Statewide Hotel Room Tax Increase to Help Fund Honolulu Rail Project

Hawai‘i Legislators have reached an agreement to fund Honolulu’s rail transit project by raising the state’s hotel room tax (TAT) and extending the general excise tax surcharge on Oʻahu for three additional years.

The TAT hotel room tax will increase by 1% to 10.25% for 13 years through December 2030, generating $1.3 billion. The increase in Oʻahu’s surcharge will provide more than $1 billion in addition.

Lawmakers say that by including the TAT, visitors will now bear a significant portion of the financing burden.

The current method of collecting the hotel room tax would remain the same. It is collected statewide and goes directly into the general fund, not to the island where it is collected.

Each county receives a specified amount of the tax regardless of total amounts collected.

Raising the tax does not change that amount. Lawmakers say the bill would permanently increase the counties’ share of the TAT from its current $93 million base to $103 million.

The bill also provides that funds collected for rail go into a new Mass Transit Special Fund and rather than simply give the money to the city, the state comptroller will review and disburse the funds to the city for its costs as the project moves forward. This, lawmakers say, will allow the state to keep track of both spending and construction progress.

Currently, the GET surcharge is automatically transferred to the city on a quarterly basis without any oversight. This bill will change that practice to ensure accountability and transparency by having the comptroller review and approve the expenses before the city and Honolulu Authority for Rapid Transportation (HART) are reimbursed. Lawmakers say it also establishes better internal control and ensures that waste and fraud does not occur.

This bill addresses the immediate rail construction shortfall by collecting funds up front through a modest TAT increase instead of adding additional years of GET surcharge on the back end. This will likely reduce the financing costs of the project by hundreds of millions of dollars, according to supporters of the legislation.

Having these two funding sources for the city and county’s rail project also provides greater security for the project in case either the GET or TAT does not perform as expected, according to lawmakers.

House Speaker Scott K. Saiki (Kakaʻako, Downtown) said the $2.378 billion funding shortfall package will fund the rail project through Ala Moana and will not jeopardize the $1.55 billion in federal funding.

“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. “This plan will not have a direct impact on Neighbor Island county budgets.

“We have taken a long look at the rail project and have heard the concerns of residents during our joint public hearing on rail funding this month,” Saiki continued. “This is a critical infrastructure project for Hawai‘i. 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.”

“I want to thank my colleagues and their respective staffs for all of their efforts in developing this proposed compromise draft bill that includes a permanent increase in the counties’ share of the TAT from its current $93 million base to $103 million, “Senate President Ron Kouchi (D, Kauaʻi-Niʻihau) said. “I am hopeful that this compromise legislation will satisfy the FTA’s construction cost concerns as testified to numerous times by the City and County of Honolulu.”

“I’m elated that legislators have come to an agreement that will move the rail project forward,” Gov. David Ige said. “I’m particularly pleased that the state will have increased oversight of this project, and I’ve discussed the importance of accountability with the new HART Executive Director Andy Robbins. I look forward to hearing the public’s input during next week’s special session. I firmly believe transit is a strategic asset for our communities that will enable us to provide affordable homes for our families while preserving open space outside the urban center.”

“Today’s announcement is critical for the completion of the rail project, and I appreciate what has been a difficult decision for the State Legislature,” said U.S. Sen. Mazie K. Hirono. “As a member of the Hawai‘i Congressional delegation, I secured support for the rail project from the Federal Transit Administration, which included $1.55 billion in the FTA Full Funding Grant Agreement.

“While cost changes should be anticipated in a project of this magnitude, the drastic increase in the cost of this project is deeply concerning,” said Sen. Hirono. “State lawmakers are prepared to secure additional funding to see the rail project through. However, it is incumbent on HART and the city to stay on budget and deliver on time.”

Download the measure here.