STAND

 

STAND. COM. REP. NO. 1558-04

Honolulu, Hawaii

, 2004

RE: S.C.R. No. 13

 

 

 

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Sir:

Your Committees on Labor and Public Employment and Public Safety and Military Affairs, to which was referred S.C.R. No. 13 entitled:

"SENATE CONCURRENT RESOLUTION REQUESTING HAWAII'S CONGRESSIONAL DELEGATION TO ENSURE THAT AT LEAST EIGHTY PER CENT OF FEDERAL EXPENDITURES REMAIN IN HAWAII, AND THE RIGHTS OF LOCAL UNION LABOR TO FAIR WAGES UNDER THE DAVIS-BACON ACT ARE NOT CIRCUMVENTED, ON THE U.S. MILITARY PRIVATIZATION CONSTRUCTION CONTRACTS FOR IMPROVEMENTS ON HAWAII MILITARY BASES,"

beg leave to report as follows:

The purpose of this measure is to request Hawaii's Congressional delegation to help:

(1) Ensure that at least eighty percent of federal expenditures on the Residential Communities Initiative stays in Hawaii through the hiring or contracting of local firms and laborers;

(2) Investigate piecework systems and rate-fixing that circumvent Davis-Bacon; and

(3) Take steps to ensure that local contractors are not underbid by mainland firms on Residential Communities Initiative contracts.

Testimony in support of the measure was received from the United States Congressman representing the First Congressional District of Hawaii, the Budget Chair of the Honolulu City Council, Hawaii Government Employees Association, Iron Workers Stabilization Fund, Hawaii Building and Construction Trades Council, the Chamber of Commerce of Hawaii, General Contractors Association of Hawaii, Plumbers and Fitters Local 675, International Union of Elevator Constructors, International Brotherhood of Electrical Workers, and a concerned citizen.

Your Committees find that the Residential Communities Initiative (Initiative) was passed in 1996, which is the impetus for large, long-range, multi-billion dollar military housing projects. As such, these project contracts go far beyond individual military contracts and have far-reaching, long-lasting implications for the economies of the communities they affect.

Testimony received by your Committees indicated that construction contracts of the sizes involved in the Initiative could have significant impacts on the local economy through the use of local contractors. Hawaii's Congressional delegation has been encouraging the use of local contractors in the last couple of years, at times being able to use local contractors for up to seventy-five percent of the work contained in the requests for proposals.

In this vein, this measure seeks to advance this objective by requesting the whole of Hawaii's Congressional delegation to ensure that at least eighty percent of Initiative expenditures go toward the hiring of local contractors.

Your Committees also recognize that these implications could especially impact workers' rights, and emphasize that the contractors on these projects must comply with Davis-Bacon and little Davis-Bacon directives. To this end, this measure requests that the whole of Hawaii's Congressional delegation inquire into and cause to be investigated, if necessary, techniques that may be used by contractors to circumvent the requirements of Davis-Bacon.

Finally, your Committees received extensive testimony relating to the final purpose of this measure. The testimony indicated that there is currently an ongoing situation in which a mainland contractor received a pre-contract award for an Army contract, and is now seeking tax breaks and waivers from the state and affected county.

While your Committees would have liked to have heard from the Army project contractor, and notice of this hearing was posted sixty-five hours in advance, the contractor sent no representative to the hearing.

The testimony emphasized that the subject contract is a multi-billion dollar long-term Army contract, which could go on for fifty years. As such, it is imperative that all parties involved, especially the affected jurisdictions, recognize the fiscal implications of such a large contract and any tax break or waiver that may be awarded to a contractor.

In this case, your Committees learned that the low bidding contractor has been lobbying the Governor for tax waivers for the length of the contract. The reason given for the waivers was that without them, the contractor would not be able to do the work assigned to them via the bidding procedure.

Your Committees received a hard copy of a slide show presentation entitled, "Impact of Proposed Taxes on soldiers and families, U.S. Army Garrison, Hawaii". This presentation asserted that if tax waivers or breaks are not given to this contractor, 2,097 units would be impacted, and "All of the soldiers (and their families) that were on the parade field for the Iraq departure ceremony will not get new or renovated houses for 11-15 years." It further stated that total impacts of property taxes and general excise taxes on rent and construction would total $261 million, and that the delay of the 2,097 units would cost $244 million.

Your Committees find that the relation of the $261 million tax impact to the $244 million delay related costs is disingenuous. Testimony received by your Committees indicated that these representations were meant to show that without tax concessions by the affected jurisdictions, the contractor would refuse or not be able to do the work assigned to them via their bid. However, further testimony indicated that this work was required under the contract, and that any tax breaks that the contractor received was intended to go toward maintenance, management, reserves, or fixtures for the property, to guarantee that local contractors would be involved long-term.

Further, the Congressman indicated in his testimony that he had initially given his support of exemptions from state General Excise and Use taxes for the Army project contractor. In his letter dated October 17, 2002, the Congressman specified that he supports tax exemptions that would consider "long-term viability" and give attention to "building maintenance and required replacement reserves."

However, the Congressman had to rescind his support in a letter dated April 22, 2004, when he found out that the tax waiver dollars were meant for "… future necessary operating, management and maintenance expense following initial construction. At no time was there ever a presentation to me that a waiver would be sought to fund the construction itself." (Emphasis in original.) Indeed, the Congressman testified that he has not since received any further information regarding the disposition of these tax waiver dollars.

The upshot of all of this is that the contractor on the Army project seems to be relying on the affected state and county jurisdictions to "bail them out" of their bid. If this is the case, it is not fair to the other contractors who submitted bids that correctly considered taxes. The contractor on the Army contract should be held to its bid, and the affected state and county jurisdictions should receive the tax revenue they are entitled to for the upkeep of the amenities and infrastructure that they have to offer.

Your Committees further find that the military communities do not live in isolation from the rest of the local community. Members of the military community are a welcome part of the local community and are encouraged to enjoy and use the amenities our cities and state have to offer, including our roads, water and sewer systems, emergency response services, and recreational facilities. As such, their impact on these amenities must also be considered.

To this end, the Honolulu City Council passed two bills for second reading. The first bill, Bill 25 (2004), Required Annual Budget Information, requires that City appropriations proposed by the mayor to support the service and infrastructure requirements of developments on certain military lands be identified in materials accompanying the City budget documents transmitted annually by the mayor pursuant to the City Charter. The second bill, Bill 26 (2004), Taxation of Federal Real Property, ensures that the City obtain a full and equitable collection of real property tax revenues from federal property converted to nonmilitary purposes for use by private firms and individuals to support and defray the city's expenditures for services enjoyed by users and residents of those properties. Your Committees thus find that tax revenues are vital to state and county jurisdictions to support developments such as those included in the Initiative, and that it is equitable to have military communities share in the costs of supporting the infrastructure and amenities of state and county jurisdictions.

As a side issue, it has been contended that non-support of tax breaks for Initiative contractors is un-patriotic because troops will go without upgraded housing for over ten years. To the contrary, condoning private enrichment at the expense of taxpayers is not patriotic and even contemptuous. In addition, your Committees heard testimony that another Navy project did not have problems with the contractor balking at paying taxes. Further, your Committees heard testimony that the current contractor on the Army project is based in Napa, California, but its parent is an Australian company. Your Committees have concerns that any tax waivers or exemptions granted to this contractor may go to this foreign parent company, rather than being reinvested into maintenance of the Initiative project.

Because of the previously stated interest of promoting local contractors for Initiative contracts, it is imperative that Hawaii's Congressional delegation assure that the contractor that currently has the subject Army contract hire sufficient local contractors. Further, because testimony has shown that the current contractor for the Army contract may have underbid all others without sufficiently accounting for tax costs, that they be held to the terms of their bid and the bid documents. To allow otherwise via tax breaks would not be fair to the other bidders, some of whom may have been local or involved local contractors, who correctly factored the tax costs into their bids, and will cost the state and counties much needed tax revenue. The current contractor should not be bailed out of their miscalculation by the state or county jurisdictions.

As affirmed by the records of votes of the members of your Committees on Labor and Public Employment and Public Safety and Military Affairs that are attached to this report, your Committees concur with the intent and purpose of S.C.R. No. 13 and recommends its adoption.

Respectfully submitted on behalf of the members of the Committees on Labor and Public Employment and Public Safety and Military Affairs,

 

____________________________ KEN ITO, Chair		____________________________ MARCUS R. OSHIRO, Chair