State lawmakers agreed to decriminalize possession of small quantities of marijuana in Hawaii but abandoned plans to increase the state minimum wage for the time being as House and Senate negotiators Friday wrapped up the bulk of their bargaining over bills for this year.

In a flurry of last-minute activity, lawmakers also approved a plan to impose state income taxes on real estate investment trusts and rejected a plan to authorize vacation rental platforms such as Airbnb and Expedia to collect taxes from both legal and illegal operators on behalf of the state.

Lawmakers also tentatively agreed to set up a committee to plan for the use of cameras to identify and ticket motorists who run red lights.

In a development that derailed one of the top priorities of the Hawaii Democratic Party for this year, House and Senate negotiators gave up on the idea of passing an increase in the $10.10-per-hour state minimum wage this year.

Longtime Democratic Party activist Bart Dame said the state has been “derelict” for failing to increase the wage floor, citing state data that shows a single person needs to earn $15 to $17 an hour to be self-sufficient in Hawaii.

“It looks like the legislative leadership of both chambers is just out of touch with the real conditions facing working people in Hawaii, who are struggling to pay basic expenses,” he said. “They’re just so out of touch with the actual conditions faced by working people that they can play games and kill a bill like this when there’s no good reason for doing it.”

The House version of House Bill 1191 would have established a minimum wage of $12.50 an hour for employers who provide health coverage to their workers, while the minimum wage would be set at $15 per hour for employers who don’t provide health coverage.

However, House Labor and Public Employment Chairman Aaron Johanson dropped that two-tiered proposal Friday after the state Department of Labor and Industrial Relations warned that the House proposal would create legal complications in connection with the state’s Prepaid Health Care Act, which requires employers to provide health coverage to full-time workers.

House Speaker Scott Saiki said in an interview that those legal issues raised by the labor department “threw a wrench in the negotiations.”

“The Legislature needs to consider different alternatives,” Saiki said. “There just needs to be more deliberation on this.”

The minimum wage increase was opposed by the Chamber of Commerce Hawaii, but chamber President Sherry Menor-McNamara said that “we certainly understand that cost of living is a concern for everyone.”

“Our approach has always been, let’s focus on the foundation, what’s driving the cost of doing business; and we believe from the chamber’s standpoint that simply raising the minimum wage was not the right solution,” she said.

Marijuana fines

State lawmakers also agreed to decriminalize the possession of three grams or less of marijuana, which would add Hawaii to a growing list of states that are easing laws against marijuana even as it remains illegal under federal law.

Under House Bill 1383, those caught with three grams or less, which amounts to about six joints, would be be fined $130 rather than charged criminally. The bill would also allow people with convictions for marijuana possession charges involving three grams or less to petition to expunge their criminal record.

The bill now goes to the House and Senate for final votes before it can be sent to Gov. David Ige for final decision-making.

The bill was opposed by the state attorney general, Honolulu prosecutor’s office and neighbor island police departments, and it is unclear whether Ige will veto the bill.

Attorney General Clare Connors said the state shouldn’t expand the legalization or decriminalization of marijuana beyond medical use until the federal government changes its laws, and Ige said during his reelection campaign last year that he opposes legalization of marijuana.

Vacation rentals

In a rare 12-12 vote by the full Senate later in the evening, members shot down a bill that would have authorized vacation rental platforms such as Airbnb and Expedia to collect taxes on behalf of the state.

Ways and Means Chairman Donovan Dela Cruz said Senate Bill 1292 could bring in $46 million in added revenues to help the state fund a litany of priorities this year, such as Filipino burial grants, suicide prevention efforts and a commission to oversee the state’s correctional system.

He said that without the measure, funding for those bills this year could be jeopardized.

However, Sen. Laura Thielen said that the House still has time to revive House Bill 419, which would allow vacation rental platforms to collect taxes, while also implementing enforcement mechanisms to stop the proliferation of illegal rentals.

“We should not be balancing our budget on these illegal operations because then we become reliant on those revenues and more resistant next year to giving the counties the authority to regulate them,” she said as she urged her colleagues to vote down the bill.

Thielen compared the spread of illegal rentals to the devastation that rapid ohia death has had on Hawaii’s native ecosystem.

“I ask you to think of the real human costs and what’s going to happen to our society as more and more of these homes turn into houses, where they lose their spirit and their heart of our native ohana community system, and what that’s going to mean for our state over the long run,” she said.

REIT tax

House and Senate negotiators Friday tentatively approved Senate Bill 301 in an attempt to collect state corporate income taxes from real estate investment trusts, or REITs.

REITs were created under federal law to allow small investors to buy into commercial projects, and the trusts have made major investments in Hawaii developments such as Ala Moana Center, the International Market Place and Ka Makana Alii Shopping Center.

Under current law REITs are required to pay out at least 90% of their taxable income as dividends to their shareholders each year. Hawaii and 48 other states allow REITs to deduct those dividends for tax purposes, which means REITs are able to avoid paying state corporate income taxes on their earnings.

SB 301 would end the state tax deduction for REIT dividends, and the state Tax Department told lawmakers this year that would net the state an extra $9 million annually in additional corporate income taxes.

However, the REITs have warned that abolishing their tax deduction would have a chilling effect on investment in the state that could hurt the local economy and the construction industry.

“The investment landscape for REITs in Hawaii will be seriously compromised,” said Michael O’Malley, a Honolulu tax lawyer who opposes the bill. “The economic damage once the law is enacted will be irreversible as decisions are made that will undermine development projects that generate tax revenue and create jobs. The propensity of our legislators to take unwise risks with our economy is unfathomable.”

Red-light cameras

Lawmakers also approved Senate Bill 663 to establish a committee to plan for the use of photo red-light imaging detector systems in Hawaii to identify and ticket motorists who run red lights. Lawmakers said such cameras are a 24-hour deterrent to help prevent traffic violations and collisions.

The committee will be responsible for planning pilot programs in each county and will report back to lawmakers before the 2020 session of the Legislature with recommendations for the most appropriate location to test out the system in each county.

House Transportation Committee Chairman Henry Aquino said lawmakers will decide next year whether to launch the program so that cameras are actually deployed.

Both SB 301 and SB 663 still need to clear final votes in both the House and Senate next week before they go to Ige for further consideration.