TAXWatch: HI-5 – Have We Stopped the Leakage Yet?

Just three months ago, the Hawaii State Auditor released the latest in a series of reports over the years on the Hawaii Deposit Beverage Container Program, known as HI-5.  That report, No. 19-08, basically said, “Look.  We’ve issued four audit reports on the program, every two years beginning with 2013.  In each of the reports, we rely on the distributors and redemption centers to be honest and police themselves.  There is no verification or enforcement.  You might think people are honest, but in three out of the four reports we found discrepancies, meaning either that distributors paid the fee on fewer bottles than they distributed, or redemption centers asked for and received more money from the State than they were entitled to.”

To illustrate the point, the 2019 report detailed the story of one staff worker who worked for the accounting firm contracted to help with the report.  He went to a redemption center, dropped off some glass bottles, and was paid 61 cents.  The redemption center altered the receipt log and received a little more than 69 dollarsinstead.  A few days later, he went to the same redemption center with three pounds of plastic containers and was paid $3.95.  That receipt log was also altered, with the State paying out fifteen bucks.

“The Department of Health has been aware of this flawed payment system since 2006,” the report summary says, “but has done little to address it either with changes to the program or through enforcement inspections.”

When the Auditor’s report came out, it received attention not only from the local press but also national media.  And the Legislature was in session at the time.  Wasn’t it a great time to ask the Legislature to give the Department of Health some resources to put financial controls on the program and perhaps throw in the hoosegow some of the bad actors who had been stealing taxpayer money?

When you read the budget summaries from our legislative folks, however, such as blog posts from the House Majority on House Bill 2and on the remaining executive budget, there is no mention about fixing the leaks in our bottle bill program.

And, when perusing the news releasesfrom the Department of Health, the Department doesn’t seem to mind publicizing red-placard closures of food establishments as examples of its robust inspections and enforcement on the Big Islandand Molokai, but no mention whatsoever is made of the redemption fraud even though the Auditor gave DOH evidence on a silver platter.

Does DOH just not care about millions of taxpayer dollars possibly being stolen from under their noses?  “Fraud is a serious and real risk for this program,” Director of Health Dr. Bruce Anderson stated in a February 21 letter attached to the audit report.  Yet we have heard nothing at all about changes to the program or about wrongdoers getting punished.

Perhaps this apathy is breeding distrust of the program.  Redemption rates for eligible beverage containers are hitting the skids, as this chart shows:

Source:  Office of the Auditor

Perhaps if we can clean up this program, we can help to restore confidence in government’s ability to handle money.  And bottles.

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Tom Yamachika is the President of the Tax Foundation of Hawaii, a private, nonprofit educational organization dedicated to informing the taxpaying public about the finances of our state and local governments in Hawaii. Tom is also a tax attorney in solo practice and has been since early 2013. Prior to 2013, he was with the accounting firm Accuity LLP, which was formed in 2006 from the Honolulu office of Coopers & Lybrand (which later became PricewaterhouseCoopers). Before that, he served as an Administrative Rules Specialist in the State of Hawaii Department of Taxation from 1994 to 1996, where he drafted rules, interpretive releases, and legislation on several different state taxes. Prior to that, he practiced litigation and tax law with Cades Schutte Fleming & Wright in Honolulu.

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