The White Paper was released on August 12, 1997, and first published in The Honolulu Advertiser, August 24. It is a product of pro-business lawmakers who began work on it in May, well before numerous Economic Summits and Task Forces were announced by others.

Overview

The Small Business Caucus of the Hawaii State Legislature finds that Hawaii's current business and economic "crisis" has continued for more than seven years; longer than any period in the history of Hawaii, or in other states or regions in the U.S. Nearly every individual, family, and businessÑlarge and smallÑhave been impacted.

A "crisis" is more specifically an occurrence that no reasonable person could have anticipated. Yet, many citizens accurately forecast the current business and economic conditions years ago.

It is evident that Hawaii's problems cannot be attributed to a cyclical economy, the closing of sugar plantations, the Persian Gulf War, the inflated market caused by the frenzy of foreign investment of the eighties, or other externalities.

The economies of Asia are booming and continue to diversify; the U.S. Mainland is advancing at a record pace. Only Hawaii seems mired in a problem-ridden "recession."

There is increasing acceptance that there are in fact structural or systemic problems that must be addressed to regain control over Hawaii's future options, invigorate the economy and replace disincentives with opportunities that will encourage confidence, risk-taking, job creation and capital formation, and that it will be up to local residents to make the necessary changes.

Current Problems

Hawaii's problems are manifest by the following indicators:

(1) a record level of personal and business bankruptcies;

(2) a steady exodus of business, middle income taxpayers and capital;

(3) the lowest rate of personal income growth in the U.S.;

(4) historic rate of foreclosures;

(5) a perceived "hostile" and regulatory business climate;

(6) declining real property values and increasing commercial vacancies;

(7) unemployment rates in excess of the national average;

(8) shortfall in tax-generated state revenues;

(9) lack of manufacturing and diversified business creation, and

(10) government tax and spending burdens on personal discretionary income and investment.

Goals and Objectives

Hawaii requires a visionary, short, mid and long-term, proactive, practical, economic strategy that will provide economic vitality, diversification, job creation and capital formation with an increased standard of living, without compromising necessary social, educational, environmental, health or safety benefits. A long-term strategy must be based on lower taxation burdens, more discretionary income and take home pay, and wiser and more efficient use of public funds. Mid-term goals should focus on creating quality opportunities and a highly skilled and educated workforce. Our short-term plans must include regulatory relief, incentives for capital and job formation, attaining high educational standards, decreasing the cost of doing business and right-sizing government.

Implementing A Positive Economic Strategy

Small business is the backbone of Hawaii's present and future economic growth, and that a private, voluntary, competitive market is the best method of enhancing Hawaii's business and economic climate. Bipartisan political will to solve Hawaii's fundamental problems is required for meaningful economic revitalization. The Legislative Small Business Caucus urges immediate adoption of a package of proposals designed to meet the goals of a vibrant Hawaiian economy relying on private, non-governmental initiatives. Our belief is that if the small business community is improved and confidence restored, the positive impact of this action will influence other sectors of the economy and social fabric of the State. Small business improvement will only occur with concrete actions and change, not with further studies, task forces or commissions. Additionally, the reforms must be the same as advocated and embraced by those with the ability to create the jobs and take the risks, rather than top down from the government. A successful strategy will only work if it is broadly supported by the Administration, the Legislature, and the community, regardless of individual political agendas.

So that there may be no misunderstanding of our purpose, the Legislative Small Business Caucus reiterates categorically our deep and abiding faith in the ability, creativity and strength of the people and small business entrepreneurs of Hawaii to adopt and implement the changes necessary to improve our business and investment climate, establish a clear, business friendly identity, and positively propel Hawaii into the Twenty First Century.

Legislative Action Plan

The 1998 State Legislature must enact the following priority legislation in order to achieve the goals outlined in order to end the economic spiral in Hawaii:

(1) RESTORE PRIVATIZATION OPTIONS

* Grandfather existing government services that have been privatized or have been granted prior exemptions to address Konno vs. County of Hawaii issues.

* Governor to convene Oversight Review Commission tasked with making State Government more cost-effective while providing best value for taxpayers. Commission to work with contracted professional experienced in the area of privatization who will evaluate, direct, and implement competitive reforms.

* Adopt practical privatization options utilized by New Zealand, Michigan and other jurisdictions.

(2) ENACT MEANINGFUL WORKERS' COMPENSATION REFORM

* Hold full and open hearings on all aspects of workers' compensation issues in the House and Senate.

* Provide that in work-related stress, a "mental injury is not considered to arise out of, and in the course of, employment if it results from any disciplinary action...taken in good faith by the employer."

* Implement Coordinated Care option(s).

* Change the standard of review for physical conditions or diseases that may arise from non-workrelated or multiple factors to a "preponderance of evidence" standard.

* Make injuries incurred during after hours voluntary involvement in company activities non-compensatable.

* Repeal Act 67 (SLH 1992), related to compensation based on maximum, rather than actual, wages.

* Require any beneficiary of illegal or erroneous benefits paid to make full restitution.

* Offer owners of small corporations with at least 25% ownership currently 50%) exemption for themselves (not employees).

(3) FAST TRACK REGULATORY REFORM

* Adopt all reforms from the Governor's Small Business Task Force on Regulatory Relief.

(4) PRIORITIZE GOVERNMENT SERVICES

* Revenues are simply not available to continue all the programs state government has ventured into over the years. Some government programs are cost-effective and needed, while others are not. The legislature must take a leadership role in determining which government programs should be strengthened and which should be reduced or eliminated. To do otherwise is to maintain a cumbersome, inefficient government that is a significant drag on the state's economy.

* Effective budget and cost containment must be implemented.

* Attach "fiscal note" impact statements to all appropriation measures.

* Streamline the legislative process by bill limitation.

* Lapse public jobs by attrition.

* Reward departmental expenditure reductions.

(5) PRIORITIZE STUDENT PERFORMANCE AND SUPPORT

Hawaii's long-term economic success is directly tied to the quality of its educational system. An indication that Hawaii is on the road to economic success will be when more state revenues are spent on education than are spent on social services and public health. To this end, we advocate the following actions:

* Support merit pay for educators.

* Require demonstration of student competence at every level of advancement, to do away with "social promotions," which result in students graduating from high school without basic reading, writing and computational skills.

* Support the implementation of a statewide Comprehensive Student Support System (CSSS) to provide a cost-effective, collaborative approach towards improving the social and educational environment of our public school students, especially at the secondary level. Such a system significantly reduces wasteful duplication of effort and forces all professionals to work together in school-based teams, to provide early support for students and their families before problems escalate into situations requiring more costly responses.

* Establish a Parent Compact, by which parents throughout Hawaii sign a statement agreeing to take specific steps to support their children to improve their performance in school.

(6) ELIMINATE PYRAMIDING AND THE BURDEN OF
THE GENERAL EXCISE TAX (GET).

* Speed up 1997 Legislation to eliminate multiple taxing ("pyramiding") of GET on sub-leases, for immediate implementation rather than 8 years (2006).

* Eliminate other areas of "pyramiding."

* Exclude the GET on services.

* Exclude GET on food for home consumption and medical expenses.

* Explore the substitution of a "sales" or consumption tax in whole for GET.

(7) REDUCE INCOME TAX AND INCREASE TAKE HOME PAY.

* CUT current maximum personal income tax rate from 10% to 7%. in annual increments in three years.

* Adjust present income brackets in order to LOWER each individual's effective tax burden.

* Eliminate "marriage penalty" in order to increase disposable personal income and stimulate spending growth.

* Adopt proposals by the most recent Tax Review Commission.

* Increase enforcement and collection of taxes actually due.

Specific legislative bills to accomplish these and other reforms will follow. Until that time, the Legislative Small Business Caucus urges wide circulation of this White Paper for feedback and comment from Hawaii's small business community in order to better prepare the 1998 legislative package.