The chairman of the Senate’s key money committee says lawmakers would have to find $45 million to pay for new budget proposals by Gov. David Ige.

Sen. Donavan Dela Cruz, chairman of the Senate Ways and Means Committee, has called for a public informational meeting with officials from Ige’s budget and tax departments.

At the same time, a bill to tighten regulation of online vacation rentals appears likely to generate less money than state budget analysts anticipated, which may make the potential gap harder to close.

WAM Chair Donovan Dela Cruz during legislature extended session to sort out details on additional rail funding.
Senate Ways and Means Chairman Donovan Dela Cruz has called for a public briefing to discuss a budget shortfall caused by funding requests from Gov. David Ige. Cory Lum/Civil Beat

“The governor is asking for these unfunded things that need to be included in the budget,” Dela Cruz said. “Now the Legislature has to find the funding to pay for them.”

The governor has asked for extra money to cover expenses related to health care benefits for state workers, costs to incarcerate prisoners and expenses related to the Maui Health System.

The extra costs total approximately $54 million; however, Ige also has proposed to reduce by $9.5 million the amount of money needed to finance pensions for corrections officers.

That leaves a hole of about $44.5 million.

Although it’s not uncommon for governors to issue requests for additional funds and for lawmakers to scramble to find the money, Hawaii lawmakers rarely hold public meetings that give taxpayers the chance to see how policymakers work out such thorny budget problems.

Dela Cruz served as the Ways and Means chairman during a special session in August to find money to fund the Honolulu rail project. This is his first full session as chair of the powerful money committee, a seat that Ige once occupied.

Sen. Jill Tokuda, who preceded Dela Cruz as Ways and Means chair, said she could not recall holding a public meeting to discuss a governor’s message. But she said it was not surprising that Dela Cruz had called the meeting.

“You would be doing it to really be able to ask, ‘Why at this point in the session, is the Legislature being asked to make significant changes to the supplemental budget,'” Tokuda said.

Ige’s spokeswoman could not immediately say whether there was money available to cover his requests.

Dela Cruz declined to comment in detail until the meeting, which is scheduled for Wednesday. Instead, he referred to Ige’s official messages addressed to Senate President Ron Kouchi and House Speaker Scott Saiki, asking for the extra money.

Those are two of the items on the meeting agenda.

The other is an item referring to a fiscal 2019 financial plan, which includes $33 million to be generated from proposed legislation to regulate and tax vacation rentals for the 2019 fiscal year. Senate Bill 2963 sailed through the Senate and has crossed over to the House, where it faces a relatively easy route. But it’s still not certain how much money the measure will generate if it does pass.

Laurel Johnston, director of Hawaii’s Department of Budget and Finance, said the financial plan citing the $33 million estimate was not a public document. However, she confirmed the budget department included a $33 million revenue estimate in another document outlining the governor’s 2019 budget.

Governor David Ige speaks to media and residents of Na Lei Hulu Kupuna.
Gov. David Ige is asking for more money to cover state expenses, but the Senate Ways and Means Committee  chairman says it’s not clear where the funds will come from. Cory Lum/Civil Beat

The figure was the administration’s best estimate of how much could be generated from new legislation regulating online vacation rental brokers, Johnston said. Lawmakers have repeatedly introduced bills to deal with the online brokers, such as Airbnb, and the measures typically include provisions to ensure the state’s hotel and excise taxes are collected.

That could mean more money for the state, but exactly how much is unclear. Johnston said the exact amount generated will depend on the details of the bill that’s passed.

Seth Colby, tax research and planning officer with the Hawaii Department of Taxation, said the department has not been able to draw conclusions on how much revenue an Airbnb bill could generate.

Colby noted that the bill moving through the Legislature simply allows the online brokers to step up and serve as tax collection agents for the state. Although that would likely make it easier to collect revenue, Colby said much will depend on whether the online brokers actually collect the taxes.

Among other things, the current Airbnb bill makes it unlawful for online brokers to engage in business with property owners that aren’t complying with county zoning laws.

Although county officials have commended such tough provisions to help discourage the proliferation of short-term rentals in residential areas, some officials worry that will discourage brokers from working with the state.

“The more draconian they make the requirements the less likely (the brokers) are to become an agent,” Colby said.

And that would mean less money, he said.

A big question is how much money may be generated by a proposed bill to regulate online vacation rental brokers. Screenshot

Colby said the $33 million estimate is based on a six-month projection from the Department of Business, Economic Development and Tourism.

Colby said DBEDT’s estimate of $67 million in potential tax collections from online brokers accurately depicts the market size. But Colby said it does not consider that some brokers might choose not to step up, even if a bill passes.

DBEDT’s economist, Eugene Tian, did not return calls.

The state’s budget writers may get a short-term break from the federal tax law changes, which could produce a short-term economic stimulus, said Carl Bonham, a University of Hawaii economist who serves on Hawaii’s Council On Revenues, which provides revenue estimates to guide lawmakers.

Bonham said the short-term stimulus could result in tax revenue growth greater than the 4.5 percent the council now predicts.

At this point, Dela Cruz said, the only thing certain is there is a hole to fill.

“Now we’re tasked with either cutting, or finding revenues to address the governor’s messages and the budget assumption,” he said.

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