Expect the leaders of Hawaii's four counties to fight hard to keep the transient accommodations tax dollars that Gov. Linda Lingle is proposing be taken away from them.
County leaders have warned that cutting the revenue they get from the TAT, also known as the hotel room tax, raises the likelihood they will need to raise property tax rates.
"We rely on the TAT going in," said Maui County Budget Director Fred Pablo. "That money goes back into the visitor industry" in the form of roads, parks, emergency services and other programs that visitors use, he said.
The proposal was not totally unexpected given the state's budget woes. But for Lingle, the mayor of Maui County for eight years in the 1990s, to propose temporarily cutting off TAT dollars to the counties to help balance the state budget is a reversal and points out how severe the state's financial crunch is.
State officials for years have tried to reduce, if not eliminate, the county share of the TAT. As a mayor, Lingle joined her colleagues in staving off challenges to the county allotment from the TAT. Last year, Lingle's administration opposed taking TAT dollars away from the counties to help balance the budget, as some key lawmakers had suggested.
But at a news conference last week, she announced the proposal to cut TAT to the counties. She acknowledged how serious a move it is and said she expects the counties to fight it.
The Lingle plan would divert room tax revenues for three fiscal years. The counties would lose an estimated $99 million next fiscal year: $44.5 million in Honolulu; $22.7 million on Maui; $18.5 million on the Big Island; and $14.4 million on Kauai.
"If the counties lose the TAT, we would have to look at other sources of revenues, as well as potential reductions in services and service levels to balance our budgets," said Kauai County Finance Director Wallace Rezentes Jr.
While Honolulu would lose the most dollars, the smaller Neighbor Island counties may feel a bigger hit.
"The TAT is more important to the outer island counties because it makes up a larger percentage of our operating budgets as compared to the City and County of Honolulu," Rezentes said.
"I think it has a more significant impact on the Neighbor Island counties and probably Kauai more than anyone," said Hawaii County Finance Director Nancy Crawford.
Kauai's TAT revenue amounts to about 8.4 percent of its operating budget. For Hawaii County, it's about 4.5 percent, and for Maui about 4 percent.
Honolulu's share constitutes just under 2.5 percent of its $1.8 billion operating budget.
Mark Oto, Honolulu deputy budget director, acknowledged that the percentage impact may be greater on the other counties. However, he said, "you have to remember that Honolulu provides more public services that are enjoyed by a larger number of visitors," such as the city's extensive bus system. Neighbor Island counties have minimal bus service. Hawaii County doesn't have curbside trash pickup.
County officials agree that the loss of TAT is especially bad in the midst of a difficult economy. The main source of revenues for all counties is property taxes. Falling property values means less in each of their operating budgets.
Pablo said property values in Maui County are projected to fall from 10 to 20 percent, which means the operating budget could fall from $460 million to $420 million. Factor that in with a 4.5 percent drop from TAT, and "that's pretty close to 8 percent, 9 percent of our budget."
Some state leaders have argued that the counties are in a better position to absorb losses in revenues, pointing out that they have not had to lay off or furlough employees as the state has.
County leaders, however, said they had already been anticipating the economic downturn and have been downsizing in recent years, including reducing their work forces through attrition, holding off on equipment purchases and restricting travel.
In Honolulu, city agencies were told they would be getting 4.5 percent less money than budgeted during the current fiscal year.
In Maui County, Pablo said, belt-tightening actually began in 2007. "That's a big chunk we already trimmed, beginning in fiscal 2008," he said.
Hawaii County departments chopped 10 percent off nonfixed-cost spending in the current year, Crawford said.
Crawford said that because state revenues are based largely on excise and income taxes, the impact has been felt more quickly. Property tax revenues are based on assessments from a previous year.
The counties are expected to argue that they are rightfully due the TAT money. From roads to sewers, parks and buses to police, fire and water safety, they provide the services used by visitors.
The four counties have historically relied on state funding. For nearly two decades, that "allowance" has come in the form of a share of the transient accommodations tax.
The TAT was established in 1986 by the state Legislature at 5 percent of a visitor's hotel room bill to assess visitors for the burden they place on infrastructure. Hotel industry leaders for years fought the tax, warning it would hurt tourism. But supporters pointed out that most major visitor destinations impose some kind of tax or fee on tourists.
During the first few years, TAT revenues went into the state general fund. In 1989, then-Gov. John Waihee proposed giving the counties the bulk of the TAT to provide them with a steady source of money.
Pablo has calculated that Maui County provides funding for state functions that at least matches the TAT money it receives, including funding Maui Community College partnerships or internships involving the nursing, tourism and agriculture programs.
State Rep. Joe Souki, who represents Wailuku, Waihee and Waiehu, was chairman of the Finance Committee when the decision was made to turn over the bulk of the TAT to the counties.
The money was given to "reward the counties for their role in the tourist industry," with their shares based on the number of hotel rooms in each.
Souki said he may be able to support reducing the counties' share but not cutting TAT money from them altogether. "If you take this money away, they're just going to have to do other things like raise property taxes or something else," he said.
The state has over the years been cutting the counties' share of TAT. Today, the counties get only 44.8 percent, with 17.3 percent going to the convention center and 37.8 percent going to a new tourism special fund.
County officials say taking away TAT from them won't benefit anyone.
"I don't know how that helps the state's citizens," Pablo said. "What happens is we're just passing the deficit from the state to the counties. Now the counties would have to deal with it."