Measure would hike hotel tax to pay for rail

State House and Senate leaders have come up with a compromise measure to help the City and County of Honolulu pay for cost overruns on its rail project that includes raising the hotel room tax — assessed in all state counties — by 1 percent and increasing Maui County’s share of the revenues by $2.3 million per year.

The proposed bill, to be presented at a special legislative session next week, also advances the half-percent general excise tax surcharge on Oahu for three years to Dec. 31, 2030, which would raise $1 billion, according to a joint news release from the House and Senate on Thursday. The city had requested a 10-year extension and did not include the increases in the transient accommodations, or hotel room, tax. The hotel room tax hike from Jan. 1, 2018, to Dec. 31, 2030, is projected to raise $1.3 billion.

In addition, the Department of Taxation’s 10 percent surcharge on the city for the collection of the half-percent GET was reduced to 1 percent.

The package will raise $2.4 billion for the 20-mile rail project currently under construction, fund the project through Ala Moana and not jeopardize the $1.6 billion in federal funding, said House Speaker Scott Saiki.

The funds collected for rail will go into a new Mass Transit Special Fund. The state comptroller will review and disburse the funds to the city for its costs. A state audit of the $8.2 billion project and annual financial reviews of the rail project will be required.

“This will allow the state to keep track of both spending and construction progress,” the news release said.

Financial accounting and the doubling of the cost of the project led to clashes between state lawmakers and city officials over the mechanism to make up the shortfall. House lawmakers thought that the GET was not a good mechanism for paying for rail because it a regressive tax that hits lower-income residents disproportionately.

The proposed bill provides multiple sources of revenue in case one source fails to meet projections, and would reduce overall finance charges by infusing the hotel room tax revenue upfront, the news release said.

Saiki said that “this plan will not have a direct impact on Neighbor Island county budgets.”

However, the use of the hotel room tax met with opposition from leaders of the state’s counties, who pushed for the 10-year increase in Honolulu’s GET.

“Why are they taking advantage of the Neighbor Islands on the rail?” asked Maui County Council Chairman Mike White, shortly after returning from Oahu, on Thursday night.

The proposed legislation raised the counties’ share of the hotel room tax permanently from the current $93 million to $103 million. Of that total, Maui County will receive $23.5 million, up from the $21.2 million allocated for the current fiscal year.

White said all the proposal does is restore the $10 million cut from the counties’ share in the last session.

“We are not supportive of the increase of the TAT,” he said. “To offer us the $10 million share, it just doesn’t cut it.”

He noted that Maui County raised $158 million in hotel room taxes in the last fiscal year but received only $21.2 million. The return “remains a very small percentage of what Maui generates,” he said.

The increase in the hotel room tax puts a “a burden on economies” of Neighbor Island counties less able to swallow up increases, compared to Oahu, White said. He noted that Oahu’s tax base is 14 times larger than Maui County’s and 40 times larger than Kauai’s. Hotel occupancies on Oahu are 10 points higher than Maui County’s.

And White complained about the process. The idea of increasing the hotel room tax was hatched late in the legislative session without committee hearings or input from the public. The measure died when the House, which pushed for a hotel tax increase, and the Senate, which supported the increase in GET only, couldn’t come to an agreement.

That led to the calling of the special session because, without a funding mechanism, federal funds for the rail project were in jeopardy.

White said that there has not been an opportunity for public comment while legislative leaders have negotiated behind closed doors.

“The public has no knowledge or input,” he said.

He has been told that there will be opportunity for input when the special session gets underway, but he wonders “whether it is essentially a done deal.”

“We need to take the approach that it is never too late,” said White, who has served in the House. “If we lose, we are going down swinging.”

Saiki said that the concerns of residents were heard during joint public hearings earlier this month.

“This is a critical infrastructure project for Hawaii,” he said. “We are not giving the city a blank check but instead insisting on audits and financial reviews and expenditures to provide complete transparency for our taxpayers.”

“By working with our colleagues in the Senate, the Legislature has come up with a concrete plan to fund the rail project that will reduce the overall costs while shifting some of the regressive tax burden away from our residents, who are struggling to make ends meet,” Saiki said.

Senate President Ron Kouchi of Kauai lauded the increase in the counties’ share of the hotel room tax.

“I am hopeful that this compromise legislation” will resolve construction cost concerns, he said.

* Lee Imada can be reached at leeimada@mauinews.com.