TAXWatch: Business Fees Go Down! –Huh?

In the news recently was a story about business and licensing fees actually going down.  

These fees were imposed by the Department of Commerce and Consumer Affairs (DCCA).  The money from those fees was funneled to special funds that were supposed to assist with the costs of regulating the industries to which they pertained, namely financial institutions, the cable industry and condominiums.

However, the balances in those funds trended upward, meaning that DCCA was raking in more money than it spent on the industries in question.

This past legislative session, our House of Representatives implemented a slightly different budgeting process.  Instead of having all budgets from all departments funneled through just one legislative committee, the work was essentially split up among several committees, each of which could take a closer look at the department(s) to which it had been assigned.

DCCA fell under the watchful eyes of the House Intrastate Commerce Committee, chaired by Rep. Takashi Ohno.  That committee found that a number of funds under DCCA control had ballooning balances, as written up in House Standing Committee Report No. 653.  It observed that the contractors recovery fund had an unencumbered cash balance of $922,593; the contractors education fund, $560,524; the real estate recovery fund, $870,665; the real estate education fund, $786,881; and the condominium education fund, $2,184,889.  In contrast, the largest payout over multiple years from the contractors recovery fund was $170,893; the contractors education fund, $5,105; the real estate recovery fund, $131,799; the real estate education fund, $602,099; and the condominium education fund, $607,819.  The bill to which the report pertained ultimately didn’t pass, but the additional scrutiny motivated DCCA to work with the House to re-examine the fees over the summer.

As a result, DCCA agreed to the following actions:

It stopped collection of fees that were to go to the mortgage loan recovery fund (see Hawaii Revised Statutes sec. 454F-41) because that fund had swelled to $1.8 million and little, if any, of the fund had been spent.

It stopped collecting the $5 biennium fee from condominium unit owners that was to go the Condominium Education Trust Fund (see HRS sec. 514B-72) because the balance in that fund climbed from $785,062 in fiscal 2015 to $2.5 million in fiscal 2018.

DCCA also reduced annual assessments charged to financial institutions and franchise fees charged to cable television operators.  

It told the Star-Advertiser that it would continue to monitor the funds to ensure that consumers would not be negatively impacted.

Rep. Ohno called the reductions a great first step.  He is still concerned about other special funds fed by fees from contractors and real estate agents.

Congratulations are due to the House of Representatives and the DCCA!  This is an example of how legislative oversight of state agencies is supposed to work.  Hopefully, once our government officials see more instances of this process playing out to the benefit of the business community and their customers, they will be more sensitive to overcollection of those hard-earned taxpayer dollars.

The next order of business is getting a handle on overspending.

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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.