over the years, you've had to file for a building permit on a repair. It's bad enough to wait for months and years for a building permit on a new construction, but on a repair, really? Yeah. So let me take a few minutes to set this up for you. We're now kind of in a situation where we have a legendary wait for building permits of all kinds, especially here in the city and county of Honolulu. A city audit that took place just a couple of years ago found that a typical residential building permit application took 108 days to process, which is over three months. And one for a commercial project between 1 in 10 million, I'm sorry, between 1 million and 10 million, took 432 days over a year. That is a very long time to just be waiting for a permit. And one reason for the huge delay is the sheer number of products that are in the queue. Pacific Business News recently reported that there were over 8,000 building permit applications in line as of August 2022 awaiting various stages of processing. Now, you probably know that you need a building permit for a new structure, right? But that's not where most of them are. Most of the building permits are for renovations or maintenance. That's right. Before 1993, and we're going to kind of go through this over a couple of decades here, before 1993, you needed a building permit for maintenance work valued at $300 or more during a 12-month period and for work regardless of value that affected electrical or mechanical installations, whatever that means. So, yeah, you could have a repair for at least theoretically $1. If you wanted to change a fuse, technically that required a building permit. Because that affects an electrical installation. In 1993, the threshold was changed to $1,000, but it still said that work affecting electrical or mechanical installations deleted a permit. Seven years later, in 2020, I got my, it's 27 years later, not seven years later. So, it was $1,000 for a while. But in 2020, we had an ordinance that was passed saying that any repairs valued at $5,000 or less during a 12-month period, even if it affected electrical or mechanical devices, didn't require a permit. So, that was a significant leap forward. You didn't need a permit to change a fuse anymore, although I think nobody was getting them anyway. That's a point to dwell on here. Nobody gets permits in this town. You don't get a permit unless you absolutely have to. Like, for example, you're going to sell the property and the buyer is going to say, where's your permit? Or a bank is going to say, where's your permit for a mortgage? But most people will just do it. And furthermore, most contractors, some of whom are licensed, some of whom are not, are going to wink and blink on this. It's just not going to happen. It's bad law. Bad law is unenforceable law. And whoever is dreaming up these systems is really not recognizing that people cannot afford either the money or the delays. And they don't do it. They ignore it. So, we have all these day limits and amount limits. And what have you that nobody follows? What a great system. Well, what do you think is the purpose for a building permit anyway? I don't know if you have a licensed contractor. I really don't know what you need that for. But I suppose the building permit of new construction is going to include zoning issues and environmental issues and the neighborhood issues that are part of the city's planning system. I'm not sure about the technological side. The mechanical, electrical plumbing would have you. I think that really does fall within the licensed contractors and subcontractors. I don't know where the delay happens though. And just talking about new structures, you know, it seems to me that if we have these permit requirements that are standing in the way of new construction, standing in the way of the development and redevelopment of the city or other islands too, then we really have to hire the people and organize the systems, automate the process immediately. And I don't for the life of me understand why we don't do that. Is there somebody standing in the way? Is there somebody saying, oh no, no, we can't afford to improve the system. And so we'll just let it sit the way it is and it'll take years to get permits and we'll all be stuck in a rut. Well, I think the traditional argument has been permits are for health and safety. You need to have buildings that are built that are going to stand up and not fall down. You need to have electrical installations that are going to, you know, not hurt people. Right? Yeah, but you know, the guy at the DPP who looks at this may or may not be qualified to make that decision. A licensed electrician, licensed contractor, licensed engineer, you know, puts his stamp on it. He theoretically is qualified to make the decision about whether the building will continue to stand up. I wouldn't feel that the DPP is better suited for that, I think was probably not suited at all for that. Furthermore, I want to add another digression for you, Tom. I like to add digressions for you. I hope you don't mind. You always do anyway, so go ahead. Thank you, Tom. But you know, back in the day, it was common knowledge that if you wanted a permit, you get a licensed architect or engineer who was connected to present your permit application to DPP. And if you didn't, you got an expediter who had the requisite connections and you paid that person a separate fee and that person would present it to the right people and, you know, thereby shave a few months off of your delay. And make sure to make a really significant contribution politically or at Christmas. And it was all corrupt, may I say. And everybody knew it. Everybody knew it. So everybody went to those designated expeditors, architect engineers who would present these plans and that's how they got stuff done. But this is not the way we want to do it. This is not clean and fair and square. This is something other than that is the wink and blink approach. Yeah, that's the Badana-Republic approach. And that's kind of what we've been blamed for for a very long time. But that's kind of where we're at these days. These days we're at a $5,000 threshold. Repairs or renovations under $5,000 don't need a permit. So I mean, that makes more sense. You can, like if your oven conks out, you can replace that. If your overhead fan conks out, maybe you can have somebody replace that and there's no building permit required. Let me add, though, that the cost of even a simple replacement, simple repair can easily, in this day, you know, with inflation, what have you. And the general high prices in Hawaii and the general unavailability of contractors and all that to the average person can easily exceed $5,000, theoretically. Right. And you've got to remember that $5,000 threshold was set 20 years ago and the dollar amount didn't change since then. Well, we know the costs have changed. Oh, yes, they have. The breathtaking changes. Yeah, this is a phenomenon known as bracket creep. You see it in income tax too. The income tax sets rates according to certain dollar brackets, but the brackets are fixed dollar amounts. Inflation marches on. The dollar amounts don't change. And pretty soon you're paying in much higher tax brackets and you didn't do anything else and you didn't get any more money. So why is that right? That's because of what we call bracket creep. Well, it's a DPP creep. You know, they have their systems and you'll have to wait on them and don't raise your voice, don't complain, don't send a letter to the mayor, you'll regret that. And so what you have is political power within DPP. I'm sorry to say. And I don't know how you fix that. I think the mayor could fix it. A city council could fix it. Well, I mean, let's see what's happening this year. There's a bill called Bill 56 that proposes to get rid of the five grand threshold entirely, providing the any repairs, which they define as replacing component parts of existing work with similar materials for purposes of maintenance would be allowed without a permit regardless of value. And the council member who submitted that bill, council member Tupola, she said, and this is echoing what we've been talking about just now, the monetary amounts outdated, especially in 2022 as the costs of materials and labor have increased due to record inflation. It's reasonable that homeowners be allowed to perform basic repairs to their bathrooms, kitchens and other areas within their homes without the need for a permit, especially when the permitting process had been unfairly burdensome and excessively difficult. Good for her. Good for her. The bill is still. Is it going to pass? Well, it passed first reading on November 2nd of this year. So just 15 days ago. And is their resistance? I mean, you would expect, for example, the architects, engineers, contractors would say fine, what a great idea. And it gives them a fair amount of latitude, maybe even too much latitude in some circumstances, but it gives them latitude, they shouldn't have a long time ago. And it gives owners a lot of latitude and tenants a lot of latitude. So I mean, it's all good. It's in the right direction. And I can't imagine who would oppose it. Who would oppose this bill? Oh, there are there are probably going to be people setting self health and safety concerns. Oh, you know, if you let these fly by night operators do these repairs, there's going to be an increase in danger. There's going to be increase in in life threatening incidents. You know, that that kind of rhetoric. But it's tragic, you know, so everybody suffers because of the imagined risk. But you know, this is only part of the problem. Yeah, it is. I mean, I don't know what happens in DPP. I cannot, for example, maybe there was a time I had some understanding of it, but I don't know what happens. So the application goes in or whatever it is. And it it languishes. It sits in somebody's in basket, like forever. And either they get to it and spend an awful lot of time reviewing it. Maybe they get it and they circulate it around a whole bunch of people who spend a lot of time reviewing it, or it just sits at the bottom of the basket. And they never get to it. I mean, or it goes through multiple agency review, which, you know, like if you need five agencies to sign off on it, right? Like fire department, water water supply, different agencies, then you got to have a means of keeping track where the permit's at, where the permit's at, where it went. You know, if you need to follow it after a certain amount of time, you know, who's following up on it. If you don't follow up, of course, there's going to be a bunch of delays. Well, they've not had access to a Xerox machine. I mean, if I dropped my permit application in somebody's desk, they could make a copy and it could run it parallel instead of serial. And they could make a record on a database, and I know we could help them with this, where we know when it went into what agency and when it should come out and when it did come out and, you know, get a status report by the push of a button. And including the owner, including the architects and engineers and contractors, the push of a button. Where is that sucker? And where is it with what agency? Xerox. Yeah, I think at present, a lot of this is, you know, manual paper processes now, right? I mean, there is an electronic system called Posse that is supposed to track at least certain kinds of permit applications. I'm not really sure how that works. I've seen like one end of it, and I think it's theoretically possible to go look in and find out where your permit's at. In all versions, serial approvals, serial reviews is really back in the 19th century. They have to get out of that. They have to make it parallel. We do have Xerox. We have ways of duplicating things and handing them off to multiple agencies at the same time, and then controlling the flow in those agencies. Yeah, you know, have you thought about the possibility of saying, look, if you're sitting on that thing for more than X days, it's deemed granted. You know, I think they actually have that. They have an ordinance that says that, but they get around it somehow. Bottom line is the bottom line. It takes months for the simplest permit. That's right. It does. And that's a big shame. Now, if there are people within DPP who are profiting from the graft, then obviously they don't want the system to change. So that may be one possibility, that not all of the graft has been rooted out. Yeah, don't forget. It was only six months ago when we had a major scandal in DPP. DPP, the same DPP, the same one that we're talking about, where these guys were taking money and they were investigated and invited. And I don't know what happened after that, because as so much of this kind of graft is concerned, it fell off the radar. Do you know the status? No, I don't. But it's like a cancer, right? I mean, you cut off one tumor and then you don't know where the others are. Yeah, true. And apparently, whatever they're doing to discourage people from the same conduct that may or may not be working, it really requires a house cleaning, don't you think, a reorganization from the ground up of DPP with a whole new approach. And this is actually an expression of something that you and I have talked about before. It's this kind of contention attitude. It's an us and them attitude. Oh, from the public. We don't care much about the public. We have the power. We have the control. We'll do what we want. You have no way to reach us to stop us. We're comfortable in our jobs. Nobody can touch us. And that's pervasive around the state, not only DPP, but so many other agencies, where they can sit back and relax. We're comfortable. You can't touch us. Yeah. And then they start acting like they're positions in entitlement. And they really don't care a whole lot about the consumer. I remember once several years ago. And this is not with DPP. This was with the state real estate commission. I had an application in there for review. And the reviewer called my attorney and said, hey, it's the holiday season. I need to spend more time with my family. Is it okay if I take another couple of months to review this application? And what do you say? I wanted to say, look, if the bank can give me a couple months' break on my construction loan, then maybe I'd consider it. But the bank won't do that. And I really don't want to give you the extra couple of months or so. And I think what we came back with was a kind of a half-baked response. Like, you do what you have to do or something like that, because we really didn't want to piss the guy off. Well, it makes me wonder about my statement earlier where I said, maybe they need more staff. I don't think it's as much a staff issue as a productivity issue. Why does it take so much time to do it? Are they going home at three o'clock in the afternoon? What's happening here? Why can't they be productive? I don't know the full answer, but I would say there's an issue in my mind as to whether additional staff would make it work better or not. If you keep on layering staff into government, everybody has that entitlement feeling. And they're looking forward to a very rich retirement at the behest of the state, including lifetime health benefits and all that. All the union can give them. And it does. And the problem is an attitude thing that comes out of that. If only we could give them a vitality injection and have them actually work hard every day and care about you and your application and your bank. How do we do that, Tom? Is it a political issue? Is it a culture issue? Is it a management issue? Or is it all of those things? Well, I think it's primarily a culture issue. And it's political in the sense that we need some top down leadership to deal with it. We need to, I think, fundamentally look at the attitude toward customer service. I'm sure those people at the agencies don't know or don't care that I have a construction loan outstanding and I need to pay X amount of money for every single day, whether or not I get my permit. It's also your investors. It's not just the loan it's your investors. If they see the project stalled, they're going to say, gee, I'm going to be careful next time I invest in Hawaii. Which takes me to a point you made a minute ago about the bank and all that. So what effect does this have on a macroeconomic basis? If I imagine a veritable sea full of permits all stalled and all these architects, engineers, contractors, investors, and banks all stalled in a state which we recognize is underdeveloped. It's been underdeveloped from statehood and before. Where all these projects seem to get stuck all the time. My question is really a macroeconomic question. What effect does this grand slowdown have? It increases costs. I mean, you have more interest at the banks charging because of the delay. The more time that architects and engineers are spending to follow up with permit applications that are in the queue, that's extra cost. Time is money. Yeah. The other aspect I think is the economy, even at a 50,000 foot level, the other aspect is the economy itself. It just seems to me if you have this kind of slowdown and you have a whole culture of slowdown and you have an underdeveloped state which needs development, needs housing, it needs housing at reasonable prices and other projects. The same thing. It's such an aggravation to go through this process for everything. I suggest to you, I wonder what your opinion is, I suggest to you that this slows down the economy in general and the ability of the state to keep up. I don't know how it is in other states. Maybe they have similar issues, but I have the sense that they move faster on permits. I have the sense if you want to build something or start a business, you can do it much quicker without this kind of slowdown effect. If that's so, that we have a special cachet about slowing down economic activity, we have a slower economy than we should have. This affects everything. A slower economy affects everything. It affects wages. It affects costs, as you said. It affects the prospects of our young people who say, hell with this noise, I can't even build a house. I'm leaving town because I can't get anything done here. What you and I are talking about, Tom, is no secret. There are people out there, business people, homeowners, landowners, everywhere in the food chain, and kids who learn it from their parents and friends. This is a slowball situation and they'd rather go to a place, a city, which is not a slowball situation. That leaves us with the brain drain, another effect. All of this feeds into the slowdown of our economy and the increase in costs and ultimately the price of occupancy. The price of everything else. You have to understand that whenever one part of the economy experiences delays or costs, it spreads to the others. It's like pushing a balloon. You have these inordinate slowdowns in the real estate sector, which probably the city government doesn't mind so much because it drives up values and therefore property tax. That's another show. But it also has secondary effects like people can't buy the stuff at affordable prices. You get a different kind of stratification of the population base that maybe you don't want. Sure. To go to the investment in big projects, if you have a big box store coming out here, they're deep pocket, clearly. They can hire architects, engineers, and expeditors to go get those permits. Everybody in DPP says, oh, wow, this is a national. This is a biggie. This is good for us. Let's hustle on this one. Of course, they're being encouraged by whatever political forces are in play. The big box store gets the permit in record time. But the mom and pop, they don't have that kind of depth. They don't have that kind of money or power or influence. Yeah, that's what happens when you give incentives of whatever nature. The people who get the incentives get benefits and everybody else has to suffer. Yeah. I don't think people take this problem that we've identified here at DPP seriously enough because it has all kinds of secondary effects. This last point about the mom and pops are not being treated democratically. They're being screwed as against the deep pocket guys. It has that effect, but it has all the other effects we talked about, including slowdown of the economy in general. I don't think people realize from a macroeconomic point of view how much toxic there is in slowing down on permits. It's not just, oh, well, we have to be patient and we don't want to rock the boat. We don't want to complain about it. We just let it happen. Here in Hawaii, we let it happen and hope that they like us and they give us a little charity, if you will, by finally after months processing our permit. It's not that simple. It affects all of us. It affects our prices, our economy, our whole state economic structure and social structure. I think people have to understand this and they have to get riled up. I mean, I'm mad as hell and I'm not going to take it anymore. I mean, that's what the state should be saying and doing. Was this a political platform point in the last mayoral election? I don't think so. I mean, it may have been talked about a little bit, but I don't remember it being a major issue. But definitely, there are certain things that we as the electorate can do. We can support Bill 56. We can let our lawmakers know that these reforms on DPP are necessary and warranted and it's not going to compromise health or safety. There's obviously the presence of licensed architects, engineers and contractors that are in the mix already. I mean, we give them licenses for a reason. We should encourage them to push without resorting to a political pressure. Just put it in there and then complain. I suppose individual people who can also put in applications and it doesn't take a professional to put the application in, they should make A. They should get out there and make a stink. They should write letters and go to the newspaper and just keep pushing on this until the culture changes. We all let it happen. Every homeowner has let this happen or has ignored the whole process, which makes for bad law. And every contractor certainly too. So I think it's a matter of rising up, don't you? Oh, yeah. I think people need to let our executive and legislative leaders know that this is a big problem and we got to do something about it. And it's a problem that can't wait. No, it has to change. I think, see if you agree with me, I think we're at an inflection point. I think we've had COVID, a lot of small businesses have gone out of business. A lot of them are teeter-tottering right now. A lot of people have left town. It's not clear exactly how the forms of shape our economy will take going forward. We made the, I would say, the easy choice decision to keep on going with hospitality. We didn't really, during COVID, we really, we in the state, the legislature, the government didn't really focus on other things. We did not incentivize other sectors. So here we are, back again to hospitality. A fragile, a fragile focus for the economy. And if anything happens, you know, globally to stall air traffic, what have you, or for that matter, a global recession, guess who pays? We do, because people won't have the money to come here. So I think we're at an inflection point and we have to get smart about it. Everything we have to, we do have to be clever, smart and forward thinking and visionary about our own identity in the global market and in the tourist market also. But in everything, we have to keep the, keep those kids here and incentivize them. Yeah. I think you have, you have part of it, right? I think we're in a temporary respite, but if we don't act correctly, it's not going to be an inflection point. It's going to be, you know, return to free fall. And that's what we really need to guard against. We, what we want is an inflection point. So, you know, things turn around and keep going in the upward direction. But if we don't do anything, that's not going to happen. Yeah. The government has to recognize that it cannot be same old. This is the time for creative thinking. It's the time to recognize our risks. And I suppose it's, it's, it's like, it's like Singapore, you know, you have to look around you and see how you can not only survive but thrive and how you can get ahead of the madding crowd. And I don't think we're doing that. And it's really time to do that. We'll pay a terrible price. We are paying a terrible price. And so we have to, we have to look at every corner of our economy. And this is one that's obvious. This thing with DPP because it slows everything down. And we have to get on them. And maybe if we do, and we can solve the problem, it will send a message to other parts of, of government and government processing. And to the public in general is we gotta, gotta speed up our economy and we can't tolerate things and slow it down. Absolutely. Well, thank you, Tom. Always great to talk to you. Always comes up. We always come up with ideas that we hadn't thought about before. It's a, it's a free association kind of discussion. I really appreciate that. Tom Yamachika, president of the Tax Foundation of Hawaii, which does much more than tax. Thank you so much, Tom. And thank you for having me on the show. Thank you so much for watching Think Tech Hawaii. If you like what we do, please like us and click the subscribe button on YouTube and the follow button on Vimeo. You can also follow us on Facebook, Instagram and LinkedIn and donate to us at thinktechhawaii.com. Mahalo.