UPDATED 4/28/11 9:22 a.m.

Time is running out in the Hawaii legislative session and lawmakers have reached a stalemate over the budget.

Sources in both the state House and Senate tell Civil Beat that the stalemate is due to House Speaker Calvin Say’s demand that the Senate accept the House version of bills that tax pension income and time shares.

Specifically, Say is said to want to lower the income threshold for the pension tax to bring in more revenue, closer to the levels initially proposed by the governor when he introduced the controversial idea at the start of the session.

UPDATE Say issued a statement this morning saying the allegation was untrue.

“Civil Beat has written a story indicating that I am proposing to lower the income triggers for taxing pensions from the current triggers in SB 570, HD 1, of $200,000 for joint filers/$100,000 for single filers/$150,000 for heads of household,” the email said. “The House pension proposal would affect about 4,000 higher income filers compared to the Senate version to repeal the deduction for state taxes paid that would impact about 11,500 pensioners.

“The story posted is not true.

“Neither I nor anyone in House leadership has made such a proposal. Nor would we support such a proposal.”

Deadline Looming

HB 200 faces an 11:30 p.m. deadline Friday in order for it to be voted on by both chambers as scheduled on Tuesday.

UPDATE House and Senate committee conferees have been meeting all week. But they ended Wednesday night’s session only minutes after the meeting began. The conferees reconvened shortly after 9 a.m. Thursday but immediately recessed.

Senate leadership has made clear it does not support the House version of the pension income tax. House leadership, meanwhile, has put the onus on the Senate, saying the budget’s passage depends on Senate acceptance of revenue-raising measures.

There is some wiggle room — lawmakers have been known to work into the wee hours on Saturday the week before a session is scheduled to finish.

It is also possible to have the budget voted on in the last day of session, next Thursday, or to extend the session.

But the Legislature is required to approve a budget before any legislation involving appropriations — except for emergency appropriations — can be approved.

“Time is running out,” one lawmaker[1] told Civil Beat.

Tit for Tat

The controversial pension tax started with Gov. Neil Abercrombie, who proposed taxing pensions of those who earned more than $35,000 and couples earning more than $70,000. At those thresholds, the tax would have generated about $112 million a year in extra revenue.

The House and Senate tinkered with the income thresholds in an effort to protect senior citizens who rely on their pensions. But by raising the cutoff, they effectively shrank the projected revenue stream.

Still, the House managed to advance a pension tax proposal earlier this month by a 28-23 margin, sending it to the Senate, which then gutted House Bill 1092.

That version would have affected less than 1 percent of taxpayers by only taxing pensioners who earn more than $100,000. It would have generated $17 million a year.

The Senate had killed its version of a pension tax Senate Bill 162, which would have kicked in at $75,000 annual income. It would have generated $50.1 million and would have impacted 15,395 taxpayers, or approximately 3 percent of taxpayers.

The latest version of a pension tax lives in a House draft of Senate Bill 570.

The House inserted a tax on pensions into the bill, which is now in conference committee. This version includes the income thresholds of HB 1092: $100,000 for individual filers, $150,000 for head of household, and $200,000 for joint filers.

It would also eliminate the personal income tax deduction using those same income thresholds as well as itemized deductions.

At a conference committee for SB 570 on Tuesday, Ways and Means Chairman David Ige expressed concern about the pension tax piece of the bill.

“It seems you’ve made a number of changes to this bill,” Ige told House Finance Chairman Marcus Oshiro.

“Um yes, we have,” Oshiro said.

“The Senate is concerned about the taxing of pensions,” Ige said. “We considered it in hearings and we decided we would balance the budget without it. We are open to considering your proposal, but our concern is the pension tax. Maybe we could come back on this.”

A vote on the bill was delayed twice, now until Thursday afternoon.

Taxing Time Shares

Raising the TAT rate on time shares by 2 percentage points and capping how much the counties get from the hotel room tax is also being vetted in conference committee.

SB 1186 would cap counties’ share of revenue from the tax at about $102 million (fiscal 2010 levels) through June 2015.

The state Department of Taxation previously testified that the cap would generate tens of millions of dollars for the state:

  • $10 million in fiscal 2012
  • $16.5 million in fiscal 2013
  • $23.3 million in fiscal 2014
  • $30.7 million in fiscal 2015

The portion of the bill that raises the tax on timeshares would separately raise an extra $13 million a year. A vote on SB 1186 is scheduled for Thursday afternoon.

An almost identical House version of the bill House Bill 795 was deferred last month by the Senate Tourism Committee, which favored the Senate version.

Playing Hardball

Longtime Capitol observers say Say’s hardball tactics on the budget are nothing new. Nor is taking the negotiation right down to the wire.

“Speaker Say is a master, and he knows how to make this process go right to the very end,” said a lawmaker who is one of the budget conferees.

“We are close and we are still within our allotted deadline. And I have heard no talk of any extension.”

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