The state House and Senate yesterday gave final approval to an increase in the barrel tax and a measure to halt a state plan to close eligibility offices on the Neighbor Islands that help the poor.

The majority Democrats hit a snag on other tax-related proposals designed to contain the state's budget deficit.

The barrel tax on petroleum products would rise from 5 cents to $1.05 and bring in $22 million a year — $13.2 million for the state's general fund and $8.8 million for food and energy security programs. The tax hike would likely be passed on to consumers and lead to slightly higher gasoline and electricity costs.

Lawmakers want to block the state Department of Human Services from carrying out a reorganization plan that would close most eligibility offices and lay off hundreds of eligibility workers. The bill approved yesterday would preserve eligibility offices on the Neighbor Islands but allow the department to proceed with a pilot project to consolidate application-processing services in Honolulu.

Gov. Linda Lingle will likely veto both bills, but lawmakers passed them in time to consider veto overrides before the session ends later this month.

In a hint of potential discord, however, the Senate deferred final votes on bills that delay investors' ability to claim high-technology tax credits for three years, repeal the high-tech tax credits early and cap itemized tax deductions for the wealthy.

The Senate also chose to pull back on a bill that would have cut general-excise tax exemptions on several business activities and impose a 0.5 percent GET on those activities.

House and Senate budget negotiators had wanted to lock these bills — which represent about $160 million in revenue — into place early to give lawmakers a better idea of what other tax and spending decisions are necessary to close the $1.2 billion deficit.

With such a large amount of money now in flux, lawmakers may have to leave other controversial decisions, such as whether to set aside money to reduce teacher furloughs and whether to scoop hotel-room taxes from the counties, for the final endgame before adjournment.

"At the end of the day, if we have less, then we'll have to go into the budget and make more cuts," state Sen. Donna Mercado Kim, D-14th (Hālawa, Moanalua, Kamehameha Heights), the lead Senate negotiator on the budget, told reporters.

State Rep. Marcus Oshiro, D-39th (Wahiawā), the lead House budget negotiator, sternly warned last night that lawmakers may indeed turn to hotel-room tax revenue from the counties or deeper budget cuts to state departments if the tax bills stall.

Oshiro made a similar warning in budget talks last year, when the Senate hesitated in cutting back on high-tech tax credits after an initial conference agreement, but last night he appeared more frustrated. He called for a "time out" in negotiations until tomorrow night.

"We seem somewhat schizophrenic at this point in time," he said afterward. "We want all these things, but at the same time, we're not willing to step forward and make the commitment to pay for these programs and services.

"For me, I was more disappointed than angry. I'm a straight-up kind of guy. I'm not playing around. We have about a week to decide, so if you guys don't want us to do these tax bills, fine, then we'll go back in there and do our best with what we have."

TOBACCO TAX

Earlier yesterday, lawmakers cast final votes on bills to increase the tax on cigarettes and little cigars and raise the fees for traffic abstracts from $7 to $20. The tobacco tax would generate $10 million to $14 million a year and the higher traffic abstract fees would bring in about $6.5 million a year.

The biggest debate was over the barrel tax increase. Many lawmakers and environmentalists believe it is a step toward food and energy security in a state dependent on imported oil. They pragmatically accepted a compromise that would initially divert most of the new money to the state's general fund to help with the deficit.

"This is still a huge start, a big step toward our state becoming more sustainable in regards to food and energy," said state Senate Majority Leader Gary Hooser, D-7th (Kaua'i, Ni'ihau).

State Sen. Sam Slom, R-8th (Kāhala, Hawai'i Kai), said that when you "strip away all of the nomenclature, it's just simply a bad tax bill."

"And it's so much worse than the supporters think it is," he said.

State Sen. Rosalyn Baker, D-5th (W. Maui, S. Maui), said she was grateful the bill would exempt aviation fuel. But she said the tax hike would fall disproportionately on consumers on the Neighbor Island and others who have to drive longer distances. She prefers a broad-based increase in the GET, which she believes would be more equitable than the targeted tax increases being considered by the House and Senate.

But Kim said the barrel tax money would go to the general fund and help sustain other environmental programs. She questioned how a regressive GET hike, which would raise costs across-the-board, would help consumers or businesses.

"I know some members are still with the idea — that if some of these measures fall by the wayside that they'll get the GET — it's not going to happen," Kim told reporters.

In the House, state Rep. Kymberly Pine, R-43rd ('Ewa Beach, Iroquois Point, Pu'uloa), said the barrel tax had been "hijacked" and was now more of a tax bite on consumers than a strategy to promote alternative energy.

But state Rep. Hermina Morita, D-14th (Hanalei, Anahola, Kapa'a), challenged lawmakers to think about the future benefits of food and energy security and not the short-term political risk of raising taxes in an election year.

"Doing nothing is not an option, not if we call ourselves leaders," she said.

Lillian Koller, the director of the state Department of Human Services, described the attempt by lawmakers to block the department's reorganization plan as "a sad day for the neediest men, women and children of Hawai'i."

The department wants to close most eligibility offices and consolidate the application process for welfare, food stamps and other aid at locations in Honolulu and Hilo. The department's plan would mean that 228 of 517 eligibility workers statewide would lose their jobs.

OFFICE CLOSURES

If the bill becomes law and prevents eligibility office closures on the Neighbor Islands, she said, "it will not harm our customers on O'ahu. ... The customers who will be harmed are those living on the Neighbor Islands, where the backlog of applications for public assistance grows larger every day."

Koller accused Democrats of trying to preserve an antiquated and inefficient processing system solely to save government jobs.

"It is shameful to put the interests of government workers above the needs of our customers," she said in a statement.

State Rep. Mele Carroll, D-13th (E. Maui, Molokai, Lāna'i), said lawmakers want to improve efficiency in the department. But she said the department moved forward with what she described as a total system overhaul without adequately consulting eligibility workers.

"For me, that's not right," she said.

Carroll said a pilot project in Honolulu would help determine whether the new processing system will work statewide.