Waiting For A State Tax Rebate

Larry Price
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Wednesday - October 19, 2005
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When I heard the state of Hawaii is rolling in dough and sporting a huge budget surplus, I started dreaming of what I was going to do with my share of the surplus.

It seems that just about everyone is. All of the state agencies have submitted requests to the Legislature for an appropriate share of the budget surplus. The reason is simple: They know the law.

Article VII, Section 6 of the state Constitution addresses the disposition of excess revenues. It states: Whereas the state general fund balance at the close of each of two successive fiscal years exceeds 5 percent of general fund revenues for each of the two fiscal years, the Legislature in the next regular session shall provide for a tax refund or tax credit to the taxpayers of the state, as provided by law.

Surprisingly, this is a relatively new law, added by the 1978 Constitutional Convention. Ironically, it was young delegate John Waihee’s first taste of organized politics - ironic because he is living proof that the handling of a big budget surplus can be a tricky proposition in the public’s perspective of how the law is implemented.


The record shows that since the Constitutional provision for a refund was enacted in 1978, there have been 17 “refunds” provided to Hawaii’s taxpayers. Fifteen of these were in consecutive years 1981-1995. The other two were in 2001 and 2002. In all but four of the years, a single dollar was the amount of the rebate. Now that’s what you call passing the buck! The highest ever was $125 in 1989. In every case, the relief was provided via a tax credit, rather than a check mailed to each eligible individual.

Each of the refund laws uses similar language to define eligible taxpayers. The standard language includes anyone who filed a tax return in the state and has been a resident for at least nine months. In most cases, convicted felons in prison and dependents in youth correctional facilities are ineligible.

So I know now I’m eligible; however, it looks like another $1 year the way things are going. There is a loophole for the governor and legislators who want to avoid a rebate. All they have to do is spend down the surplus. According to the way the law is written, spending down the tax surplus is a mammoth task. In fact, it may be big enough at the end of the two-year period to satisfy just about every request for funds.

So how do the governor and Legislature get in trouble handling the budget surplus? Obviously they have developed a plan before the end of the fiscal year, because any attempt to spend down the surplus after the law kicks in would be a public relations nightmare.

The trick is to spend a lot of the surplus on high-priority things like public education. If you spend it on buying land or paying the Office of Hawaiian Affairs $138 million to settle a ceded land claims up to 1988, as then-Gov. Waihee did, chances are the public will be not be happy with a $1 rebate. The safe play is to give the lion’s share of the surplus to fix public schools and the University of Hawaii.

There is speculation that a large portion of the surplus might be used to settle collective bargaining contracts with the University of Hawaii Professional Assembly or the Hawaii State Teachers’

Association. That’s not likely because the promises of funding for those contracts have already been outlined in their collective bargaining agreements.

I’m a little disappointed that my windfall tax rebate will be nothing more than a $1 tax credit at the end of next year. But it’s OK, because I know I won’t be the only one who’s been counting their tax rebate before the Legislature meets.

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