 On the Think Tech Hawaii Broadcast Network, I'm Keeley Eakina, President of the Grassroot Institute. Well, the state legislature in Hawaii for the year 2017 has been convening and is almost concluded. In fact, it will be done and then we'll celebrate on Sanco de Mayo, which of course has other celebrations in mind, but we're going to be celebrating that the legislature can't do anything more until the following year. What have we seen so far? Well, the real winner in this year's legislative session is tax and spend policies. We have obligated the people of Hawaii to ever rising amounts of cost and it's yet to be seen whether we can afford that and for that matter whether those costs will actually result in what we need as the people of Hawaii. Today I'm talking with Grassroot Institute policy analysts who've been watching the legislature very closely. Joe Kent is vice president for research. Each work has been published in the Star Advertiser, the Neighbor Island newspapers and certainly sent out to all of our listeners and viewers. Joe, I want to welcome you to the program. Thanks for being here today. Thanks so much. Thank you. Joe, did you enjoy this legislative session? Yeah. It was, well, scary but fun. We're also going to call in, as well as Joe, Malia Hill. Malia is also on the Grassroot Institute staff as our policy director, but she's calling in from the East Coast, Washington, D.C. area now where she handles a good deal of our work and Malia, aloha to you and I'm sorry that the Skype isn't working as well as it should so we've got you on some other, by some other means, aloha Malia. Well, glad to have you. In fact, even though you are living now on the East Coast and helping us to deal with federal issues through Grassroot Institute and our companion organization, Grassroot Hawaii Action, why don't you tell our audience what you do for us in terms of local policy and your familiarity with it for Hawaii. And that's so very important. We are very committed to developing a Hawaii economy and practice of government that's based upon not politics, but best practices. Well, back to you, Joe. This legislative session actually wasn't all dismal. There were some bright lights for the people of Hawaii, including the fact that we're not going to be pushing our minimum wage up higher and higher. But you're more of an economic theoretician than I am and you understand what happens when minimum wages get pushed up and up. And could you explain to our viewers, because I think a lot of people think that's a good thing. Right. That's a good thing for those at the lowest ends of our economic ladder. That's a good thing for struggling workers and so forth. It sounds sympathetic, but is it? Well, it is sympathetic and it's well-intentioned, but the intentions of the law aren't actually the same as the effect of the law sometimes, and the effect actually hurts those people that it's trying to help. So why is it good that this legislative session wasn't able to boost the minimum wage even higher than it is? Well, what the minimum wage does is it prices low-skilled labor out of the market. So if I'm trying to get a job and I have low skills, then what the minimum wage does is it raises the barrier to entry for me to get a job. So in the long run, it actually hurts me and it prevents me from entering the market. So by keeping the minimum wage lower, it lets me grab onto the job ladder and then I can climb up on my own. And it actually reduces opportunities for employment, both in terms of number of jobs and the compensation to lower wage earners, because it hurts the employer. Exactly. I mean, imagine if you're a restaurant and you have to pay $20 or $15 an hour for somebody just to take the order. That might be just too expensive for you and you might have to close up shop, which is what we saw at the legislature. That's right. We saw all kinds of businesses who were basically pleading to the legislators to say, if this goes through, I have to close shop. In fact, when we would go down there and you would actually testify on behalf of Grassroot Institute, there were restaurateurs who would come up to you and they would tell you how hard this is going to be for them and how much it's ultimately going to result in a loss of jobs in their economy. One person said, how much would you pay for one scoop of ice cream? And he said, it could be $5 or $6 that he would have to charge for a single scoop and who's going to pay that? That's incredible. Repeat the cost of the rising minimum wage as well as what else goes up, costs of employment, insurance, and so forth when the minimum wage goes up. Now back to Malia who has actually been tracking this. Malia, what did the minimum wage proposal start off with? In other words, what's the current minimum wage in Hawaii and what did legislators propose to boost that to? You were talking about best practices earlier and you cited the rich states, poor states, and index recently produced by the American Legislative Exchange Council and what this does is it takes a look at all 50 states and their practices were better or for worse and it shows where we happen to be in a different area. One measure is minimum wage and right now as you mentioned we're ranked 38th out of 50 states near the bottom but if this proposal had gone through we would very likely have been in the 40s closer to the 50 mark in terms of the minimum wage impact upon our economy, is that right? Absolutely, in fact there's a staggering figure that the rich states, poor states index has released and our viewers can see that on our website where we've analyzed that grassrootsinstitute.org and basically the latest rankings for economic outlook. In other words, how good a place is Hawaii to do the business? How good a place is Hawaii to come and work? We now rank near the bottom of all 50 states at 43. That helps us to understand that our minimum wage laws are not a problem in themselves only. They also contribute to economic climate. There are about 15 different variables that are measured in terms of tax rates and other things that give us an economic prospect of being the 43rd in the entire nation. There are 42 other better places to work and invest money and we need to reverse that. Now Joe, there was in this legislature also another victory that we were shouting about in our office of grassroots because there was a bill targeted to you that actually ended up getting defeated and that was the vexatious requester bill. Now that sounds rather ominous, the language. In other words, there was a bill that said there are some citizens and some watchdogs who are vexatious to the government because they come and they ask for public information. Want to tell us about that Bill? Well, some government employees or leaders might call me vexatious because I'm always trying to open the door and trying to get more transparency. So I submit these things called open records requests which basically says, may I look at the books? In other words, you use a formal process that is backed by law, the Freedom of Information Act, that says this is information that I'm entitled to as a citizen that all citizens are entitled to and you simply go to government agencies with your form and say, please sir, would you show us what you owe us? According to the law, all public records are public information and they should be open to the public except for some small exceptions but if that's the case then why is it so difficult to get some of these documents and we find ourselves submitting again and again and again trying to find, sometimes we wait for months to get the information so an agency that maybe doesn't want to deal with someone like me might say, oh, well he's vexatious and this law would have prevented them from getting the documents. So this would have been a real assault upon the freedom of information and the need for the public to be able to hold government accountable, government that is transparent. Now let me play devil's advocate for a moment. I can understand if there are a whole bunch of people like you who spent 24 hours of the day submitting requests that are frivolous that it could really clog up the work of government and that's what opponents to the bill were arguing, that they were dealing with this massive people who were petitioning government with frivolous requests. You looked into that, didn't you? What did you discover? Well, I found that it wasn't really as massive as the government says it was but even if it was that massive it still would be worth it for the transparency that the public would get. But what did you find, especially for institutions like the university and so forth, were they getting all of these requests from people that were holding up government process? They were getting some big requests but most of the request was for good information like financial information that should be open to the public but it wasn't like armies of people trying to do this. It was one or two. Well, how about that? Well, there's one other bill that fortunately didn't pass and I'm going to ask Malia to weigh in a little bit on that. There's no question that our teachers deserve the best pay possible. They work hard, they deserve it and they actually should be the recipients of a system that economically works better than our current system of taking money from taxpayers and using it inefficiently and then trying to have some of that used to pay our teachers. So we have nothing against the compensation of teachers. It's an important thing to do and to do well in order to attract and retain talent to take care of our keiki and the future of Hawaii. But the question that is problematic is how do we fund the increase of salaries for teachers? Malia, tell us about a bill that would have created a constant or the opportunity for a constitutional amendment to tax the people of Hawaii in order to pay for our school system. It would have cost the taxpayers $500 million to have done that. That's exorbitant, isn't it? Absolutely. And so there's no question teachers deserve it but we're creating a precedent that could get away from us. When we come back from a break, we're going to shift off of some of the issues where the public has won to look at some issues where the public needs to watch out because in the next few days of the legislature, if the legislators pass some of what we're going to talk about, we're going to be in deeper kimchi in this state in terms of our budget. I'm Kelea Akina on Think Tech Hawaii's A Hana Kako. We'll be right back after this short break. Don't go away. Hey, everybody. It's Ian, social media manager here at Think Tech Hawaii. Thanks for tuning in. Sorry to break into your show. If you're listening on the podcast, thanks for listening, watching on YouTube, and we appreciate the subscription, et cetera. If you are a long-time listener, a viewer of Think Tech Hawaii, you would know that we are on every day five to six hours a day basically streaming stuff that's happening here in Hawaii that matters to everybody worldwide basically. There's a lot of stuff that we've got going on and we're excited about many of them. 2017 is going to be really cool. But right now, I can tell you that we are on iTunes where you can listen to all of this stuff now. We're really excited about how that's going. And we have just started on the street feature where we take a camera out to the street and stream live to you guys out there and getting what people in the local community out, what they want or are thinking about and sharing that with you. We're really excited about all that stuff. We're really excited about you guys watching and following us on all the social media sort of things, Instagram, Facebook, Twitter, all that good stuff. Look for us. Think Tech HI. Watch us on O'Lello. Thank you so much. Everybody here appreciates it. Hello. Well, welcome back from that break. This is a Hanakako here every week on Mondays on the Think Tech Hawaii Broadcast Network. And if you don't catch us on Monday at 2 PM Hawaii time, you can see us anytime online along with about 35 hours of content that is produced, original content right here from the Think Tech Hawaii studios. And it goes all across the world. It covers everything from technology to politics to the arts to social issues. In fact, I don't think there's an issue that doesn't get reported here, whether it be science or religion or how to cook as well. So you can watch all of this on ThinkTechHawaii.com. At the Grassroot Institute, we love to say Ehana Kako, which is the title of the show. It reflects a venerable old Hawaiian saying a Pule Kako, which is let's pray together. At Grassroot, we say let's work together. Let's everybody work together for a better economy, government, and society. And that's what these two workers at the Grassroot Institute do. Malia Hill has been our policy director for many years. And she keeps track of legislation both at the state and federal level. And Joe Kent is our director of research, responsible for digging in deep on many issues that are of interest and valuable to research for the people and legislators of Hawaii. We're back on again here. And I want to take a look at some of the things we need to be concerned about from this legislative session. First of all, taxes have been proposed, increases for taxes. Many of them have been defeated. But there's one that's looming. I went to sleep on Friday, inside of a little bit of relief knowing that certain tax bills had been defeated and that I woke up. And this weekend, the legislature was busy at work and has come up with a means of coming up with money that they don't have to fund the budget. And that is to tax our tourists more, kind of like taxing the goose that lays the golden eggs. So I'm going to ask Joe to explain what's going on here. What is going to happen to our TAT, our transient accommodation tax, if legislators get their way? Well, it's going to go up big time from 9% up to 12%. And that's a huge cost if you're a hotel. That's a 33% and 1 third percent increase right there. That's right. And this all has to do with rail, by the way. Rail. OK, so here we are in this legislative session, vetting various proposals that have come from the city council, mayor Caldwell, and supportive legislators, to fund the rail, which has gone from approximately 3 billion up to 10 billion plus, in order to meet the deadline of being able to qualify for more federal funding. And then, from left field, all of a sudden, we've got a tax on our tourist industry. That's right. Explain that. Well, it started off as a general excise tax, which is kind of like a really bad version of a sales tax. And all year, we've been seeing this tax go through and eventually it derailed. But it reemerged in the form of this transient accommodation tax. Now, the argument they use is that, oh, well, tourists pay for the taxes, and locals don't pay for that. But locals do pay for that in many ways. Right, who's going to be paying the TAT? Well, it's going to be, obviously, hotels and tourists that stay at hotels. But locals work at those hotels, and they depend on the amount of economic activity generated at those hotels. So when they calculate that this is going to raise about $2 billion, they're not calculating that the economy might go down in Hawaii, and that might actually lessen the amount that the tax takes in. So in the long run, locals pay big time. Well, this is part of a good number of taxes that have been on the docket or tax increases that we call Robinhood taxes. There seems to be a philosophy that the rich are so rich that we can steal from them in order to give to the poor, and that will fix our economic woes, and that will somehow do some kind of justice. Malia, as we look at this type of taxation, rich people paying for their fair share, so to speak, as it's billed, it sounds so good in many ways, but what's wrong with it? I can understand how one might feel a certain vicarious sense of justice in a Robinhood tax, but putting that aside in whatever satisfaction that might give doesn't really work. In other words, do these kinds of taxes actually end up helping those at the lower end of the economic stratum? Do they help them in terms of the wages they get, in terms of the job opportunities they get, and so forth? Or do they actually work against them because of their impact upon business productivity? So we still have to watch for this kind of taxation in the next few days. And Joe, you've done great work along with your team at the Grassroot Institute in terms of analyzing the state's proposed budget as it has evolved. Grassroot Institute has published budget analyses of the governor's proposed budgets, and those are available at the Grassroot Institute website. But one of the things that you've released is that the state in this legislative session is committing to overspending by at least $364 million, and that's just to get started. And tell us a little bit about the condition of the budget. Well, it's unbalanced. And technically, you could say that it is balanced because they're using their emergency funds to pay for it. But look, we should all ask the question, should we be using emergency funds to pay for a budget in supposedly a surplus kind of a year? This is when the times are good. Everyone says the economy is booming, and maybe a crash might be in the future. But why are we using emergency funds today to pay for more spending? Now, legislators often say, we're cutting the budget. We're cutting to the bone. But actually, these aren't cuts. These are huge increases. And actually, the budget is increasing by over $1 billion next year. So again, should we use emergency funds to pay for a growth in government spending? This is a nightmare scenario in the future, and it could cause a huge fiscal crisis in the future if we don't pay for this. Well, this leads us to something that Grassroot Institute has been very much involved in making people aware about and now calling for solutions. And that is the unfunded liabilities that we have. And these are things that our state owes its people, particularly government workers, in terms of their pensions, as well as their health care policies. And currently, in terms of pensions, isn't it the case that going into this legislative session, we owe $23 billion? In other words, those who are retiring don't have that money in there for their retirement. Their grandchildren and great-grandchildren are going to be paying the credit card bills of the state in order to fund their unfunded liabilities for the pension. Exactly. Imagine if you were going to sign up for a pension and you knew that the pension fund was missing half the money. Well, that's what the Hawaii state government is. Our pension fund is missing half the money, and that's what our state retirees have to depend on in the future. Now, that missing money totals about $23 billion. And now that we've got a lot of pay raises for union employees, that's going to rise even further. So this is a lot of money. And I'm not even talking about the $300 million that the budget is unbalanced by. This is peanuts compared to that. What we have done at the Grassroot Institute is really sit around and rack our brains and look for the best thinking across the nation in how to solve the unfunded liability problem. It's one thing to point out the problem, but it's another thing to find the solution. And I know you have scoured the nation and examined states that have actually made significant headway. What is it that states are doing in order to move out of a losing situation with their state pension programs into one that is sustainable? Well, a lot of states are moving from a defined benefit plan to other types of plan. Now, I should define some terms. Defined benefit basically. And we'll have to wrap up quickly. It basically means the Cadillac of pension plans. It's a really nice pension plan, but the problem is it's very expensive. So they're trying to change that calculation to maybe have plans that maybe aren't so luxurious. But there are ways to do it. And that's why I want to thank Malia Hill, all the way there in Washington, DC, for keeping us abreast of what the best thinking is across the nation. Thank you, Malia, for being with us today. And thank you, Joe, for working from Hawaii on the same issues to help us have a better economy and a better government. Appreciate that much. My guests today have been some of the policy staff of the Grassroot Institute. Grassroot Institute is an independent, free-market think tank that looks for solutions to Hawaii's problems in the area of the economy, government, and society. And you're welcome to visit our website at www.grassrootinstitute.org to get a rich library of research that has been done here and only here in Hawaii about Hawaii. I'm Kelea Akina, president of Grassroot Institute. You're watching a Hanukako on the Think Tech Hawaii Broadcast Network. Until next week, aloha.