Counties risk losing revenue from public utility franchise tax

While the state’s four mayors and county councils worry about retaining transient accommodations tax revenue, the counties also face another threat – the loss of half their current public utility franchise tax revenues.

In fiscal 2012, Maui County’s estimated share of franchise taxes is more than $8 million, according to a revenue overview. (A reduction proposed under Senate Bill 1213 would amount to about $4 million.) The full amount of $8 million represents 21.6 percent of total highway fund revenue and 1.5 percent of total county income.

Introduced by Senate President Donna Mercado Kim at the request of the administration of Gov. Neil Abercrombie., the measure would divert to the state Department of Transportation half of all franchise tax revenues now paid to the counties. An amended version of the bill would put off its implementation until July 2050.

DOT Director Glenn Okimoto supported the measure in written testimony last month, saying it would provide for 1.25 percent of the gross receipts from franchise utility companies to the Transportation Department for their use of the state highway right of way. (Now, utilities pay 2.5 percent of their gross receipts only to the counties for the use of county road systems.)

Okimoto pointed out that the state is responsible to pay for the removal, relocation, replacement or reconstruction of franchise utility companies’ systems if they are impacted by a state highway project.

“We believe this bill provides us with some relief in the maintenance and operation of our state highway right of way,” he said.

The Hawaii Council of Mayors submitted written testimony opposed to the bill.

“The counties rely on this funding to maintain, improve and repair roads, to install and maintain streetlights and to make traffic safety improvements to our roadways,” the mayors said. “The counties already face very serious challenges as we seek to maintain and improve many hundreds of miles of city- or county-owned roads. Some counties are also coping with maintenance and other problems on so-called ‘Roads in Limbo’ that the state is unwilling to maintain.

“The loss of this franchise tax revenue would aggravate this situation and make it far more difficult to properly maintain our streets and keep our roadways safe,” the mayors said.

Honolulu Mayor Kirk Caldwell opposed the bill, saying the city expected to receive $53.8 million in fiscal 2013 from the public utilities franchise tax.

“This is a significant amount of revenue that the city relies on for its annual operations,” he said. “This drastic reduction in revenue would negatively impact the city’s ability to serve the public.”

Nelson Koyanagi Sr., Honolulu’s acting Budget and Fiscal Services director, estimated the city would lose an estimated $29 million in fiscal 2014 if the bill were enacted.

“The city plans to make significant improvements to the city’s roads and needs all of its highway fund revenues to accomplish this goal,” he said. “The effects of a loss of half of the city’s franchise tax revenues on the city’s taxpayers, and on city services, would be severe. The city would have to make the difficult choice between raising additional revenues or cutting necessary services.”

The city may need to raise the fuel tax by more than 9 cents per gallon in order to make up for the loss in highway fund revenues, Koyanagi said.

Cuts in services could affect filling potholes, other maintenance of city streets, police traffic functions and bus service, he said.

In submitting testimony opposed to the bill, Hawaii County Finance Director Nancy Crawford estimated the Big Island would lose $5 million per year, or about 15 percent of the island’s total highway fund revenue.

“The County of Hawaii already faces very serious challenges as we seek to maintain and improve about 950 miles of county-owned roads,” she said. “The loss of this franchise tax revenue would aggravate this situation and make it far more difficult to properly maintain our streets and keep our roadways safe.”

After receiving comments in opposition to the bill, Senate Ways and Means Chairman David Ige submitted a committee report recommending passage of the measure, although amending its effective date to July 1, 2050, “to encourage further discussion.”

In the committee report, Ige noted that Hawaii’s electric utilities “have long benefited from the free use of public rights-of-way along state highways.”

And, while public utilities have charged cable and communication companies for the use of utility poles, none of the profits have been remitted to the state, which owns the rights of way, he said.

While the state Transportation Department is responsible for the repair, removal, relocation or replacement of public utility infrastructure that impact state highway projects, none of the franchise utility tax revenue comes to the state, Ige said.

Providing a percentage of the revenue to the state would compensate the state for the utilities’ use of public rights of way, he said.

The Senate bill has passed the Senate and crossed over to the House. There, it has passed first reading and has been referred to the House Transportation and Finance committees.

Last week, Maui County Mayor Alan Arakawa and County Council Chairwoman Gladys Baisa went to Honolulu to lobby to retain the counties’ share of transient accommodations taxes, more commonly known as the hotel room tax.

Senate Bill 359 would repeal the distribution of hotel room tax revenue to the counties. Under a formula for distributing the funds, Maui County would receive between $20 million and $22 million. That represents the county’s second-largest source of revenue after property taxes.

County officials said last week that if the county were to lose the room tax revenue, then it would be necessary to either raise property taxes or cut back on county services.

Another option provided in the Senate bill would be to give the counties the option of imposing a surcharge of up to 1 percent on the 4 percent general excise tax. County Budget Director Sandy Baz has said that a 1 percent surcharge in Maui County would yield an estimated $80 million, although the state would get 10 percent, or $8 million, as an administrative fee.

* Brian Perry can be reached at