Harbors Are for Soaking the Taxpayer – Again and Again

In a prior article, we reported that last December, administrative rules were finalized that wrought significant increases in fees charged by the Department of Transportation, Harbors Division.  Those fees increased 17% beginning on February 1, 2017; they will increase another 15% on October 1, 2017; they will increase another 15% on July 1, 2018; and they will increase on July 1 of each year thereafter, by either 3% or the consumer price index rate, whichever is higher.

We now know that the Harbors Division isn’t satisfied with those three years of triple-digit increases.  In draft rules presented to and approved by the Hawaii Small Business Regulatory Review Board (SBRRB) just last month, the Harbors Division wants to hike dockage and port entry fees by 20% effective July 1, 2019, another 15% effective July 1, 2020, and another 15% effective July 1, 2021.  And, if that isn’t enough, cruise passenger fees will be doubled in Honolulu Harbor effective July 1, 2018, and slightly increased in all other harbors.

Probably the most shocking part of the presentation, however, is the Division’s analysis on how these rate increases impact small business.

The Division says that of the 99 harbor users in the past two years, eight meet the definition of a small business.  Seven of them turn around and pass the costs on to another party.  The eighth was a one-time customer and can be disregarded as an outlier.  Therefore, the Division concludes, there is no impact to Hawaii’s small businesses.

Then the Division goes on:  “Given our analysis,” they say, “we conclude that these proposed amendments do not affect Hawaii’s small businesses and there is no ‘potential or actual requirement imposed upon a small business … that will cause a direct and significant economic burden upon a small business….’”

(I swear I am not making this up.)

Let’s get real, people!  Most of the goods that we need and buy come here by boat.  Buyers include individuals, big businesses, and small businesses.  Shippers who operate the boats will of course pass the costs on to retailers who sell the goods, who then will pass those costs on to people who buy the goods.

In addition, the price increases will require more General Excise Tax to be paid, by the shippers, the middlemen, and the retailers.  Those taxes too will be passed on to the end users.  Are we seeing a vicious cycle here?

The mentality that leads to these proposed rate hikes, as it was explained to the SBRRB, goes something like this.  We (the Harbors Division of DOT) are doing a harbor modernization project.  It will cost $450 million.  We are supposed to be self-sufficient (namely that we aren’t supposed to get any general fund money to pay for this project).  Therefore, we need to raise fees to pay for the project.  The applicable statutes (Hawaii Revised Statutes sections 266-2 and 266-17) give us the authority to set these fees, so we are using that authority.

There apparently was some spirited discussion at the SBRRB’s August meeting regarding the proposed rules.  One member said that the fees will be passed onto the small businesses.  DOT replied that it’s difficult to determine how much would trickle down to small businesses, and it’s difficult to determine the impact on small business.  (So they didn’t bother; nor did they examine less burdensome alternatives, consult with small businesses, and so on.)  Another member wanted to know if the DBEDT economists could estimate the economic impact.  Staff said they would get back to him.  (Wonder if they ever did.)  Ultimately, the SBRRB passed the rules out for public hearing, moving them closer to becoming reality.

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About Tom Yamachika

Tom Yamachika
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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