Court shuts down legislative tax scam
April 17th, 2008 by David ShapiroThe state Intermediate Court of Appeals achieved an important bit of tax reform with its ruling that the state can’t collect more than it needs from insurance companies to fund a special compliance fund, and then transfer the excess millions to the general fund to pay for unrelated state programs.
The court ruled that such abuses of special funds amount to illegal back-door general tax increases that violate both the Hawai’i and U.S. constitutions.
The Legislature has created hundreds of special funds for various specific purposes that currently hold more than $1 billion, and officials are worried it could wreak havoc on the state budget if the concerns raised by the court in the insurance case are extended to other special funds.
Attorney General Mark Bennett is considering an appeal to the state Supreme Court.
The problem is that lawmakers routinely assess more taxes and fees than are needed to pay for the purposes of special funds, then use the excess as slush money in the general fund to finance pet projects that have nothing to do with what the special fund was created for.
This is a sneaky way to pass general tax increases under the radar of public scrutiny, and the court was absolutely right to blow the whistle on a practice that reflects poorly on the integrity of the state’s tax policy.
If legislators want to raise taxes, let them state the reason, invite full public discussion and accept accountability for raising no more than they need for the intended purpose.
Tags: Judiciary, Legislature, taxes
April 17th, 2008 at 6:30 am
Our legislature along with our duplicitous executive have “locked up” far too much funding in excessively numerous special funds. The improper delegation of tax powers to the departments has been just one aspect of this debacle. Illegal taxation, separation of powers, due process are bust some of the additional elements (but not equal protection).
Entire departments have abused this (not just the one under this lawsuit; DOE comes to mind), in an effort to secure pet programs at the expense of overall efficiency and fairness. In general, special funds should be designation where needed to obligate federal and other funds or conditions- not at somebody’s pet project. The DOE has been rewarded for their inefficiency and incompetence in the past by spec funds and the overgenerous forgiving of lapsing triggers, lapsing would promote more accountability and efficiency and penalize the incompetent.
April 17th, 2008 at 7:24 am
Dave,
Sorry, but you’re out of line calling this a “legislative” tax scam. Executive’s Department of Commerce and Consumer Affairs was and is at the middle of this thing - they were the impetus for the suit filed by Hawaii Insurer’s Council, and it was their fees that the Intermediate Court of Appeals opined on. They had built up so much of a reserve that they could buy a whole new building, complete with new furniture. It was the Legislature that investigated the surplus and required the department to LOWER fees back in 2003. If I recall correctly, the Legislature provided for another lowering of fees either the next year or the year after. Give credit where credit (or discredit!) is due!
April 17th, 2008 at 7:56 am
Earl may be confusing two special funds within the DCCA. The one in the court case was the Insurance Compliance Resolution Fund, which is funded by insurance companies who sell insurance in the state. That fund is supposed to be used to pay for the costs of keeping them honest e.g. audits of the company’s books. The DCCA has another special fund which holds the proceeds from document filing fees. Over the years, to their credit, they have managed to improve service and reduce the cost of processing various forms and filings, e.g. corporate registration, trade name registrations, etc. that the fund had accumulated a great surplus. I believe that is the fund you are referring to and not the insurance regulator’s fund.
April 17th, 2008 at 8:41 am
Earl..I have to disagree. I pay some of those fees collected by DCCA as a business owner. However, we, along with Director Rechtenwald, went to the Leg numerous times over the past 6 years asking, in fact begging, that the Leg allow DCCA to reduce its fees because of excessive balances in these funds. Each time bills introduced by Rep. Bob Nakasone were shot down by the Finance Committee in the House and the Ways and Means Committee in the Senate. Many of the fees charged by DCCA are statutorily established and can only be acted upon by the Legislature.
In fact DCCA proposed a bill that would allow the Director to lower fees whenever the balance in the special fund reached an amount established by the Legislature that the Legislature felt was adequate to sustain the fund. Unfortunately, that bill was held as well. So, the Legislature does have a hand in this whole deal, as well as the administration.
April 17th, 2008 at 9:47 am
Sounds like some guy named Mufi. Wonder how much transit tax the state collected for him? The story of Hawaii government, always hiding stuff, then poof!, money appears to cover a deficit.
April 17th, 2008 at 4:28 pm
The court says the state can’t collect more tax than it needs? Interesting. I wonder what the court thinks of the “fees” paid by the city to the state to help collect the half-percent general excise tax? Would those fees be considered “tax,” too? Last I heard, the state was running a magnificent surplus in that fund.
April 20th, 2008 at 12:37 pm
If it’s a legislative “scam,” why is the AG considering an appeal? The Lingle-Aiona administration opposes special funds so why not just issue a press release applauding the ICA’s decision and stick it to the legislature?