STAND. COM. REP. NO. 71-00

                                 Honolulu, Hawaii
                                                   , 2000

                                 RE: H.B. No. 839
                                     H.D. 1




Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twentieth State Legislature
Regular Session of 2000
State of Hawaii

Sir:

     Your Committee on Energy and Environmental Protection, to
which was referred H.B. No. 839 entitled: 

     "A BILL FOR AN ACT RELATING TO THE GENERAL EXCISE TAXATION
     OF WASTEWATER LEASING,"

begs leave to report as follows:

     The purpose of this bill is to exempt from the general
excise tax requirements all amounts received by certain
wastewater treatment operators when the treated wastewater is
used by the county.

     This bill will benefit U.S. Filter Operating Services, Inc.,
which was awarded a bid from the City and County of Honolulu
(City) to recycle secondary treated wastewater produced by the
City's wastewater treatment plant in Honouliuli.  The genesis of
this project is a federal consent decree pursuant to a lawsuit
brought against the City by the U.S. Environmental Protection
Agency.

     U.S. Filter's water reclamation facility will prevent
approximately 10-13 million gallons per day (mgd) of secondary
treated wastewater from being discharged into ocean waters
through an outfall.  Instead, the recycled or reclaimed water
will be used as follows:

     (1)  Approximately five mgd will be sold to industrial
          facilities at Campbell Industrial Park;


 
 
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     (2)  Six mgd will be used by the City; and

     (3)  The remaining balance will be sold for irrigation.

     Three organizations submitted testimony at both hearings
held on this measure in 1999 and 2000:

     (1)  U.S. Filter supported this bill;

     (2)  The Department of Taxation opposed this measure; and

     (3)  The Tax Foundation of Hawaii offered comments.

During the most recent hearing, the City Department of
Environmental Services also supported this measure.

     Your Committee finds that the cost effectiveness of this
project would be enhanced if the revenues derived by the
contractor from sales to the City is exempted from the general
excise tax.  U.S. Filter estimates that the tax burden is
approximately $100,000.

     While this measure will benefit U.S. Filter, it also sets a
precedent that raises questions about whether preferential
treatment is being provided to a single vendor.  Accordingly, the
Committee on Finance is encouraged to carefully review this
concern.

     Your Committee has amended this bill by making technical
revisions to conform the language to Chapter 340B, Hawaii Revised
Statutes, relating to wastewater treatment personnel.

     As affirmed by the record of votes of the members of your
Committee on Energy and Environmental Protection that is attached
to this report, your Committee is in accord with the intent and
purpose of H.B. No. 839, as amended herein, and recommends that
it pass Second Reading in the form attached hereto as H.B. No.
839, H.D. 1, and be referred to the Committee on Finance.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Energy and
                                   Environmental Protection,



                                   ______________________________
                                   HERMINA M. MORITA, Chair