Onerous burden of doing business goes beyond taxes

A recent state-by-state business climate survey ranked Hawaii dead last as a desirable place for doing business.

A local newspaper’s editorial staff noted the ranking and chalked it up to the burden of the general excise tax, citing its broad base and imposition on every transaction. While the GET is pervasive, rippling through all sectors of the economy, the piece failed to point out that good tax policy prescribes a broad base and a low rate to yield substantial revenues. The broad application of a tax ensures accountability, as more taxpayers must pay it. In the case of the GET, it is not only the customers, but the business on whom the tax is levied.

While the GET is onerous in relation to the retail sales tax it is often compared with, it is by no means the only reason for the dower business outlook. The plethora of fees various departments of state and county governments impose on businesses drive up the costs of doing business here — costs that must be recovered in the prices customers pay. It is not uncommon to hear business owners say that every time they turn around, another permit or license is required to conduct business in the state. In addition to the fees and charges levied for these permits and licenses, is the extra time it takes to secure them.

For example, one organization was told that because the structure they wanted to occupy for a group home did not have a sprinkler system, they needed to install a fire hydrant within 75 feet of the structure.

Unfortunately, the sidewalk where the fire hydrant had to be placed abutted a federal highway. Therefore, it needed approval from the department of transportation, the agency that administers federal highway funds.

The professional consultant hired to shepherd the permit application through the department of transportation estimated it could take as long as 18 months to secure the necessary approvals. Until those approvals could be secured, the facility could not be occupied. Meanwhile, interest on the loan used to purchase the structure would accrue. Thankfully, the nonprofit organization appealed to the powers that be and lo and behold the permit and approvals for the fire hydrant were forthcoming in a matter of a few months.

If the organization had been a for-profit company, subject to the idiosyncrasies of the “system,” the cost of the lost time plus the interest would have had to be recovered in the use of the facility or through its future sale.

Another case in point was that of a developer of an affordable housing project that met all the criteria of the law accorded to such affordable housing projects. However, the arduous permitting process took longer than necessary. Potential owners of the units began to drop out of the program because the permitting process was taking so long, even though they had qualified for the requisite loans. When the developer volunteered to sit his architects and engineers down with the planners who oversaw the permitting process, none of the planners explained why the permits had not been approved.

While the state statute provides that such an affordable housing project shall get special consideration, it appears the bureaucracy operates to its own beat — certainly on its own schedule. So much for lawmakers setting policy, the public bureaucracy will do as it always has.

For many a small business and budding entrepreneur, these roadblocks can be daunting. No doubt, many have attempted to set up shop in Hawaii but ended up throwing their hands up in disgust before moving out of state. In those cases, it is truly a loss for the state and the community as a whole and a loss of economic activity, job creation and, oh yes, more tax revenues for the state and county coffers.

When and if public policymakers decide Hawaii needs a brighter economic future, they may just start by cleaning out their own backyard.

Lowell L. Kalapa is president of the Tax Foundation of Hawaii.