Bill to funnel more hotel tax funds to counties

Hawaii lawmakers are advancing a measure that would give the counties a larger share of the state’s hotel tax revenue despite the state’s recently downgraded financial forecast.

Mayor Alan Arakawa, Maui County Council Chairwoman Gladys Baisa and other Maui councilors joined council members and mayors from other counties in arguing that the local governments need the room tax money returned to help balance their budgets and pay for the increasing strain visitors place on everything from parks and police to roads and rescue services.

But Gov. Neil Abercrombie’s finance chief, Kalbert Young, said the state can’t afford to lose all that cash, especially since the Council on Revenues projects zero growth this year and hundreds of millions of dollars less than expected over the next two years.

The counties currently get a combined $93 million of the transient accommodations tax revenue since it was capped in 2010. They used to get 44.8 percent of however much the state collected each year to split among them.

House Bill 1671, which cleared the House last month, would lift the cap and revert to the percentage. Senators got their hands on the bill for the first time Wednesday.

The Public Safety and Tourism committees, chaired by Sens. Will Espero and Gil Kahele, respectively, passed the bill but changed it to leave the percentage the counties would receive blank at this point.

In written testimony, Arakawa pointed out that the $93 million cap was supposed to be a temporary measure to assist the state through its budgetary shortfall.

He cited reports from the Hawaii Tourism Authority touting 2013 as another record year for visitors. He recalled authority Chief Executive Officer Mike McCartney saying more than 8.2 million people traveled to Hawaii last year, up 2.6 percent from 2012. And that visitors spent $14.5 billion, contributing to the $1.5 billion in state tax revenues, which is $30 million more than 2012.

“With the state economy recovering and TAT collections increasing, there is no further justification for the cap,” Arakawa said.

Baisa said higher visitor counts “mean higher demands and costs for infrastructure, including public safety.”

“Approximately $72 million is projected to return to the counties if the cap is lifted,” she said in testimony.

Council Member Mike White, chairman of the Budget and Finance Committee, told state lawmakers that the state’s tax revenues were $1.6 billion in fiscal 2013, or 32.4 percent higher, than its fiscal 2009 income.

But, “during the same period, City and County of Honolulu revenues have remained flat and Neighbor Island counties have seen continued revenue declines,” White said. “The bottom line is the state made use of the TAT revenues when it needed them and has not responded to the counties’ financial needs as the state’s fortunes improved.”

White, who also is general manager of the Ka’anapali Beach Hotel, said Neighbor Island hotels have not bounced back from the recession as quickly as those on Oahu. From 2007 to an estimated projection for 2013, revenue per available room on Oahu grew 34.9 percent to $174.94, he said. But Maui’s per room revenue was off 0.4 percent to $199.88 while Kauai was down 0.2 percent to $155.38 and the Big Island fell 4.8 percent to $130.18.

White said that if the cap remains in place, Maui’s estimated hotel room revenue would be $21.2 million, but if it were removed, the county’s share of revenue would increase to $37.6 million, an additional $16.4 million, or 77.3 percent.

Maui Council Members Robert Carroll, Stacy Crivello, Mike Victorino and Don Couch also submitted testimony in favor of the measure.

Young, however, cautioned the senators, saying if the hotel room tax cap were lifted and the counties got 44.8 percent of the money collected, the state general fund would lose $81 million in fiscal 2015, $98 million in 2016, $107 million in 2017, $116 million in 2018 and $126 million in 2019.

The counties analyzed their budgets recently to get a better picture of how much money they spend each year on visitor-related services.

Kauai, with a visitor population estimated at 21 percent on any given day, reported spending $44 million a year on visitor-related services. But the county only gets $13.5 million in room tax revenue from the state. If the cap were removed, the county expects to receive an extra $10 million.

Honolulu Mayor Kirk Caldwell estimated that the city spends $140 million to $180 million, 7 to 9 percent of the city’s operating budget, on services that are “key to keeping Honolulu globally competitive as a safe and desirable destination.” The city’s portion of the room tax revenue is $41 million.

Honolulu City Council Member Stanley Chang said the city spends $74 million on visitor industry services and helps generate $257 million – nearly 80 percent of the total room tax collected.

The bill’s next stop is the Ways and Means Committee, chaired by Sen. David Ige.

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