Two individual commissioners (there are nine commissioner positions) asked the Office to set up a meeting so the commissioners could perhaps select a new chair.  The Office said no, a meeting can only be called either by the chair or by a majority of the commissioners voting to do so at a meeting.  Either condition, of course, was impossible to meet.  The Office later said that a meeting could be called if five commissioners got together and decided on a meeting date.  Trouble was, only the Office had the contact information for all of the commissioners.  The individual commissioners did not know the email addresses or phone numbers of their counterparts.

In court proceedings, it came out that the Office employee primarily responsible for providing support to the Commission was worried about getting in trouble for noticing a meeting that later turned out to be unauthorized.

But if that was the correct answer, how could the Commission have ever met and have chosen a chair in the first place, when the Commission was created and had no preexisting chair?

The two individual commissioners had to sue in the Supreme Court of Hawaii to break the logjam.  On October 30, the court did so.  It ordered the Office to provide the staff support that the Commission was entitled to.  The first order of business, that any one commissioner could request, is setting up a meeting to elect a temporary (pro tempore) chair.  That, of course, would be a public meeting, not a happenstance gathering at Zippy’s or anywhere else.  The Commission could then deliberate and then elect a real chair by a two-thirds vote as the governing law requires.  Once the chair is elected, the Commission could then notice a public meeting to deal with all of the business items that have been accumulating ever since the terming out of the previous chair.

The real tragedy here is the loss to all of us taxpayers.  The fighting with the two individual commissioners, and the need for the Hawaii Supreme Court to step in and be the adult in the room, consumed resources not only of the Office but also the time of the deputy attorneys general who were involved in the fighting, as well as the resources of the Hawaii Supreme Court which ultimately sorted the matter out.  And then, the Commission itself could not do anything while it was stymied by the Office’s Catch-22.

I want to demand accountability here, but I cannot decide who to blame for this fiasco.  Should it be laid at the feet of the Office of Elections and its presumably well-meaning employee who was fearful of liability?  Or do we blame the deputy attorneys general for choosing to fight instead of talking their client, the Office, out of the ridiculous position it took?  Or should it be both?

This is an interesting and head-scratching case study for all of us to learn from.  Too bad it came at our expense.

The current year’s report recently came out.  It tells us that we have made great strides in addressing the financial problems, but that we are not out of the woods yet.

Source:  Truth in Accounting, 2026 Financial State of the States, p. 48.

The report found that the burden per taxpayer had been pared to around $4,500, definitely a huge improvement.  But there are other challenges, as the report states:

Hawaii’s financial position improved significantly in fiscal year 2025, with revenues exceeding expenses. Taxes accounted for 54.2 percent of total revenues, while grants and contributions, including federal aid, represented 27.9 percent. Despite this progress, the state continued to face substantial long-term obligations related to unfunded pension and retiree health care liabilities. The Employees’ Retirement System of Hawaii has not released updated 2025 financial reports, limiting transparency and public trust while hindering effective oversight of the state’s pension plans.

Hawaii received approximately $6.6 billion in federal grants, which represented 27 percent of its revenue. The federal government mandates that entities receiving significant federal funds undergo a Single Audit. These audits are intended to be the taxpayers’ first line of defense against potential fraud and abuse. Auditors found that Hawaii relies heavily on audit corrections to produce accurate financial statements year over year. The audit also found technology issues, untimely distribution of federal grant money, and staffing shortages-revealing weaknesses in systemic control and coordination across multiple agencies.

To us, we have known some time about challenges posed by ERS and EUTF.  The part about constantly needing audit corrections was somewhat disturbing.

If auditors need to make significant corrections in an end-of-year financial statement, it means the interim statements issued throughout the year by the State’s financial staff, which department heads and lawmakers presumably base their decisions on, leave something to be desired.

In addition, weaknesses in systemic control and coordination are bad signs, and untimely distribution of grant money means bad decisions are being made and there are problems left to fix.

Key financial reports that come in late, like the ERS 2025 report referred to, cause problems for similar reasons:  the value of information diminishes if it is untimely.  That’s why Truth in Accounting reported on “Zombie States,” shambling along without good financial direction, and we reported on it here.  (We were the sixth worst in 2016, and the tenth worst in 2021.  It seems we may have risen out of that pit of despair since then, although there is more work that needs to be done.)

Let’s make sure that future years do not result in a retrenchment of our financial difficulties.

To apparently work around what is plain in the case, this bill relies on an untested legal theory using an
unprecedentedly dangerous mechanism—the full revocation of all corporate powers in the state—in defense
of a theory that collapses in upon itself upon further examination.

The operative theory behind this bill is that states have the ability to define corporate powers and can strip
certain powers to speak based upon the content of that speech that are otherwise protected by the First
Amendment and Citizens United.  This approach alone will likely be subject to strict scrutiny as a form of
content-based speech restriction under the First Amendment, as this bill removes only speech related to
elections and ballot initiatives from a corporation’s powers, while permitting a corporation to retain its
ability to speak in other contexts.

These comments weren’t from just any old government agency. They were from the Hawaii Department of Attorney General, the folks who defend it in court if it gets challenged. And it did get challenged.

The Act supplies a solution that is much more far-reaching than the problem, which we understand to be copious amounts of money expended in favor of or against political candidates. The solution in the Act is to make all artificial entities within the state powerless to engage in election activity or ballot-issue activity.

Yes, the law provides definitions and exceptions.  But using a phrase like “directly or indirectly,” as one of the definitions does, is open to quite a bit of interpretation.

Last week, for example, you saw in this space some views on Proposition 2 relating to RISE Bonds.  That is ballot-issue activity unless the Foundation’s action was within the exception for “any bona fide news story, commentary, or editorial distributed through the facilities of a broadcasting station or of any print, online, or digital newspaper, magazine, blog, or other periodical publication.”  If we published that article when Act 11 was in effect, depending on the enforcing agency’s mood, we could be facing a tax exemption revocation, involuntary corporate dissolution (the Tax Foundation of Hawaii is a corporation), or other draconian sanctions.

Here in the United States, we are supposed to have freedom of speech.  That means ordinary citizens like us can talk about important issues, and even criticize the government, without being subjected to threats of punishment as we see in some autocratic or totalitarian countries.  When citizens get together and form associations or other entities, like corporations, the rules should be similar.  Should be.  And that is one thing that the Citizens United decision says.

Earlier in the era of Trump 2.0, I watched in horror as several big law firms were targeted for punishment because of what they said, who they hired, or which clients they represented.  I was heartened when the courts started torching the executive orders and vindicating the law firms’ positions.  Even then, however, there were a few big firms that made substantial concessions to make the threats go away (at least for a while).

Hopefully, the courts will do the right thing here and give Act 11 the thrashing that it deserves.

For those who would like a more comprehensive explanation of what these are along with their risks and benefits, the Hawaii Institute for Public Affairs (HIPA) has put a lot of work into breaking the issue down.

RISE bonds are a form of tax increment financing.  It’s not a new concept and has been done in several other places.  The basic idea is that a city, county, or other jurisdiction that has a property tax sets up a zone that is to be developed.  The jurisdiction borrows money to finance infrastructure, such as water and sewer lines, to be built in the zone.  It agrees that any property tax collected from that zone that is above the amount it collected before the development, namely the “tax increment,” is dedicated to pay off principal and interest on the bonds.  If everything goes well, the infrastructure is built, more housing is built around and above it, and the bonds are paid off via the tax increment.

If everything goes well, that is.  Hold that thought; we will come back to it.

For those of you who think, “But don’t we already have laws on the books authorizing tax increment bonds?” you would be right.  Sections 46-101 to 46-113, HRS, entitled “Tax Increment Financing,” are indeed on the books and have been since 1985 (Act 267, Session Laws of Hawaii 1985).  We understand that these bonds were never authorized because some in our Attorney General’s office believed that a constitutional provision, not just a statute, was needed to authorize this kind of bond.  Thus the need for a constitutional amendment.

The amendment being presented to voters, however, goes further.  There is currently a debt limit written into the Hawaii Constitution; we have had a debt limit since we became a state, as the Hawaii Supreme Court wrote in Convention Center Authority v. Anzai, 78 Haw. 157, 890 P.2d 1197 (1995).  The constitutional amendment would add language saying that RISE bonds don’t count against the debt limit.

This part of the amendment is what gives us pause.  We have a limit on how much the county can borrow.  This limit protects us against government borrowing too much and putting taxpayers on the hook for something today that a later government might not be able to fix easily.  RISE bonds are borrowing.  Both RISE bonds and other county debts are paid back from the same tax base, mostly property taxes.  So why does one kind of debt count and the other kind not count?

Let’s go back to the question we parked before.  What happens if the development does not go as planned?  Maybe there are cost overruns, permitting delays, or unforeseen developments like the discovery of ancient Hawaiian burial sites where infrastructure was planned.  The county has still borrowed the money and still needs to pay it back with interest.  Who winds up holding the bag?  Would we try to saddle the developer(s) with it?  If so, then the prices of housing the developer builds will inevitably get hoisted.  Do we call this a county-wide problem, and brace for a property tax increase?  Or do we do some combination of the above?

At this point, legitimate questions can and should be raised about how these RISE bonds are going to work here and what the off-ramps are if things go south.

• Debt Ratio (total liabilities ÷ total assets): Entities should not hold more debt than assets.
• Unrestricted Net Position: Negative values indicate insufficient discretionary resources.
• Revenues Less Expenditures: Spending in excess of revenues leads to a deterioration of the balance sheet.
• Liabilities per Capita: Liabilities exceeding $10,000 per resident (or $20,000 per student for school districts) become increasingly difficult for taxpayers to service.
• Quick Ratio: Entities should hold at least enough liquid assets to cover bills scheduled to fall due over the next year.
• Quality of Receivables: If receivables are valued at greater than 30% of annual revenues, the entity may be experiencing difficulty collecting its assessments.
• Cash as Percentage of Assets: Holding less than 10% of assets as cash leaves governments vulnerable to cash crunches.
• Solvency Ratio (liabilities ÷ annual revenues): If liabilities are greater than double annual revenues, the entity’s ability to issue new debt may be limited, and taxpayers may have difficulty servicing debt.

Twenty-three States studied (using 2023 financial data, the latest available for data comparison) took home no red flags at all.  The worst performer, New Jersey, was awarded six red flags out of the eight possible.  Connecticut came in second, with four.  California, Hawaii, Illinois, Massachusetts, North Dakota, and Pennsylvania were each given three.  Vermont, Washington, New York, and Delaware got two.

The foundation had this to say about Hawaii:  “Hawaii faces long-term challenges and carries $27.5 billion in total liabilities, or $18,909 per capita. Although assets exceed liabilities overall, restrictions on the use of cash leave Hawaii’s unrestricted net position negative at -$7.4 billion. Its cash assets amount to only 7.5% of total assets, although it holds sufficient cash to service current liabilities. Hawaii also boasted a healthy annual operating surplus of $2,566 per capita in FY23.”

The part about a huge amount of liabilities per capita should surprise no one.  Lots of ink has been spilled over the years about Hawaii’s defined benefit retirement plan, and the EUTF that had promised health care for life to qualifying State retirees.  No one today offers that kind of health coverage, and there are very few employers who maintain defined benefit plans.  They cost a lot of money even in good times, and cost even more in times of economic hardship.

Hawaii does have assets, but much of the cash is hidden in a honeycomb of special, revolving, and other non-general funds.  If pressing, resource-intensive needs arise (think hurricanes, fires, or the Trump Administration rescinding federal money that our government was relying on), it is difficult or impossible to meet those needs by moving the money we have.

And, speaking of assets, according to the State’s financial report (page 30), most of ours are in land, buildings, and infrastructure, not cash.  It’s difficult to respond to pressing needs with existing land and buildings.  These would need to be sold to generate cash, which is a slow and inefficient process especially when we have the cash available but sitting in a well-hidden special fund account somewhere.

So, lawmakers?  What can we do about this?  Are you ready, willing, and able to tackle this problem, or pieces of it, for the benefit of us all?

The author traces administrative burdens from the colonial era and Civil War, arguing that red tape historically has been a tool of discrimination and exclusion.

Our tax system, of course, contributes to this mess.  Buried within it are several common traps.  For example, what happens when you change your address?  You notify the USPS to forward your mail from your old address to your new one.  The data is picked up by tons of companies who are eager and willing to sell you goods and services related to the move you just made.  The data is ignored by the tax agencies, such as the IRS and the Department of Taxation, either of which might send you important information, such as an audit notice, to your old address long after the USPS’ automatic mail forwarding expires.  Under the tax law, it is sufficient for the tax agencies to send you notices at your last known address, so you can’t complain when they drain your bank account after they conduct an audit without your knowledge and then mail notices of assessment to the same address even if they know it is invalid. I know of a taxpayer who was sent a notice but happened to be out of town at the time. The mailing was returned to the Department. The Department forged ahead, and when the final assessment was sent to the same address, the taxpayer àreceived it and was aghast at what the Department had done in her absence.

This nightmare scenario cannot happen if you notify the tax agencies that you have changed your address — by filling out and sending in a government form.  For the IRS, it’s a Form 8822 for individuals or an 8822-B for businesses.  For the Department of Taxation, it’s Form ITPS-COA.

On this score the lower end of the income spectrum seems to be hit particularly hard.  Social safety net programs, such as TANF, require paperwork.  Healthcare via Medicaid?  More paperwork.  Unemployment benefits?  Different agency, different forms.  Refundable tax credits?  Still more paperwork.

A point where we differ from the author relates to tax credits.  The author argues that complex, bureaucratic social programs like welfare should be replaced with tax credits like the Child Tax Credit, which the author argues distribute cash with minimal paperwork.  But tax credits are not a replacement for social programs.  First, the tax credits result in a check going out (mailed to the taxpayer’s last known address) only once a year, while the taxpayer and family need to pay the rent every month and eat something more often than that.  Second, if we want social programs to offer highly tailored relief or if we want to impose eligibility requirements such as job-seeking requirements, a taxing agency is not equipped to tailor the relief or enforce the additional requirements.  Taxing agencies are built to bring revenue in the door, not to dish it out.

One of the recommendations we do agree on is for government agencies to share data more extensively.  Wouldn’t it be great, for example, if the tax agencies took notice of the USPS change of address feed like many other companies already do?  It wouldn’t only be nice, it would save the government so much in postage and returned mail costs. It would also spare the government from litigation against taxpayers who felt the tax agency should have given them notice but instead sent it to what they knew was an invalid address.

Weren’t we working on data systems in Hawaii government that were supposed to be able to talk to each other?  Hasn’t the effort been ongoing since the 2000’s?  What’s up with that?

When we think about tax cuts as a desirable goal, let’s also think about reducing the time tax.

And then there’s Ken Paxton. Yes, the Attorney General of Texas, candidate for Senator. He is the guy who, on behalf of Texas, sued Pennsylvania, Georgia, Michigan, and Wisconsin seeking to overturn their results in the 2020 presidential election.  (The US Supreme Court tossed out his suit.). He also made news when four whistleblowers whom he fired won a $6.6 million judgment against his office for wrongful termination.  (No skin off his back, though; Texas taxpayers wound up paying the tab.)

According to reporting from a nonprofit, university affiliated news organization in Texas, Mr. Paxton owns some property on Maui through a “blind trust,” meaning that he owns it, but someone else manages it for him, to cut down on possible conflicts of interest in his current position.

And the trust hasn’t paid his taxes.

According to Maui County property tax records, the real property tax for the first half of 2026 is due and unpaid. Some penalties and interest have been added.

The blind trust bought the property in October 2021. He’s had the property for a while and he had been paying property taxes on it until this year.

But, as readers of this column know all too well, the tax burden doesn’t stop there.

According to the Texas Tribune, the property was probably used a rental. Rental income is subject to our general excise tax, and perhaps our transient accommodations Tax if the rental was for fewer than 180 days.

Yet, in the Hawaii database of tax licensees which lists people and entities registered for GET, TAT, withholding, and other tax types, there is no Esther Blind Trust, or any name resembling it, to be found.

If there are GET and TAT taxes due and unpaid, the consequences may be severe. Folks who are required to file returns and pay taxes, but do neither, are routinely written up for 70% penalties. A 25% penalty is imposed for failure to file, another 25% for negligence, and another 20% for substantially underpaying taxes. In the federal system, you won’t see penalties this big because penalty stacking is limited. Not so under Hawaii’s tax laws.

To make things worse (for him), there is no statute of limitations to block the assessment. The statute of limitations starts running only if an annual return is filed.  With no returns filed, all past years are open for assessment.

And this trust won’t be able to shrug off the tax, penalties, and interest by simply saying that it doesn’t have money to pay them.  The Texas reporting says that the trust currently owns at least 15 properties with a total worth of about $9 million.

So, to our good friends at the Department of Taxation, we may have here some “low-hanging fruit.”

Celebrities should be following the law. They should be an example for the rest of us.

Sock it to ‘em, baby!

There are three ways to get into Tax Appeal Court:  assessment and appeal, payment under protest, and refund claim denial.

In the first, the Tax Department sends a “Notice of Assessment” saying that you owe tax, and you file an appeal in court.  You only have 30 days to file the appeal AND send a copy of your appeal to the Director of Taxation.

Complicating matters is that the 30 days starts from when the Department mails the letter to the taxpayer’s last known address.  What if the taxpayer is on the mainland or in a foreign country and gets the notice a couple of weeks later?  Then the taxpayer has two fewer weeks to get that appeal in.  What if the taxpayer has since moved but the Department doesn’t know the taxpayer’s current address and the mailed notice comes back undelivered?  Too bad, so sad.  The Department will tell you that it’s the taxpayer’s responsibility to keep a current address on file with the Department.

This route is the only way to get into court without paying the tax first.

Payment under protest means that you have a disagreement with the Department, you pay the tax in dispute with a letter explaining the dispute, and you then have 30 days to sue for a refund in Tax Appeal Court.

The good news is that this avenue of appeal is independent from assessment and appeal, so you can do this even if you have been assessed and the 30 days after the notice of assessment has come and gone.  The bad news — which the statute itself doesn’t explicitly tell you — is that there has to be some kind of official determination from the Department.  If you are being audited and the auditor says that there is no way in a hundred years that she will accept the taxpayer’s position, that isn’t good enough.  There needs to be an official ruling or at least a proposed notice of assessment.  If there isn’t, the court appeal is dismissed, and the Department keeps the money that you paid without a fight.

Finally, there is refund claim denial.  You, after paying tax to the Department, write them a letter saying that you want your money back.  Filing an amended return claiming a refund counts for this purpose.  If the Department writes you a letter saying that the refund claim is denied, you then have 30 days to file an appeal in Tax Appeal Court.  If the Department instead ignores you, you can treat their silence as a denial once six months have passed from the time your refund claim was filed.

Here again, there is a catch.  If the refund claim is barred by the statute of limitations, you lose.  The statute of limitations is generally three years from the due date of the return, but there are exceptions and qualifications depending on the kind of tax that is involved.

The moral of the story is this.  If you have, or think you may have, a dispute with the Department over taxes, get yourself a good tax practitioner who knows the rules and traps so you can skirt the edges and avoid falling into the pitfalls.  The Department’s lawyers are very familiar with the rules because they work tax cases every day.  Most normal people and even some tax lawyers are not as up on the nuances.

And then, of course, lawmakers need to take a look at these rules and change them to get rid of the unfairness.  We at the Foundation will try to help legislators understand the traps and get rid of them.

So, here is what I think.

Taxation is, primarily, a means of spreading the cost of a civilized society, namely the cost of our government, among the people who benefit from that government.

It’s easy to say that this cost should be spread fairly.  It is a much harder task to define what “fairly” is.

Some think that fairness means applying the same tax to everyone, everywhere, and to everything.  This comes close to describing our General Excise Tax.  Yes, it has exemptions and exclusions and reduced rates, but it comes far closer to pervasive fairness than most tax systems here or elsewhere.  The tax rate of 4.5% applies to most retail transactions, and it does not depend on anyone’s ability to pay the tax.  For that reason it is called a “regressive” tax, leading many to say that it is not fair.  Sales taxes, which most states impose, are the classic regressive taxes.

Some think that fairness means a tax that depends on ability to pay.  If you can pay more, then your fair share is more.  Our Net Income Tax, with several different tax brackets that apply higher rates to income over increasing thresholds, accomplishes this.  It’s called a “progressive” tax for that reason.  Most states have progressive income taxes, but most have fewer brackets (some have a “flat tax” with one bracket).  All have continuing political debate over what is a “fair share” to make people pay.

Most tax systems, including ours, also include items that detract from fairness.  There are two kinds.  Credits and incentives are typically given to encourage or reward social behavior that is seen as beneficial to society.  Clean energy credits, credits to encourage capital investment, and enterprise zone incentives are just a few examples.  The other kind works the opposite way.  Think of penalties and sin taxes, such as tobacco taxes or liquor taxes.  They are there either to penalize detrimental behavior or to pay for incremental costs that are associated with that behavior.  Credits and incentives, as well as penalties and sin taxes, are by definition unfair, but we as a society justify the unfairness by saying that it will accomplish a greater good.

So, what should we be looking for at our Legislature to be sure that lawmakers are focused on making taxes fair?

First, we need taxes and regulations that focus on real fairness and are not simply a manifestation of other motives such as envy, of which we have written before.  If there are going to be credits and incentives, we need to monitor the societal effects and sunset them when the desired results are achieved.  The same goes for the penalties and sin taxes, which are the other side of the same coin.

There are some taxes that we now have in place that do not fit the traditional mold of the sin tax.  Take the transient accommodations tax and the rental motor vehicle and tour vehicle tax, for example.  Do we have them for reasons other than “Because we can”?  Are there incremental social costs associated with hotel and rental vehicle activity that the taxes pay for?  Are the social costs and the taxes in alignment?

The same analysis should be done for social welfare programs administered through the tax system, such as the food/excise credit and the credit for dependent care services.  Are they properly and efficiently administered through the tax system, or should they be housed in, say, the Department of Human Services, our department that is specially equipped to deal with the downtrodden?

As of this writing, government agencies and legislators are hard at work drafting legislative proposals.  We hope that they will go through these analyses to better understand their proposals.

It concerns one of the special funds set up in the City Charter of Honolulu that is fed automatically by an earmark on property tax revenues.  We spoke about them a few weeks ago.  Today’s topic of discussion is the Clean Water and Natural Lands Fund.

Our alert constituent pointed out that although the annual earmark from property tax gives fund $8 to $9 million a year, the money in this fund has been piling up.  According to the City’s most recent budget document, this fund had, at the end of fiscal year 2025, an “Unreserved Fund Balance,” meaning cash that is neither spent nor encumbered, of $65 million.

The City Charter provision establishing the fund says that it can be used for preservation of beaches and coastal areas, as well as public outdoor recreation.

Now, let’s take a look at Ala Moana Regional Park.  The City & County of Honolulu calls it “one of the state’s oldest and busiest parks, currently seeing an estimated four million users every year.”

Due to erosion, the park beach requires sand replenishment periodically.  An effort to plan and gain approvals for the project was begun sometime around 2019, which is the date the U.S. Army Corps of Engineers issued a public notice asking for the public’s comments on an application for the project that the City had submitted to the Corps.

Six years later, we see an extension request being considered by the State Board of Land and Natural Resources for its approval of the work.  The extension request reads:  “Due to the continued impacts of COVID-19 on budgets and schedules, the Applicant was unable to comply with [a permit condition requiring work or construction to start within one year after approval] and a time extension was granted by [the Department of Land and Natural Resources] on February 24, 2022.  The City continues to seek funding for the project.  We respectfully request that [the existing permit] be again extended to allow adequate time for the Applicant to secure project funding and proceed with construction.”

So, on the one hand, we see that the City initiated an Ala Moana beach replenishment project in 2019 or earlier.  It had to and did get permits from the Army Corps of Engineers and the State Department of Land and Natural Resources.  They say they can’t execute the project because there’s no money to do so.

And, on the other hand, there is a special fund with tens of millions of dollars in it, and the scope of the fund includes preservation of beaches and coastal areas, including public recreation.

Is this making sense to you?

Furthermore, Ala Moana Regional Park surely isn’t the only beach out there that needs some TLC.

How about Waikiki Beach?  As recently as 2025 and 2026, officials were still pursuing planning, environmental review, and stabilization projects, indicating that substantial corrective work remains outstanding.

Why aren’t we using the tens of millions of dollars now in the special fund to at least make a dent in these problems?

Wake up, folks!  The Clean Water and Natural Lands Fund isn’t there simply to save up money for a rainy day.  It’s there to provide money for specific needs.  We have those needs and the projects, so let’s take care of them!