 to resist, to re-resist, yes, we're resisting state overreach. And we're talking to Tom Yamachika on Talking Tax with Tom here on a given Thursday at the 10 a.m. block. Good morning, Tom. Morning, Jay. Glad to be here. It's a very bad fly of you, very bad fly of you to suggest that anyone should resist the state when it overreaches. I guess there's a number of questions here. The first one is, really, is the state overreaching? Can you talk about that? Well, there are a lot of things, I think, where what the state does in practice and what the law says are a little bit different. And sometimes even the laws are a little bit unreasonable, as we found out a few years ago. When we attacked the stop the skim, there was the... I remember the window lingo wanted to get an override on state gross exercise tax, and she took 10% out of it, which was way more than actual state expenses before she gave the balance to the counties, wasn't that it? That's right, but I think it might have been even before governor lingo because I know this was a thing that was negotiated if such is what actually happened between legislative leaders and Mufi Hanuman, who is at that time mayor of Honolulu. But the problem then was that the law that created the county surcharge on GE tax said that the state would keep 10%. And as you mentioned, 10% of the county surcharge went up to be like 25 million a year, which is far, far more than the cost of enforcing it, even at the state level. I mean, you take a look at the Department of Taxation, which was in charge of enforcing it. 25 million was about the size of its entire budget, top to bottom. Yeah, and that was in the newspaper, but it has happened anyway. Nobody was able to stop it. You say you resisted it, how successful were you? Well, we sued. We were hoping that the city and county whose ox was being gored would put up a fuss because 25 million was a lot of money to be taken out of this revenue stream that they would need for building rail unless they thought they were going to get a glut of money, which it turned out it didn't because they had to keep raising and raising and extending the tax. They needed the money. 4.67 billion, 4.67 billion, it sticks in my head like a tattoo. That was going to be the entire cost of rail, 4.67 billion. Ah, where are we now? No, we're close, but what happened there was we the tax foundation filed suit that was in I think the end of 2015. We went into court and the state was kind of sneering at us saying, well, who are you Pipsqueak? So I mean, you don't have any standing to sue on this thing. This is a matter between the state and the county. And who the heck are you? You know, Mr. Small Pipsqueak, maybe not even a taxpayer to get involved. You're a non-profit. Do you pay taxes? We said, yes we do. And that gives us standing. And ultimately, this went all the way up to the Hawaii Supreme Court. They decided that we did have standing, but they found the merits in the state's favor. So we lost the suit. What was the rule of law they enunciated? Well, they said, you know, how are we to know whether that 10% was not an unreasonable estimate of cost at the time it was enacted? We don't know. So we give the legislature the benefit of the doubt. Everybody in the state knew it was way too much. Everybody, I think my puppy knew. I'm sure your puppy knew. But your puppy should have been on the Supreme Court. That would have been at least one vote the other way. Now you're talking. Yeah. But anyway, give us more, go ahead. But the silver lining for this is, because of the surrounding publicity, legislators were feeling the heat because they're constituents were telling them, yeah, this 10% is way too much. So in 2017, they enacted a law that said, okay, we won't take 10%, we'll take 1%. So decreased by one order of magnitude. And it was okay with that. And that's what the law is today. So Chuck went up for the taxpayers, not that perhaps the win that people were thinking about when the lawsuit started, but still a win. That reminds me of a case I had one time regarding an assessment of downtown office building. And the state, according to my appraiser, was like $200 million beyond who value. That's no way out of the way. So we were in the chambers of the judge who was trying to settle this case. And I said, $200 million over. And the state said, okay, okay, okay. We'll drop it down by 150 million. And I said, why did you assess it at 200 million if you would fall over on 150 million in the first settlement congress? Why is that? Do you think the 200 million might have been inflated? Just slightly, huh? But my point in all of this was to say, there should be people other than just us watching government, especially the ones that get hurt. Like in this real skim situation, like the state said, yeah, the people who got hurt the most were the city. So why didn't they kind of step in and do something? It's not a rhetorical question. What is the answer to that question? They can do something if they want to. Do you remember a few years ago when we were considering a ballot measure that would have increased the real property tax or and given control of it back to the state? The city in Kanya Honolulu was the primary party opposing this when they sued in court. Then the other counties kind of like hopped on their coattails, but they sued in court and they were the ones that successfully invalidated the ballot measure. So they can do stuff if they want. Well, they have a big stick. They're directly involved. They're a government agency. You know, what makes the state so significantly more powerful than the county? County has a big stick. That's right. And I think they should be using it more often, especially when the state overreaches. One specific instance, other than real, that I had been complaining about was their position on the transient accommodations tax. Now, as you remember, the shut off of the transient accommodations tax going to the counties didn't start with House Relate 62. It started in March of 2020. I think it was March, could have been May, when the governor just kind of shut off the spigot by executive order. And he said, using my emergency powers, I'm gonna shut off this transient accommodations tax to the counties and any of the other earmarks that it's going to. So we're gonna keep all the money in the general fund. And at that time, you know, we were kind of wondering out loud, okay. Now, what emergency power allows you to do this? And we were kind of thinking, okay, how does this dovetail with emergency functions? It's just a money grab. And I thought and I published a piece saying that it was just a money grab and it should be challenged. But did the city and county challenge it? No. Did any other county? They have a corporation council with dozens of lawyers there. It's not like they didn't have a lawyer handy. That's right. To file papers in that case. Dozens of lawyers, dozens, all of whom are paid at market or better. That's right. And it affected the other counties too. And they have departments of corporation council in all of the other counties too. So it's not just Honolulu. There's Maui and Kauai and the Big Island. So why didn't any of them do anything about it? That's my question. You say it's rhetorical, but what is the real reason? Let's advance this conversation into the real reason. I think they were afraid. I think they were afraid that the next time the legislature meets, they would do something to squish the counties flattered in a pancake. The power of the purse. Not only the purse, there are other things that they could do as well. They can make life difficult for the counties as they did with House Bill 862. I mean, let's kind of remind ourselves of what House Bill 862 does. Okay, yeah, it shuts off the transient accommodations tax load of the counties. That's, what, 150 million? It, and what does it replace with? It replaces with a grant of authority. So the counties have to go past their own ordinance to impose a up to a 3% surcharge on the county, on the TAT, okay? But how do they do this in practical terms? How are they gonna enforce it? Do they get to ride upon the coattails of the state like they do for the GET? No. Matter of fact, what I had heard was the counties and the Department of Taxation were negotiating a memorandum of understanding which would have let them do that. They're the same as for the general excise tax in properly in return for getting a cut of some kind. And then the attorney general's office stepped in and put the kibosh on it saying, well, this statute doesn't authorize it. So you can't do that. So each county now has to hire new people, make their own new forms, put their own processes, procedures, enforcement, et cetera in place to collect this transient accommodations tax, which they didn't have before. The economy's the scale that'll reply down. That's right. It's totally upside down. Well, I wanna add a story to my own. Sure. In the practice, I told you about this before the show. We represented a landlord who entered into the long-term lease with the state. The state was a very hard negotiator, by the way. They require all kinds of improvements and expenditures by the landlord at the beginning of the lease. You know, improve the space for the state. And it wasn't a year into the lease when the state wrote a one-liner saying, we're leaving, we're leaving the space. We're breaking the lease. And the landlord was hoping for a cash flow for some time. This was, you know, otherwise, I guess to have the state know, you're not gonna have a default on your hands, but instead you had a cancellation on your hands. And the lease was an escape provision that probably still exists in all state leases today. Yeah, and federal ones also. I mean, it's a clause called termination for convenience of the government. Yeah, it was something like that. Convenience of the government. If some administrator determines that it's in the best interest of the state to walk away from this lease and leave the landlord hanging, you know. The implication was that the state didn't need the space anymore. I think that's the way it was conveyed. The state didn't need the space anymore. Well, a few months later, the landlord found that the state had taken exactly the same amount of square footage in a building down the block and got a better deal. So what happened is the state found they could get a better deal down the block. And they said to the landlord, take a hike, you could eat the start of expenses you put in and we're walking on the lease. That had been a private citizen, a private company that would have been a big lawsuit. But the state felt that they could screw this landlord without so much as a fairly well. Now you can say it falls within the bounds of this provision about the convenience of the government or whatever. But in fact, it was very, very unfair. And I tell you, and it was tremendous loss to the landlord and it was not acting like a civilized player in the community at all. So I'm just, I'm hanging that one out there and I wanna tell you one more thing that I learned in the course of practice and that is this. If you were involved in disputes of some kind, not necessarily involving the state and you wanted state records under the Freedom of Information Act, it was the statute that laid out, the federal FOIA statute laid out how you get them. You write a letter and have so much time and then have to give it to you and you pay the copy and cost, whatever, it's a system. And we used to do that in the practice we would ask for these records, but the state would never provide them. I don't mean sometimes. I mean, never. And finally, I had a conversation with some guy and I said, well, why? Why is that you never actually comply with the statute? Why do you always make us through you in court? And he said, well, we don't think the statute goes far enough to protect us. We're the state. And so we wanna see an order from a judge. We wanna take you through a contested proceeding in front of a judge, get the lawyers to write papers and make arguments about how you're entitled to these records. And only then are we gonna give them to you, not on the basis of the Freedom of Information Act. I said, that is really awful. Not only was it awful in any one single specific case, but it was a matter of policy, it was worse. And that's what the state was doing. Now, I don't know if they're still doing that, but that's what they were doing then. And I mean, what happened in the beginning of the pandemic was that same law that you're talking about, swish. It was eliminated with the stroke of a pen that was part of the same emergency proclamation. Chapter 92 F is gone. Our organization and a number of others that advocate for transparency in government, we had a talk with the attorney general or at least our spokesperson did, and we got them to roll that back a little bit. But under the elimination of chapter 92 F, the state didn't really even, they didn't even have to respond to a request for records. They could just throw it at the trash. Well, that's what happened. And in my experience, that's what happened. You didn't get a letter saying too bad for you. You got nothing. And when you asked them, ostensibly a friendly conversation with the attorney general, that's when you found out that they blew this all up completely as if you had no right at all. So you got other examples of overreach because I really wanna get to the core of why this is happening, how it started as a culture point in Hawaii. Well, I do agree with you that it is a culture point in Hawaii. And I think that's the cause of the problem. We have this culture of, ah, let's get along, you know, we don't wanna fight and we don't wanna cause trouble. And by the way, if we do, there will be retaliation. There will be consequences. I mean, we found that out, the foundation found that out. Because we had somebody talk to lawmakers after we filed our rail suit. And, you know, the particular consultant we had was interested in seeing whether, you know, because we perform a public service, we could get a grant in aid or similar funding from the state. And the response we got back from a very highly placed legislator, you know, who was at that time a vice chair of one of the money committees, okay, was, look, these bozos sued the state, they're not getting a penny. End of story. I have one for you along the same lines. My neighborhood was very concerned about the circumstances of the subdivision approval. They thought it was improperly granted, PPP. And so they sued the city for that. At the same time, another person in my neighborhood went to the city council through Rod Tam, as I recall, who he's gone now, and tried to get a bill introduced that would resolve this. And the answer from the city, that request was remarkable. And this came from the corporation council. Since people in your neighborhood, not necessarily the same people, by the way, since people in your neighborhood filed a suit against the city about this particular subdivision application, we are not going to entertain any bill from anybody in your neighborhood about that subject. You have disqualified yourself by filing a suit. It had not been resolved, it was just pending. But the whole neighborhood was disqualified from taking their right to submit legislation bill to the city council. Everybody was disqualified. I find that was something out of the year, 1215. Quite remarkable, and what are you going to do? You're going to sue them again. It's exactly, it's the civil rights issue, but worse than that, it's a misunderstanding, misunderstands a broad word in this context of the way our system of government works. But then you have it, it's the same thing, Tom. Well, let me react to that. Okay, whatever happened to land of the free and home of the brave? Battles are fought all the time to keep freedom alive. The battles of today, you're not using muskets and sabers. Some of those are in the courtroom, they're reserved in the court of public opinion. I win sometimes when I hear about the activities of some of the activist groups, but at least I got to give them credit for getting off their duffs and doing something. We need gladiators. We need people who are willing to step into the ring, whatever form it is, and make the case for, let's be a government of laws and not of men. Let's not carry forth these petty grievances that really don't have anything to do with anything. But we're all in this to keep our society alive and vibrant. Now, not all of us were meant to be gladiators. I understand that. And some of those can't stand the possibility of consequences. Yeah, not everybody wants to shed blood, but there are other ways to show bravery. You can complain about government oppression or overreach to a legislator. You can come to an organization like us or somebody else who does gladiator work, there are plenty of them. Tell them you appreciate them or maybe even send a few bucks their way. But the worst thing that you can do, I think, is just to do nothing and let yourself be stomped on because that's what's going to happen. Now, let's... Why do people in government want this to happen? And by the way, I think we have to distinguish, there are three branches of government. And in fact, I would divide the executive branch up into the governor and the various departments under the governor. And where is the fault here? Or is it everywhere? I mean, you have the courts, let's put them aside for now. They're not really directly relevant to this, although maybe they should be. You have the administration, you have all those departments, you have the legislature, you have the county councils. Where is the fault? Well, I think primarily you need to look at the legislative, not legislative, the executive departments and not the people who are on top, people who are in the middle, because a lot of times they have processes, procedures, understandings and so forth that nobody knows about. Only they know about it. Like this city council, oh, we're going to ban everybody in your neighborhood from coming up to the city and doing anything. That's not written down anywhere, but it's an understanding among people and probably middle management. And they survive when administrations change. They're the civil service people. They're gonna stay, even if the department head or the deputy director of wherever it is changes. The civil service people are still there. And they come up with these understandings and ideas and processes and procedures. Whether they are consistent with the law and the books, they don't care because- Well, I'd like to offer this to your comment. And that is, it seems to me that it's an us and them mentality. In my time here in Hawaii, it's always been effectively that. It's the government and the consumer, the little guy. And the government always has the heavier hand. And it's okay if the government sees itself as a bunch of consumers and the consumers see themselves as a bunch of potential government. But it doesn't work that way. Somewhere along the line, it got to be us and them. The government is trying to maintain distance from the consumers, keep them at bay. And the consumers are all who, who at the government. And they treat them either with disrespect or with what do you want to call it? Genuflecting total, complete, over-respect, in order to get what they want. And I think about why this has happened. This is dynamic, I can't say it was always like this. It just became more and more like this. And in order to try to understand it, I want to tell you one last story. I'm in a meeting in the governor's office. This is governors ago. And we were seeking some kind of thing on behalf of our client and we lined up a bunch of department people and they were all pretty much game with it. And the chief of staff of the government, of the governor was there. And it all seemed like it was gonna work. And then somebody said, but you know that one of these activist organizations is opposing this. And if you do this, that activist organization is gonna make a sting. And at that point, the guy running the meeting said, oh, oh no, we can't, we can't deal with that. We can't have that. We have to fade on this. We can't do the deal because some activist organization is going to oppose it. I said to myself, wait a minute, you know, it's just the specter, the possibility of opposition by an activist organization gonna quash this whole discussion. You know, it's like 10 people involved in the meeting and it was fine until he said that, somebody said that. So what I conclude out of this is that somewhere along the line, so many people making such demands and a lot of them are activist demands that the government has got skittish, that the government has started to think, did start to think of it's us and them. We have to be so careful because we could be criticized. If we could be criticized, everything is a matter of shaping the public relations and avoiding any accountability. Just, I think if there were more activist organizations including the ones that advocate for good government and whatever, the dynamic would be changed to, okay, whatever we decide somebody is going to criticize it, but that's okay, we have to do the right thing. I don't think we have that. That's where we need to get to, I think. We have a CYA kind of mentality, CYA and us and them. And that leads to, now a bad solution process and it also leads to a lack of interest and caring about what's good for the state, good public policy because it's all about covering your own old calling. And I think that's what's happened in my career, my observation of this. And I don't know how you fix that. You can say, well, we want more organizations to step up and demand good government and it's a countervailing power, isn't it? So the ones that demand me only, right? My silo ahead of your silo, we have to have countervailing organizations that argue with that. I don't think we do. Yeah, so we need, I think, more of the gladiators. We need more of the countervailing forces so that the so-called fringe forces won't exercise untoward power that they shouldn't have in the first place. And of course, you were going to talk about leadership in this context. Leadership factors in quite well, of course. It's easier to stick to a position when there is a clear vision behind it that's integrated with other things that the Department of the whole state is doing. If you have that kind of leadership, it's tougher to rock the boat or have the boat rocked. If you have a ship that's sailing to point B and you don't really know how it's gonna get to point B but you're kind of going that way in a general direction. Well, then if the waves slap you around a little bit, you're not gonna go there straight. Right? But if you have a clear plan and a direction, the ship can always return to that. And if you follow the rule of law. And you need to follow the rule of law. And you're gonna be able to. That's what our nation was founded upon. People shed blood for this. Okay? We need to kind of go back to how that laid out. And of course, this whole discussion is with due regard for what's happening on the mainland. But, you know, we're focusing today on Hawaii and we'll continue to do that in the future. I sure appreciate your thoughts on this comment and the role you play in all of this process. And of course, I appreciate you coming on the show to discuss it. Thank you so much. Tom Yamachika, President and Tax Foundation of Hawaii.