2002 SESSION IS A VICTORY FOR CONSUMERS, ELECTORATE

Working late into the night, the House of Representatives today gave final approval to dozens of measures including a balanced State budget, economic stimulation, consumer protection, ensuring a basic social safety net, and reform of Hawaii's campaign financing laws.

Despite a starting handicap in the form of a $315 million revenue shortfall, lawmakers approved a State budget balanced through a combination of spending cuts, using excess monies in a variety of non-general funds, and moderate increases in selected fees and taxes, said House Majority Leader Marcus Oshiro.

Oshiro said the big winners this session include:

• Consumers, mainly through proposed regulatory oversight of gasoline prices and health insurance rates and an innovative program to reduce costs for prescription drugs.
• Voters, through historic reforms of Hawaii's campaign financing laws and a requirement for automatic recounts in all close races.
• The economy, via stimulation of business activity with broad construction tax credits, improved cash flows through reduced income tax prepayments, and the retention of previously approved tax cuts.
• The environment, with the enactment of a bottle bill and appropriations to maintain State parks and important natural attractions.
• And education, despite the failure of a measure that would have abolished the Statewide Board of Education and reformed the public school system.

Oshiro said he agreed with Gov. Ben Cayetano's published assessment that the bills approved today represent the most positive reform package for Hawaii in recent years.

"I'm really proud of the performance of House members throughout this ordeal," Oshiro said. "Not all the bills passed in the form we had hoped, but we accept it as a natural outcome of our bicameral legislative process."

The key piece of the session was formulating a balanced budget in the face of a $315 million revenue shortfall resulting from the September 11 terrorist attacks. Lawmakers were forced to substantially cut the State's biennium budget, deny most new supplemental year funding requests, and employ alternative sources of funding to help the State weather this temporary condition.

"The economic impact of September 11 was devastating," said Rep. Dwight Takamine, chair, Finance Committee. "It compromised our ability to deliver the services we promised when we passed the current two-year budget back in 2000. We had to make cuts that I know will result in the reduction of many popular and relied upon services, but we did our level best to maintain the basic social safety net -- food and shelter -- for those in need."

Lawmakers agreed to several controversial methods to balance the budget, including the use $140 million from a variety of non-general funds, $29 million in earned interest from the Hurricane Relief Trust Fund, $10 million from the Rainy Day Fund, and a moderate increase in selected fees and taxes, such as raising taxes on cigarettes by a penny per cigarette initially.

Takamine said, "House Bill 1800 cuts spending dramatically and in many cases, painfully." But he said it does not compromise past legislation that cuts taxes and promotes government efficiency. "And we need not, in fact we must not, abandon our long term commitment to structural reform and economic diversification."

H.B. 1800 cuts spending by $83 million in fiscal year 2002-03. It also eliminates 287 general fund positions in State government.

To further downsize government, the Legislature abolished all deputy and assistant to the director positions in all State departments, except for the University of Hawaii and the Department of Education (H.B. 2821).

Takamine added that the financial plan comprising H.B. 1800 and other measures will help the State overcome the temporary economic slump and give other measures aimed at downsizing government a chance to develop. He specifically cited H.B. 2840 which would establish the Core Government Functions Advisory Commission to undertake the difficult job of classifying State services and programs into "core" and "non-core" functions.

Takamine said the Legislature armed with that information, would be able to engage in long-term planning to "streamline government services and redistribute resources in a manner that makes good sense and good policy. This is the opposite of the slash-and-burn approach to reduce government that sometimes finds it way into this chamber."

To underscore the Legislature's seriousness regarding government efficiency, another bill, H.B. 1821, directs the State Auditor to perform financial audits of State agencies, displacing the Department of Accounting & General Services.

"So even as the State Council on Revenues projects that Hawaii's economic growth rate will return to pre-September 11 levels in a year, the Legislature is moving now to enhance the benefit of that improvement by imposing efficiency and downsizing," Takamine said.

Hawaii's consumers stand to reap the benefits of legislation to curtail the nation's highest gasoline prices, force health insurance rate-making into the sunlight and reduce the high cost of prescription drugs for Hawaii residents.

Under Senate Bill 2179, the Public Utilities Commission would establish caps on gasoline prices. The House and Senate approved a floor amendment to delay the effective date of the measure by one more year to give all parties a chance to thoroughly evaluate the impacts of the bill. The bill will come up for final approval on Thursday.

"In a truly competitive marketplace, this action would not be necessary," said Rep. Ken Hiraki, chair, Consumer Protection & Commerce Committee. "But the oil companies that have reaped excessive profits at the expense of Hawaii's consumers all these years only have themselves to blame."

Another virtual monopoly in Hawaii is health insurance, with two providers controlling about 100 percent of the market. H.B. 1761 requires health insurers to submit rate filings for approval to the State Insurance Commissioner, including justification as to why such rates would not be excessive, inadequate or unfairly discriminatory.

"This would be no different than other types of insurance that is currently regulated," Hiraki said. "There is ample competition in the property, auto, and life insurance markets, and many of those companies enjoy healthy profits under a regulatory environment.

"Health insurers perhaps are afraid that once other companies realize that Hawaii may be a lucrative market, they might have to actually compete for business."

Another major piece of consumer legislation adopted was H.B. 2834, which establishes the Hawaii Rx Program to bring down the cost of prescription drugs. Using the State's ability to negotiate bulk purchases, Hawaii Rx would obtain manufacturer's rebates on drugs and make them available to all Hawaii residents who join the program.

Lawmakers envision the primary beneficiaries of Hawaii Rx to be residents who do not have prescription drug coverage.

The bill's author, Rep. Roy Takumi, said, "The U.S. Court of Appeals, First Circuit, has further found that the Maine Rx program does not violate the Supremacy of Commerce clauses of the U.S. Constitution."

While economic diversification initiatives such as high tech continue to mature, lawmakers opted to use its limited resources on mature industries like tourism and construction to generate immediate revenues and to uphold previous actions to cut personal and business taxes. These actions included:

• S.B. 2350 preserves the ability of the Tourism Special Fund and the Hawaii Tourism Authority to aggressively market Hawaii and provides for an increased share of the transient accommodations tax in the years beyond 2003.
• H.B. 2451, unifying the State's tourism efforts by placing the Hawaii Convention Center under the Hawaii Tourism Authority.
• S.B. 2907, authorizing a $75 million tax credit for the construction of a world-class aquarium and marine science and mammal research facility at Ko Olina Resort in west Oahu.
• S.B. 2831, extending the 4 percent non-refundable residential construction and remodeling income tax credit.
• S.B. 2383, establishing a non-refundable tax credit of 4 percent for qualified, non-residential construction.
• H.B. 1996, improving cash flow to individuals and businesses that pre-pay estimated income taxes by lowering the requirement prepayment amount.
• H.B. 2453, helping small businesses by more frequently adjusting the loan interest rates of the Hawaii Capital Loan Program (monthly instead of semi-annually).

"Just as crucial to economic stimulation is that we did no harm to actions already in place," said House Vice Speaker Sylvia Luke. "We did nothing to compromise the $759 million personal income tax reduction approved several years ago, the final phase which commenced this year. We did not touch the phasing down of the general excise tax on intermediary business services, also known as de-pyramiding.

"I hope people realize that deferring these tax cuts was an option to balance the budget, but Democratic leaders in the House removed them from consideration. We are convinced that these prior actions kept more money in the State economy that helped mitigate, to some degree, the impact of September 11," she said.

Takamine added that other prior actions by the Legislature, such as high tech omnibus measure, have laid the foundation for a fruitful and diversified economy.

"Though these initiatives are already showing great promise, they do not yet have the capacity to provide us with the help we need now. That is why we focused on two proven industries -- tourism and construction -- to give us immediate economic impetus," he said.

Perhaps the most disappointing aspect of the 2002 Session was the failure to reform public education, according to Rep. Ken Ito, chair, Education Committee. The bipartisan House effort sought a constitutional amendment to ask voters whether the State Board of Education should be abolished and replaced with a number of more localized school boards. Ito said even though that centerpiece of the House's education package failed to win Senate approval, education will be well served by several other measures.

• S.B. 2662, already signed into law as Act 2, permits the Department of Education to enter into contracts with non-profit organizations to operate New Century Conversion Charter Schools. The first such school is expected to be operated by a non-profit supported by Kamehameha Schools.
• H.B. 2164 strengthens support of public school teachers by improving the Hawaii Educator Loan Program to help teachers defray the cost of their education.
• H.B. 2353 requires the DOE to increase testing of students in compliance with the federal No Child Left Behind Act of 2001.
• S.B. 2068 encourages public-private partnerships to repair and maintain public school facilities by indemnifying private service providers who contract with Helping Hands Hawaii through the Hawaii 3R's Program.
• H.B. 2848, H.B. 2166, proposes a constitutional amendment to permit the use of Special Purpose Revenue Bonds to help finance construction projects for non-profit, private educational institutions.
• H.B. 1800 (State Budget), increases funding for the repair and maintenance of public schools and the University of Hawaii.

After years of unsuccessful attempts by House Democrats, the Legislature this year agreed to major reform of Hawaii's campaign financing laws to lessen the corruptive influence of big money. The session is already being hailed as one of the most productive political reform sessions in recent memory. Key measures to improve public confidence in government include:

• S.B. 2431 prohibits banks, labor unions, corporations and government contractors from making campaign contributions. Makes it a class C felony for anyone who knowingly falsifies campaign reports.
• H.B. 771 would disqualify an elected official from continuing in office upon conviction of a felony offense rather than at the time of sentencing.
• H.B. 2843 provides for an automatic recount when there is a small vote difference between the leading candidates.

"This is a strong message that we are serious about campaign finance reforms," said Rep. Eric Hamakawa, chair, Judiciary & Hawaiian Affairs Committee. "Government will never realize its full potential as long as it fails to win full public confidence and trust. These are major reforms finally to reduce or remove the corrosive influence of big money in political campaigns and disallow wrongdoers from continuing to benefit at public expense. We are taking another big step by making sure that our elections are fair and accurate, and guaranteeing every voter that his or her vote counts."

Another big winner in the 2002 Session was the environment. A landmark beverage container bill to reduce solid waste was approved, along with additional appropriations to maintain State parks and protect Hawaii's natural environment and areas frequented by visitors.

• H.B. 1256 establishes Hawaii's first "bottle bill," a refundable deposit program on beverage containers that will encourage recycling. Hawaii joins 10 other U.S. states with some form of bottle bill legislation.

"This law will become effective in two years, giving the public and other participants ample time to prepare and iron out any potential kinks," said Rep. Hermina Morita, chair, Energy & Environmental Protection Committee and the House's lead conference negotiator. "The most important objective of this bill is to encourage a culture of recycling in Hawaii and reducing the pressure on our landfills."

A measure to appropriate $1 million out of the Tourism Special Fund for improving and maintaining State parks was approved, as well as an additional appropriation to preserve Hawaii's natural environment and improve other areas frequented by visitors, such as hiking trails, Morita said.

Oshiro there are several measures outstanding that will be taken up on Thursday, the final day of the 2002 Legislative Session.

#####