Hawai‘i Island Mayor Opposes Permanent County TAT Cap

Hawai‘i Island Mayor Harry Kim presented his testimony to the Senate Committee on Ways and Means today regarding SB 4, which outlines how funding will be provided for the Honolulu rail project.

Last week, Hawai‘i Legislators 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.

Mayor Kim’s Testimony

The County of Hawai’i opposes the permanent cap on the counties’ share of the TAT. This cap is unnecessary to achieve all other aspects of the bill to finance Honolulu’s rail. The bill proposes to finance rail by extending the GET surcharge period to Dec. 31, 2030, increasing the share of the surcharge that goes to rail by decreasing the administrative charge retained by the state, and increasing the TAT rate by 1% and dedicating all of that increase to rail. There is no reason related to rail financing to cap the share of the TAT to the counties.

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A cap on the counties’ TAT share is contrary to the Legislature’s own working group report and the original intent of the TAT tax summarized as follows:

• Working Group Recommendation. The working group recommended the Tourism Special Fund receive $82 million in FY 2016 and increase in subsequent years in line with the Consumer Price Index for Honolulu, $31 million constant for the Convention Center-Turtle Bay-Special Land Develop Fund, and the remainder split between the State and counties at 55% for the State and 45% for the counties. Based on total TAT revenues in 2016 of $444 million, the $103,000,000 cap represents 31% of the remainder of the TAT after allocations to the Tourism Special Fund ($82 million) and the Convention Center-Turtle Bay-Special Land Development Fund ($33 million). As a result of the cap, the counties’ share will only get worse as tourism grows.
• Nexus to Tourism Services. The incidence of the TAT is primarily on visitors, so the TAT tax revenues should fund public services which benefit visitors. The UH Economic Research Organization (UHERO) estimated that the counties pay for 53% of the services for which visitors directly benefit (UHERO Working Paper No. 2016-4). These services include police and fire protection, rescue, parks, beaches, water, roads and sewer systems.
• Act 185 (1990). Recognizing that “many of the burdens imposed by tourism falls on the counties,” the Legislature created the TAT as a “more equitable method of sharing state revenues with the counties” (Conference Committee Report 207 on HB No. 1148). The Legislature deemed at that time that the fair allocation was 95% of the total TAT revenues to the counties.

The state has multiple sources of revenues. The counties only have property tax, motor vehicle weight tax and public utility franchise tax. Our out-of-control homeless problems are a symptom of the soaring cost to rent or own a home in Hawai’i. And you want to offer us the power to increase the GET tax, the most regressive form of taxation that impacts the lower income the greatest. We already had to increase our property tax to make ends meet. With the collective bargaining decisions dominated by the state, we again will face possible
increases. We ask only for our fair share as recommended by the Working Group, to maintain quality services that uphold the tourism industry and affordability for our people.