House finance panel backs TAT bill

Measure would increase Neighbor Islands’ share of hotel room tax revenue

SCOTT SAIKI, Backed more county funding

Neighbor Island counties would get more transient accommodations tax revenue under a bill advanced Thursday by the state House Finance Committee.

The House version of Senate Bill 648 would increase Maui County’s hotel room tax income from $23.5 million to $38.3 million. Hawaii County’s share would grow from $19.2 million to $31.2 million, and Kauai’s would rise from $14.9 million to $24.4 million. The bill requires each county receiving additional revenue to provide a report to the Legislature detailing how the additional TAT money was spent.

The City and County of Honolulu’s share would be unchanged at $45.4 million per year.

Currently, the counties receive percentage shares of $103 million in room tax revenue, with Maui County receiving 22.8 percent.

In testimony to the committee, Maui County Mayor Alan Arakawa expressed strong support for the bill, which would be effective from July 1 to Dec. 31, 2030.

“The counties perform many government services that have been impacted by the growth of the tourism industry, such as police, fire, ocean safety, parks and transportation services,” he said. “This bill will be very helpful in supporting these services.”

Maui County Council Chairman Mike White supported the measure that he said would bring parity to all four counties after last year’s special legislative session resulted in a 1 percentage point increase in the hotel room tax to fund Honolulu’s rail mass transit project.

He reiterated that, from fiscal year 2007 to 2017, the state’s four counties collectively received a $2.2 million increase in transient accommodations tax income annually while expenses for fire, police and park services have gone up by more than $260 million.

“As a result of the cap on the counties’ share of TAT revenues and the growth of visitors, expenses related to providing services to visitors now must be covered by residents,” he said.

And, citing visitor-industry consultant HVS, White said the state’s counties receive the lowest amount of taxes generated from hotel room revenues compared to other counties in the nation. Hawaii counties receive on average 17 percent of revenues when combining hotel room revenues and excise tax, while on average, other counties across the nation receive 67 percent based on the same calculation, he said.

“As the counties have received less than a fair share of TAT revenues since the end of the recession, flexibility is needed to spend TAT revenues on priorities as deemed by each county,” he said. “Similarly, the state has no restrictions on how the TAT allocated to the general fund is spent. Therefore, it is important that the restrictions be further evaluated.”

Maui Council Members Yuki Lei Sugimura and Stacy Crivello and council members from the counties of Kauai and Hawaii island joined in supporting the bill.

Laurel Johnston, director of the state Department of Budget and Finance, told lawmakers in written testimony that her department would prefer that unallocated hotel room tax revenue be used to support programs and facilities typically administered and funded by counties in the United States. Those include public schools, university campuses, hospitals, jails and prisons, she said.

“It should also be noted that the counties have the authority to raise local revenues and issue their own bonds should they need additional funding for capital projects,” she said.

The bill proposes an allocation to the counties that would result in a loss of general fund revenue of $36.3 million annually, “negatively impacting the administration’s and Legislature’s ability to address state fiscal downturns and urgent unbudgeted needs should they arise,” she said.

The Tax Foundation of Hawaii provided testimony that said “county governments have grown well beyond their means and are desperately searching for more available revenue.”

“The counties have justified their share of the TAT by rationalizing that the funds go to pay for the impact visitors have on county facilities and services; however, at the same time, all four counties have managed to impose much higher tax rates on hotel/resort real property and, in one case, a special rate on resort time-share property,” the foundation said. “The search for more and higher taxes must stop somewhere. Both levels of government need to resize their operations and set priorities for what limited resources taxpayers can share with government.”

Maui County has a time-share rate that is about three-times higher than the residential rate for the current fiscal year.

Hawaii hotel guests pay the tax that is allocated to several groups, including the counties, to pay for visitor-related expenses.

During last year’s special legislative session, lawmakers raised the TAT by 1 percentage point to address the funding shortfall for Oahu’s mass transit rail project. At that time, House leaders discussed the possibility of revisiting proposals to increase TAT revenues for the Neighbor Islands, according to a House announcement of the Finance Committee’s passage of the bill.

House Speaker Scott Saiki credited Neighbor Island representatives with working to find ways to provide more funding for their islands. The bill passed out by the Finance Committee was a product of their discussions, he said.

“During the special session last summer, our Neighbor Island representatives were concerned about the need to increase the counties’ share of the TAT,” Saiki said. “This proposal will provide much-needed financial support for the Neighbor Islands.”

* Brian Perry can be reached at bperry@mauinews.com.


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