It’s a question lawmakers face every session on innumerable bills: how much will a piece of legislation cost taxpayers if it passes? The answer, typically submitted as testimony by the Hawaii Department of Taxation, has often had an element of secrecy.
Although the tax department’s estimates were clear enough, the department has long considered its underlying assumptions and methodologies a secret. Until now.
Earlier this month a Hawaii state court judge affirmed a ruling by the Hawaii Office of Information Practices which said the tax department has to make public the assumptions, source data and other information the department relies on for revenue estimates it submits in legislative testimony.
The ruling came after a challenge by Ray Kamikawa, a former Department of Taxation director now practicing tax law.
The nonprofit Tax Foundation of Hawaii applauded the ruling, calling it a victory for government transparency and more robust debates in the Legislature.
“It’s an important case because for a long time the department has given revenue estimates to legislators and we have no idea where they get these numbers from, and they wouldn’t tell anybody where they got those numbers from,” said Tom Yamachika, president of the Tax Foundation, which filed an amicus brief supporting Kamikawa’s suit.
The result, Yamachika said, was that a bill’s proponents had limited ability to rebut a bad finding from the tax department.
“If you were trying to pass legislation, and you came up against an unfavorable revenue estimate, there wasn’t anything you could do,” Yamachika said.
The ruling means that parties now will be able to challenge Department of Taxation estimates or offer an alternative methodology.
The nonprofit Civil Beat Law Center for the Public Interest also filed an amicus brief in the case. The law center is an independent organization created with funding from Pierre Omidyar, who is also publisher of Honolulu Civil Beat.
The matter involved two bills from the 2016 Legislative session.
A House bill proposed to amend a low-income housing tax credit. The tax department estimated the measure would cost the taxpayers $9 million in 2019, $18 million in 2020 and $27 million in 2021. The department predicted a Senate bill tweaking the tax credit would also cost the taxpayers: $4 million in 2019, $8 million in 2020 and $12 million in 2021.
When Kamikawa tried to get underlying data, the tax department denied the request. It maintained that posture even after Kamikawa obtained an opinion from OIP, which administers the state’s open records law.
The OIP rejected the tax department’s arguments that the records were exempt under an exception for legislative offices and that releasing the documents would frustrate the department’s ability to produce revenue estimates.
When the OIP looked at the sort of information the tax department used for its estimates, the OIP found that some of the withheld information was public information from the Hawaii Housing Finance and Development Corporation. That material could be found on the internet.
“Indeed, OIP found that HHFDC Awards Lists included in the requested records are available online, although the versions in the requested records had handwritten notations added in some cases,” OIP said in its opinion.
The court decision came in response to the tax department’s appeal of the OIP ruling. The case touches on a broader point that the tax foundation brought up in its brief.
“Almost every other state has some form of revenue estimation law,” Yamachika said. That often means an independent legislative fiscal office analyzes the fiscal impact of bills and produces fiscal analyses for each one.
Hawaii, by contrast, doesn’t have such an office.
Rep. Sylvia Luke, chair of the House Finance Committee, noted that the Legislature established such an office in 1990. That law is still on the books in the Hawaii Revised Statues.
“In Hawaii, the legislature relies on the economic and fiscal analyses of the executive branch and private sector,” the law says. “The legislature believes that this dependency creates an inherent conflict of interest that precludes the legislature from operating independently.”
But the Legislature never funded the office, Luke said. In her case, Luke said she can rely on committee staff to do sophisticated fiscal analyses.
But, she said, “that takes its toll.”
In the end, she said, lawmakers have done a cost-benefit analysis and determined the benefits of the office are not worth the cost.
“It’s always come down to a cost-benefit analysis,” she said.
For his part, despite an often hawkish stance on new taxes and government spending, the tax foundation’s Yamachika said the independent office is a good idea.
Asked if he agreed with the office’s stated purpose, Yamachika said, “You’re darn right there.”
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