Ige said during his State of the State address on Tuesday that he planned to ask the Legislature to remove the $103 million cap on the revenues that go back to the counties.

“There is a fairness to that formula that speaks volumes not only about our concern for others, but about our willingness to work with the counties as equal partners in moving the state forward,” Ige said. “It’s a change to the whole notion of revenue sharing whose time has come.”

The transient accommodations tax, or TAT, is collected from hotels and other lodgings that host guests for fewer than 180 days. A portion of the tax goes to the counties, while another portion goes toward state parks and trail maintenance, marketing for the Hawaii Tourism Authority and the debt service on the Hawaii Convention Center. The rest goes into the general fund.

The counties used to receive nearly half of the overall TAT funds (44.8 percent), but in the face of budget shortfalls, the state in 2011 imposed a $93-million annual cap on the revenues given back to the counties. The cap was later increased to $103 million, but county officials have complained for years that the division of funds hasn’t been fair.

If the state goes back to the old format, “the counties’ share would rise and fall based on the amount of money collected — without any cap on the high side,” Ige said.

“I think it makes sense, and it’s something that the counties and the Neighbor Island legislators have been fighting for for a while,” said Central Maui Sen. Gil Keith-Agaran, the vice chairman of the Senate Ways and Means Committee, the money committee in the Senate. “The devil’s going to be, of course, in the details of how it’s implemented.”

The tax was enacted in 1987 as a way to keep the counties from having to come to the state for grant-in-aid monies, Keith-Agaran said. The idea was that each county would get a percentage based on the number of visitor accommodations they had. At the time, Oahu and Maui stood to benefit the most. But now other islands have seen an increase in hotel rooms, and Keith-Agaran said that how much Maui benefits depends on the percentages proposed for each county.

“So we’re waiting to see what the governor’s actual bill says,” Keith-Agaran said. “The other thing we’re going to be looking for is, where is the additional money going to come from then? From HTA’s (the Hawaii Tourism Authority’s) portion? Or if it’s coming from the general fund, how does the governor plan to make up for that money?”

Maui County currently receives $23.5 million, or 22.8 percent, of the $103 million allocated to the counties. The City and County of Honolulu collects the most, at $45.4 million, or 44.1 percent, while Hawaii County gets $19.2 million, or 18.6 percent, and Kauai County takes home $14.9 million, or 14.5 percent.

In 2017, the state collected $504.9 million in TAT revenue and was on track to surpass that with $466.7 million through the first three quarters of 2018. Starting last year, the tax increased from 9.25 percent to 10.25 percent to help fund the rail project on Oahu.

Maui benefits from a robust visitor industry that draws the second-highest number of visitors in the state (after Oahu) and was on pace to break the annual record of visitor air arrivals for the fourth straight year. From last January to November, 2,658,827 visitors came to Maui by air, just shy of the 2,742,108 that arrived by air during a record-breaking 2017, according to data from the Hawaii Tourism Authority.

However, if the state goes back to the old formula of doling out the TAT, there’s always the risk that the revenues won’t be as much as the counties got under the cap, Keith-Agaran said.

“The counties are taking the risk that we’ll continue to generate the same amount of TAT that we’ve had in these record-breaking years,” he said. “Now let’s say there’s a downturn. Now under the existing law, they’re guaranteed $103 million. If the amount that’s allocated for the counties does not reach $103 million, now they’ve got to live with that.”

Central Maui Rep. Troy Hashimoto, a member of the House Finance Committee, said he wasn’t sure the Legislature was ready to go back to the straight percentage format, but that lawmakers could still find a way to get more TAT funds to the Neighbor Islands.

“I think that’s the bottom line, as long as the Neighbor Islands can get closer to parity, especially since Oahu gets the full 1 percent for the rail,” Hashimoto said of the increase that was imposed last year.

Hashimoto acknowledged that if the counties do get more, there would be a “revenue impact” to the state, since any excess TAT funds go back into the general fund. However, he thought the governor was “on the right track in terms of finding that parity.”

“It’s really about delivering and getting the fair share of payments for services that are used for visitors,” Hashimoto said. “As the visitors increase, they have more impact on fire, on police, on our parks. And so essentially, real property taxes have been carrying that upkeep over the years. And so to get a little bit of funding back to maintain those services . . . I think that is a fair thing to do so the county gets an offset from the visitor impacts.”

Maui County Mayor Michael Victorino said Tuesday that he was “honored and pleased that Gov. Ige has recognized the importance of giving the counties their fair share of TAT funding, especially for Neighbor Islands that have received disproportionately lower amounts of funding in the past.”

“Maui County needs TAT funds to address the impacts of our visitors, including police and fire services, and roads and parks maintenance,” Victorino said. “Removing the cap and using a percentage formula would be more fair than the cap.”

Council Chairwoman Kelly King said she hoped that lawmakers could work together on the TAT issue and “get away from the finger pointing that’s happened in the past.”

“We have county citizens that are all state citizens, and they don’t really care that they’re in the state or the county,” King said. “They just want some relief from major issues like traffic, invasive species, homelessness. There are major climate change issues. . . . We need this extra funding.”

King said she hoped the governor’s proposed share of the pie for each county would be “more in line with what the original intent of the TAT was so that we’re actually getting more, not less.”

When asked whether she thought there might be impacts to state-funded projects or services, King commented that the state “has many more opportunities to levy taxes than the county does.”

“I certainly empathize with the need for state funding as well, but we have needs in the county that this money was originally intended for,” King said. “I’m just thrilled that they’re talking about it in a cooperative, collaborative way.”

* Colleen Uechi can be reached at cuechi@mauinews.com.

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