THE FACTS BEHIND PRP'S "MEMORIES" TV SPOT     # Audio 1.   Teacher:

But I also remember when Ben Cayetano declared war on teachers:

FACT: On Apr. 5, 2001, nearly 13,000 teachers in the U.S.’s only statewide public school system went on strike after contract negotiations broke down between the teachers union and the state. (Honolulu Advertiser, Apr. 5, 2001) FACT: Ben Cayetano suggested that striking teachers would lose their health and life insurance benefits, because striking teachers were on “unauthorized leave of absence without pay.” (Honolulu Advertiser, Apr. 5, 2001) FACT: On May 3, 2001, then-Gov. Ben Cayetano signed SB 1044, which repealed a 1994 law that allowed unions to establish state-subsidized health plans outside the state’s health fund. The 1994 law let state lawmakers decide what benefits were to be provided to public workers and retirees, and the state and county would pay the premiums. SB 1044 instead called for state and county contributions to be negotiated with the unions, and a single state health trust fund would buy the best coverage it could afford with the available money. (Associated Press, May 3, 2001; Honolulu Advertiser, May 2, 2001; SB 1044; SB 1044, Status) FACT: On Jun. 24, 1999, Ben Cayetano signed SB 1518, which retroactively reduced the amounts the state and counties contributed to the ERS for Fiscal 1997-98. The bill directed that ERS investment earnings exceeding 10

percent would be credited toward the state and county contributions, instead of being deposited into the pension fund like previous law had stipulated. The ERS would not beable to keep 100 percent of its investment earnings as previously promised. (SB 1518; SB 1518, Status; Hawaii Supreme Court, Opinion, No. 26178, Jul. 23, 2007)

  Teacher: Funding for teachers, our kids, and classrooms lost ground.

FACT: Ranked 21st with $5,597 spent per pupil in 1994-95 (U.S. Census Bureau, Public Elementary-Secondary Education Finances, 1994-95) FACT: Ranked 28th with $7,253 spent per pupil in 2001-02 (U.S. Census Bureau, Public Education Finances, 2002)

  Teacher: But Cayetano gave a big tax break to rich people.

FACT: On Oct. 22, 1997, then-Gov. Ben Cayetano’s Economic Revitalization Task Force recommended the largest tax cuts ever – a 40 percent cut in the state personal income tax over three years; and a 50 percent cut in corporate income taxes. In addition, the proposal called for increasing the general excise tax from 4 percent to 5.35 percent. Critics, including businesses, immediately said the plan would disproportionally hurt low-income household because the plan not only deprived much-needed funding for social programs and education, but it also increased the excise tax. (Honolulu Star-Bulletin, Oct. 23, 1997) FACT: On May 13, 1998, the Hawaii state Legislature approved HB 2749, which gradually cuts state personal income taxes by $752 million, lowering the rate from 10 percent to 8.25 percent by 2002. The bill expands all income tax brackets, lowers the tax rates for each

bracket and creates a lower-income tax credit by abolishing the food-tax credit. Then-Gov. Ben Cayetano signed the bill into law. However, critics said it fell well short of the ERTF’s goals, including no cut in the corporate income tax, no reduction in the excise tax’s pyramiding effect, and no exemption for exporting services from the excise tax. (Legislative Reference Bureau, Bills Passed, HB 2749, P. 19; Honolulu Star-Bulletin, Jul. 8, 1998; Honolulu Star-Bulletin, May 13, 1998)

       

The Honolulu Advertiser (Honolulu, HI)

April 5, 2001 Thursday Public education crippled in Hawa; Schools close for 183,000 students BYLINE: Alice Keesing, Staff SECTION: MAIN; ISL; Pg. 1A LENGTH: 1548 words Source: Staff UHPA: 'We are at an impasse on the money' LEGISLATURE: Senate shifts dollars for raises HSTA: 'How long will it last?' is key question Schools are closed across the state after talks broke down between the state and teachers union yesterday, precipitating a strike that many predict will have a devastating impact on Hawaii. With the two sides "agreeing to disagree" yesterday, nearly 13,000 teachers are on the picket line today, driven by the anticipation and anger of months of contentious deadlock over pay raises. Despite new offers by both sides and a flurry of negotiations this week, it was apparent the two sides were still far apart both financially and philosophically when talks broke down last night. "Even with our latest offer we're nearly a $100 million apart," said Gov. Ben Cayetano. "No amount of over- night negotiations can change that unless there's a revelation on the other side." Yet while both state and union officials said they are willing to keep talking, both appeared to be waiting for the other to make the first move, and black-and-white "On Strike" signs were posted at Hawaii State Teachers Association headquarters as soon as state negotiators left the building just after 5 p.m. Public schools around the state are closed today and tomorrow to the more than 183,000 students. Principals at more than 250 schools will assess if they have enough staff to reopen next week if the strike continues. At the same time, more than 3,100 University of Hawaii faculty are picketing their campuses. Simultaneous strikes of the teachers and university faculty promise to paralyze Hawaii's education system and send shock waves through the entire state.

Parents have scrambled for childcare and senior students are wondering about their graduation plans. For weeks, talk of strikes has played havoc with end-of-the-year activities such as proms and sports competitions. Strikes could derail efforts to improve Hawaii's lagging education system. And the teachers' strike promises to further complicate the state's efforts to avoid a federal court take-over of the special education system. Even though the teachers' strike had become increasingly inevitable, many were shocked when negotiations fell apart yesterday. "I am deeply disappointed that we were not able to reach agreement, and I just hope that we will be able to resume talks as soon as possible," said Board of Education second vice chairwoman Karen Knudsen, who is worried about the effect on the students and the state. "First of all there's inconvenience," she said. "But when you get beyond the inconvenience there's the psychological impact that this will have. And I think that that could be probably the most devastating depending on how long the strike lasts because we could start getting into real economic hardships." Instead of asking, "Will a strike happen?" the new question today is "How long will it last?" HSTA Executive Director Joan Husted said it's possible talks will not resume until next week. Much depends on how many teachers cross the picket line and if there are enough of them for the Department of Education to reopen schools next week. "If we have 100 percent of the schools closed, the chances of getting back to the bargaining table faster are good," Husted said. "If 90 or 80 percent of the schools are closed, (the governor) may decide to wait it out. But the teachers are very committed and the governor would be very wise not to pour gasoline on this fire." The standoff between the two sides has been brewing for months, with the union demanding a 22-percent package that they believe will tackle Hawaii's teacher-shortage crisis and the governor saying the state does not have the money to give teachers what they want. The governor also has insisted on tying any pay raise to improved performance. The state did put more money on the table this week, Cayetano said, offering teachers a 14-percent raise with a total cost of $93 million. That kind of pay raise will come at the expense of other state programs, he said. Union officials said the new offer only amounted to $86 million, with some fringe benefits tacked on. They would not give any details on their last offer, except that it would cost less than $200 million. With the gap proving too wide to bridge, Cayetano said it's a new ball game today. "If we go on strike tomorrow, everything's off the table," he said last night. "We start from ground zero because this was an offer that was based on preventing a strike that I thought would be very destructive." The union also responded angrily to the governors' suggestion that striking teachers will lose their benefits.

Cayetano sent a letter Tuesday to Board of Education chairman Herbert Watanabe and schools chief Paul LeMahieu saying the state attorney general's office believes striking faculty members are on "unauthorized leave of absence without pay." "Therefore, this is to inform you that in the event of an actual strike, the state will not pay its contributions to the Hawaii Public Employees Health Fund for employees who participate in a strike," Cayetano wrote. "As a result, striking employees' enrollments in health and life insurance benefits plans will be terminated. This action is non-discretionary. It is required as a matter of law." Husted called the governor's position "punitive and unproductive." "It can only exacerbate the position between the parties, and we ask him to reconsider," she said. Teachers are bracing for the economic realities of the picket line. Yesterday they picked up their paychecks, not knowing how long it will be before they're paid again. The union does not have a strike fund, but is gearing up to help those in the deepest need with grants, interest-free loans or food donations. "There are bills to pay," said Candace Fukuroku, who teaches first grade at Wailuku Elementary. "I have mixed emotions, but I know I'm going to stand with the other teachers. My only fear is how long." Teachers yesterday cleaned out their classrooms, handed in their keys and put the finishing touches on their strike signs. As she waited for the outcome of negotiations, Kaiulani Elementary teacher Pat Guinther pasted up pink letters on a green picket sign, reading "I'd rather be teaching." Guinther, who has been teaching since 1967 and remembers the 1973 strike, was faced with many questions from her students yesterday. She looked out over the sea of third-graders gathering up their books and backpacks. "I hope I see you tomorrow," she said. It wasn't to be. Advertiser Staff Writers Lynda Arakawa, Ronna Bolante, Scott Ishikawa, Christie Wilson and Walter Wright contributed to this report. Drop-in: What you need to know * Public schools and A-Plus facilities are closed to students today and tomorrow. * All employees of the Department of Education who are not members of HSTA must report to work. * School activities that would be staffed by HSTA members will be canceled. * Classes at the University of Hawaii have not been canceled. For information on Oahu, call 956-4560; toll free, 1-866-898-5161.

* Beginning Monday, public school openings will be announced by 4:30 p.m. the preceding day. For information, check the DOE Web site under the strike information link: http://doe.k12.hi.us or call the strike hot line at 586-INFO (4636). * Ask Aloha United Way is offering referral services for childcare and will also help striking teachers with referrals for financial assistance. On Oahu, call 275-2000, on Neighbor Islands, call toll-free 1-877-275-6569. * For Kamaaina Kids "Strike Care," call 262-4538. Drop-in: Inside Parents look for ways to cope with childcare during strike. PAGE B3 The Oahu Interscholastic Association postpones all games through Saturday. PAGE C1 * On the Web: For the latest developments in the strikes, school information, parent and student resources and child-care options, visit www.honoluluadvertiser.com Drop-in: HSTA negotiations at a glance * The union is seeking a 22 percent raise over four years with a price tag of $260 million, but has informally offered to accept a deal worth about $161 million. * This week, the state increased its offer to 14 percent, at a total cost of $90 million. It ties in accountability and licensure and includes $5,000 extra per year for teachers who gain national certification. * Teachers currently earn between $29,000 and $58,000. * The issues: The union says Hawaii is facing a teacher shortage, and the state needs to improve pay to boost recruitment and retention. The state says its offer does boost pay for new teachers but that it has only a limited amount of money and wants to tie any pay raise to improving performance. * The Hawaii State Teachers Association represents almost 13,000 public school teachers statewide. * Hawaii's teachers' contract expired in June 1999, then was extended to January 2000. * In the last round of contract talks in 1997, teachers were within hours of striking when a deal was reached. That contract provided a 17 percent increase but added seven days to the school calendar. * The last time teachers walked off the job was April 1973. That strike lasted 13 days.

The Associated Press State & Local Wire

May 3, 2001, Thursday, AP cycle Legislature ends session that confronted public employee unions BYLINE: By BRUCE DUNFORD, Associated Press Writer SECTION: State and Regional LENGTH: 623 words DATELINE: HONOLULU A public ceremony Thursday for Gov. Ben Cayetano to sign into law two civil service reform bills was suddenly canceled on the excuse it conflicted with the schedules of key lawmakers invited to attend. Senate President Robert Bunda, D-Wahiawa-Haleiwa-North Shore, however, said it was about "not rubbing salt into the wounds" and not hurting the feelings of public employee union leaders who lost their determined lobbying effort to kill the measures. "We were very sensitive to the House and the House was sensitive to our concerns as well, so we took that to heart and said perhaps maybe we should pass on that," he said, noting threats from union leaders of political retaliation against those who supported the bills. House Vice Speaker Sylvia Luke, D-Punchbowl-Pacific Heights-Nuuanu, however, said House leaders were considering attending, but were concerned the Senate would not have completed its final session in time. She said it was then they were notified the ceremony had been canceled and the governor had signed the bills. Cayetano signed the bills in private and without fanfare, his office said. If anything, the 2001 legislative session will be remembered for the Democratic majority of the House and Senate standing up to the unions and passing Cayetano's measures to have a single health fund and to privatize government services. The unions, however, scored a minor victory on the Legislature's closing day as the Senate withdrew from consideration a House-passed bill calling for an audit of the state-subsidized, union-sponsored health plans that will be dissolved into a single state fund in 2003. Union leaders convinced key senators that a part of the bill mandating a return to the state of any excess funds going into the union plans could jeopardize the viability of the plans and benefits to the members, said Senate Vice President Colleen Hanabusa, D-Nanakuli-Waianae-Makaha. "In doing these health fund reforms, we've always said it's not to hurt the employee. It's to preserve the benefits into the future," she said.

Legislative leaders will strongly urge that the state's health fund use its resources to carry out the audits of the union plans that the bill had mandated, Hanabusa said. The audits will determine how much money the unions are holding in their respective health funds, whether it belongs to the state or the employees or whether the unions consider it their profit, she said. House Speaker Calvin Say, D-Palolo Valley-Kaimuki, praised his colleagues for standing up to the politically powerful unions. "To those of you who supported historic reform, you have put the people's interest first and above others," he said. In his final day remarks, Bunda praised the civil service reform measures, more funding for education, including pay raises for teachers, increasing the minimum wage and more money for social programs. Senate Minority Leader Sam Slom, R-Hawaii Kai-Aina Haina, had unusual praise for his Democratic colleagues. "I think that we can all share in a feeling that we have worked hard and we've done things differently...and it'll be remembered as a historic legislative session," he said. "We've not dodged issues. We've confronted them and discussed them openly," he said. Thursday's closing day was anticlimactic because all major legislation was approved on Tuesday. The 60-day session also saw a raising of the legal age of consent for sex from 14 to 16 and the first increase in the minimum wage since 1993. Even before the session ended, legislative leaders acknowledged they may soon be back in special session to consider additional funding for special education programs for children with mental health problems. LOAD-DATE: May 4, 2001 LANGUAGE: ENGLISH

Copyright 2001 Associated Press All Rights Reserved

The Honolulu Advertiser (Honolulu, HI)

May 2, 2001 Wednesday Unions take hit at Capitol; Votes on privatization, benefits erode labor power BYLINE: Mike Gordon,, Kevin Dayton and Lynda Arakawa SECTION: PM MAIN; Pg. 1A LENGTH: 1317 words Source: Advertiser staff writers The Legislature's stunning passage of a bill that enables government to replace public workers with private contractors was cheered, criticized, analyzed and questioned today by a variety of labor officials, business leaders and political observers. The vote yesterday in defiance of the state's powerful public worker unions will allow virtually unlimited privatization of public services in Hawaii. A second vote will enable the state to cut the costs of public worker and retiree health benefits. "This was a bipartisan effort, and it took real courage for lawmakers to stand firm on this difficult issue," said Gov. Ben Cayetano. "This achievement, coupled with the advancements we've gained through collective bargaining, puts state government on firmer footing." The votes yesterday were startling reversals on issues that have confounded legislators for years. Union members staged a last-minute lobbying push and packed the Senate gallery, but were unable to stop the bills from passing. The Chamber of Commerce of Hawaii said today that the business community was pleased. "We appreciate the difficult decisions the Legislature had to make," said Stanley Hong, president and chief executive officer of the chamber. "Bold, proactive steps were necessary to ensure that all services, whether they are performed by the civil service or private sector, are done efficiently and economically." But others warned that the bill will be difficult to administer and could erode public services. "Privatization sometimes works, but what they have done with this bill is ... taken all the worst provisions of every bill they could find," said Larry Boyd, economist for the University of Hawaii Center for Labor Education and Research. "It is a mine field that will blow up." Boyd said the bill "is going to hang like an albatross on everyone who voted for it." Privatization creates "quasi monopolies" in municipalities, are ripe for corruption and limit efficiency, he said.

Russell Okata, executive director of the Hawaii Government Employees Association, said he is concerned public workers could lose wages and benefits under a private-sector employer taking over a government function. Compounding the problem: the final decision on whether public workers or a private company will win a contract is to be made by the governor or county mayors, Okata said. "I believe that now that management has this tool available to them, as our leaders they have this tremendous responsibility to guarantee to the public that if used, it will maintain the level of public services," Okata said. Gary Rodrigues, state director of the United Public Workers, said the bill could cost members their jobs. "The way the bill is written, the mayors and the governor can privatize, and they can pay substandard wages and substandard benefits just to get the job done." The bill gives workers an opportunity to compete against a private company if the governor or county mayors approve, but Rodrigues said the Legislature has indicated it prefers privatization to managed competition. There is no gurantee that a private employer would hire an experienced public worker, he said. "The only guarantee is you will be on the unemployment line." Lawmakers yesterday also approved appropriations totaling more than $300 million to pay for raises for teachers, university faculty and other public employees; a two-year, $7.1 billion general treasury budget; and a bill that would increase the minimum wage next year to $5.75 an hour and to $6.25 an hour in 2003. Legislators also approved bills to impose extended prison sentences for people who commit "hate crimes," and to raise the age of consent for sex from 14 to 16. The votes on privatization and worker benefits are the boldest reforms approved by the Legislature since pressure began building in the mid-1990s to make state and county government more efficient in the face of dwindling resources and growing public resentment of generous public employee contracts. A key reason behind the abrupt embrace of reform is the broad acknowledgement by legislators that state revenues are not keeping pace with growing public employment costs, a situation highlighted by the recent teachers' strike. Perhaps most significant is the departure or demotion of key legislative leaders such as former Senate President Norman Mizuguchi, a steadfast ally of labor unions who blocked any attempt at changing their status. Cayetano took note yesterday of Mizuguchi's absence, praising the new Senate leadership for "a more balanced approach." One of the closest votes in the Senate was on a bill to overhaul the Public Employees Health Fund, converting it to an Employee-Union Health Benefits Trust Fund. After more than an hour of debate, senators passed the bill 13-12. Legislators have worried for years about the growing costs of health coverage for public workers and retirees. The state auditor has projected that the state might have to pay $1 billion or more a year in premiums by 2013. Supporters said the bill would save the state $65 million in its first year of operation.

Currently, lawmakers legislate what benefits are to be provided to public workers and retirees, and the state and counties pay the required premiums. Under the new law, state and county contributions would be negotiated with the unions, and the trust fund would buy the best coverage it could afford with the money available. Proponents of the bill, such as Sen. Colleen Hanabusa, D-21st (Kalaeloa, Makaha), said the bill is needed to keep the fund solvent. She called it "an effort to preserve what we have promised retirees in the future." But other senators said the unions and retirees affected were left out of the discussion and are not comfortable with the state managing a single health fund. "Let's face it, the state has had a very rough time proving it can do anything well," said Sen. Bob Hogue, R-24th (Kaneohe, Kailua). The state and counties also cover the entire cost of health coverage for most retirees and their dependents, and critics worried the bill would change that. The privatization vote yesterday was a surprise resolution of an issue that has confronted lawmakers since 1997, when the state Su- preme Court ruled the state and counties cannot hire private companies to perform work traditionally done by public employees. That ruling virtually halted any efforts to hire private companies to perform public services. The unions have used their influence at the Legislature and particularly in the Senate to stall any meaningful action. But senators easily passed the bill yesterday on a 23-2 vote. The measure also won easy approval in the House, with only six Democrats and one Republican voting against it. The privatization bill would give the governor and each mayor authority to contract for services or allow the public worker unions to compete for the job through a "managed competition" process. The state and counties could lay off public workers whose work was contracted out. Rep. Joe Souki, D-8th (Waiehu, Maalaea, Napili), said he worried lawmakers were ending the state's "warm body policy" of protecting workers from layoffs, and adopting "a cold body policy, if I may, where the worker is not that important." The same bill eliminates binding arbitration as a way of resolving stalled contract negotiations between the Hawaii Government Employees Association and the state and counties. Lawmakers gave final approval to a two-year, $7.1 billion general treasury budget over the objections of Republicans. The budget increases spending by about 12 percent next year, and 4.5 percent the following year. LOAD-DATE: January 7, 2003

Copyright 2001 The Honolulu Advertiser (Honolulu, HI) All Rights Reserved    

Honolulu Star-Bulletin

July 8, 1998 Gov OKs tax cut, tourism boost BYLINE: Mike Yuen SECTION: pg A-1 LENGTH: 699 words DATELINE: Honolulu; HI; US; Pacific Bills to cut personal income taxes and boost the state's No. 1 industry, tourism, will be signed into law by Gov. Ben Cayetano. But a measure intended to curb bootleg sales of cigarettes won't. That bill, which would require a tax stamp on every pack of cigarettes, was one of eight measures that Cayetano vetoed before a midnight deadline last night. His last veto message, Cayetano said, was issued reluctantly. It involved a bill that had much merit and was intended to increase government efficiency by eliminating or consolidating certain regulatory boards and functions, he said. But it also contained a provision to eliminate the use of "material house bonds" used by owner-builders. That means the bill would bar isle residents from building their own homes and also prevent homeowner self-help projects, Cayetano said. "The impact on the economy is uncertain. However, estimates on construction costs are in the 100 million range statewide," Cayetano added. "After consultation with the Department of Hawaiian Home Lands, it's unclear whether this provision would hurt homeowners participating in self-help projects." In the state's anemic economy, self-help projects may be the only way some isle residents can build or improve their homes, Cayetano said. Cayetano justified his veto of the cigarette tax-stamp measure by saying that federal agencies have not found any evidence of extensive black market sales of cigarettes. Moreover, another provision of that bill, which covered film-production tax credits, was flawed, Cayetano argued. By limiting the labor cost component of the tax break to expenditures for only workers who are Hawaii residents, the bill seems to be discriminating against out-of-state residents, Cayetano said. That would apparently make the measure unconstitutional, he added. With his eight vetoes last night, Cayetano has rejected a total of 23 bills that state lawmakers passed during this year's legislative session.

And since the veto deadline has passed, some 100 bills will now become law -- with or without Cayetano's signature. But, said Cayetano's spokeswoman, he does intend to sign into law measures to cut personal income taxes by $ 752 million over the next four years, to establish an independent Hawaii Tourism Authority, and to cap the compensation of trustees for the Bishop Estate and other charitable trusts. Cayetano has until July 21 to sign bills into law, said Kathleen Racuya-Markrich, his press secretary. It's no surprise that Cayetano wants a signing ceremony for the tax-cut measure; it has his fingerprints on it. Cayetano, with the help of Senate dissidents, forced Senate leaders to accept more substantial tax relief than the 1 percentage point cut over two years that the Senate majority was advocating. Cayetano's proposal expands all income-tax brackets, lowers the tax rates for each bracket and creates a lower-income tax credit by abolishing the food-tax credit, which he has long believed was unnecessary for middle- and upper-income taxpayers. Under Cayetano's plan, a family of four with an adjusted gross-income of $ 35,000 will save $ 1,152 over four years. The savings will be $ 1,893 for a family of four earning $ 50,000 annually. The bill creating the Tourism Authority to be the lead agency in marketing the isles to visitors also establishes a special tourism fund into which $ 2.75 from every $ 100 collected in hotel room tax revenues will be deposited. Cayetano had wanted to cap the salaries of trustees at what the state chief justice earns -- it's now $ 94,780 annually. But keeping it at a "reasonable" level, as lawmakers proposed, is a good step, he feels. Bishop Estate trustees were paid about $ 840,000 last year. He said the controversy that has engulfed the trustees stems in large, part to that compensation. Bills the governor vetoed The bills that Gov. Ben Cayetano vetoed dealt with: * Cigarette tax stamp and film-production tax credit. * Some regulatory boards and "material house bonds." * School-based budgeting. * Education accountability. * Schools-within-schools. * Environmental assessments. * Public employees' pension fund. * Psychotherapy.

Honolulu Star-Bulletin

May 13, 1998 Tax-reform bill won't help much, experts say BYLINE: Rob Perez SECTION: pg A1 LENGTH: 960 words DATELINE: Honolulu; HI; US; Pacific The tax-reform measure the Legislature is expected to adopt tonight will provide only a mild boost at best to Hawaii's struggling economy, mainland tax experts and economists say. Some say legislators fell well short of the economic-revitalization mark, doing little to cut direct costs of doing business here. The experts cited the failure to pass a corporate income tax cut, to reduce the so-called pyramiding effect of the general excise tax and to exempt exported services from the GET--all recommendations of Gov. Ben Cayetano's economic task force. "They missed the boat by not doing much on the business side," said Neil Bruce, a University of Washington economist. "If Hawaii really wanted to do something to revitalize the economy, they should have taken steps to make the state a business haven," especially for industries it wants to attract. The tax package that legislators are scheduled to vote on tonight is so diluted from the one originally recommended by the Economic Revitalization Task Force that one expert called it laugh able. "It's a watered down version of watered down versions," said Alvin Rabushka, a senior fellow at Stanford University's Hoover Institution. "It won't do anything (to revitalize the economy). It will be a complete bust." What raised particular concern among economists here and on the mainland was elimination of a provision exempting exported services from Hawaii's 4 percent excise tax. Hawaii already grants such an exemption for exported goods. The services exemption was recommended by the task force and was included in House and Senate tax reform versions going into 11th-hour negotiations. When a compromise was crafted late Monday night, however, the services provision was not included. The exemption would have meant Hawaii architectural, engineering, telecommunications and other firms would have been on more equal footing with businesses from most other states in competing for service contracts outside Hawaii.

The exporting of technical and management services is a niche that proponents say holds great promise for Hawaii, especially in the Pacific Rim and Asia. But deletion of the provision makes no sense and will only hurt efforts to nurture that niche, experts say. "It seems idiotic to say the least," said David Ramsour, a local economic consultant. "This is truly the most irritating, frustrating and bewildering part of the whole package." The reforms call for income-tax cuts ranging from 17.5 percent at the top rate to roughly 20 percent to 30 percent at middle- and lower-income levels. Brackets also would be expanded so the top tax doesn't kick in until over 10,000 for an individual filer and over $ 80,000 for a couple. That compares with a 40 percent across-the-board reduction the task force originally recommended. The task force also suggested a 50 percent cut in corporate income taxes and a nearly 34 percent increase in the excise tax to partly offset lost revenue from the tax relief. But none of those task force proposals survived. The magnitude of the tax cuts was substantially pared because the Senate refused to go along with a House plan to raise the excise tax. The mainland experts said the tax relief that survived should help the economy but not by much. "Getting down taxes is one step in the right direction," said William Fox, an economics professor at the University of Tennessee. Fox and Rabushka visited Hawaii last year at the invitation of task Force to provide suggestions for changing the tax system. How the eventual changes are perceived outside the state is important as Hawaii tries to attract outside investment, a critical component for boosting the economy. Fox and Mike Schuyler, Washington, D.C.-base economist with the Institute for Research on the Economics of Taxation, said the tax cuts will ease the disincentives Hawaii's high tax rates now present for working extra hours or saving additional funds. And since most of Hawaii's small businesses are taxed according to personal--not corporate--income tax rates, the cuts will mean eventual savings for those businesses, experts said. The savings may be used for expansion or to open new businesses, providing a small boost to the economy, they said. "You needed major improvements and it sounds like you're getting minor ones," Schuyler said. "The effect is not going to be that great but it's a positive step." Some experts were much more cynical. They said the savings are so small and stretched over such a long period in the future--the cuts take effect starting in 1999--that the economic stimulus will be negligible.

What's more, they said, a sizable cut would have been more effective if it was retroactive to the beginning of this year, while the economy is suffering, not in several years, when the economic picture could be much better. "The timing is completely messed up," Ramsour said. "All of the effect will come just as the economy least needs it." Lowell Kalapa, president of the Tax Foundation of Hawaii, also was unimpressed. The tax measure "is not enough to create new jobs. It's not enough to change the perception of Hawaii as a poor place to do business," Kalapa said. But Bradley Mossman, a key administration lobbyist, said even the pared-down tax-reform measure represents the largest cut in state history. And that will help the economy, though not as much as the original task force recommendation, Mossman said. Kalapa said the tax cut would be the largest in state history because it would be the only one thus far. A 1987 drop in the top rate from 11 percent to 10 percent wasn't really a cut because people effectively paid the same or more in taxes, thanks to a corresponding broadening of the tax base, he said. LOAD-DATE: June 11, 1998 LANGUAGE: ENGLISH UMI-ACC-NO: 9903258 TYPE: Newspaper JOURNAL-CODE: XHSB

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