Hawaii Counties Prepare for Another Battle over Hotel Tax Revenue
The Legislature has reaped the benefits of a cap it put in place three years ago on the amount it shares with counties.
Maui, Kauai, Hawaii and Honolulu counties want more money from the state — tens of millions of dollars more — to help offset the cost of providing services that visitors use, ranging from roads to rescue.
Council members and mayors are already ramping up for the next legislative session, which starts in January, strategizing how they might grab a bigger slice of the state’s hotel tax revenue.
It’s an annual fight that the state has dominated in recent years, particularly with the implementation of a cap on the counties’ share of the 9.25 percent transient accommodations tax that hotels charge guests.
PF Bentley/Civil Beat
With the tourism industry reporting record profits this summer, the projected TAT revenue for fiscal 2015, which started July 1, is $379.7 million. The counties are looking to increase their combined take by roughly $63 million next year by eliminating the cap on how much the state doles out.
From 1998 to 2010, the counties split a 44.8 percent share of the TAT revenue, with Honolulu getting almost half of the haul for bearing the brunt of the tourism impact.Â
In 2011, the Legislature capped the counties’ portion at $93 million to address a state budget shortfall. It was intended to be temporary, but in 2013 lawmakers made it permanent.
Last legislative session, which ended May 1, the state bumped the cap up to $103 million, but only for two years.
The counties want the state to remove the cap and resume giving them their 44.8 percent share, which would give them an estimated $170.1 million this fiscal year. The hotel tax money is the counties’ second-biggest revenue source after property taxes.
Honolulu Mayor Kirk Caldwell has estimated that the city spends $140 million to $180 million, 7 percent to 9 percent of its operating budget, on services that keep the county “globally competitive as a safe and desirable destination.” The city’s portion of the TAT this year was $41 million.
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The counties may have better luck next session lobbying new people in key positions, particularly in the Senate where efforts to remove the cap have run into trouble.
On the executive front, Gov. Neil Abercrombie will be gone. His term ends in December since he lost his bid for re-election in the Aug. 9 primary.Â
It’s uncertain at this point which members of his cabinet — including his budget czar, Kalbert Young — will be retained by whoever wins in November. Traditionally, there are at least a handful of carry-overs from one administration to the next. Many agree it would be wise to keep Young, but nothing is for sure.
“If revenue is reduced at one level of government that will benefit another level, it just means that lost revenues will have to be made up in some fashion.” — Finance Director Kalbert Young
Young has repeatedly testified against legislation that would remove the cap, saying the state can’t afford it. He told senators last March that the state general fund would lose $81 million in fiscal 2015, $98 million in 2016, $107 million in 2017, $116 million in 2018 and $126 million in 2019.
Young told Civil Beat recently that he recognized the TAT to be a significant revenue source for the counties, but said it is for the state, too. He noted that both levels of government use TAT revenues to provide public services that are utilized by residents and visitors alike.
“As with any tax revenue, if revenue is reduced at one level of government that will benefit another level, it just means that lost revenues will have to be made up in some fashion — either in reduced services or increased taxes,” Young said. “It is the same consequence at the counties or the state when talking about TAT.”
Hawaii’s next chief executive could be David Ige, who won the Democratic nomination over Abercrombie. Regardless, Ige won’t be returning to his Senate seat and, more importantly, his post as chair of the Ways and Means Committee, which shepherds the state budget bill.Â
House Speaker Joe Souki called on the Legislature at the beginning of last session to remove the cap on the TAT. His chamber followed that directive and sent a bill over to the Senate that would have done just that.
A Senate committee amended the House bill by simply removing the “44.8 percent” and leaving a blank to be filled in later. Ige’s money committee left the amended version unchanged.
The full Senate approved the measure, which set up a showdown between a select group of lawmakers from both chambers to work on a compromise.
In the waning minutes before the session ended, they agreed to just increase the cap to $103 million. County council members and mayors left disappointed.
Ige might not be the only key player gone next year though. Donna Mercado Kim has said she is seriously considering stepping down as Senate president and may not even seek re-election in two years.
Reorganizational decisions won’t be made for months so speculation at this point as to who will hold these powerful posts. But it could make a difference in how well the counties fare.
Unified Voice
The councils and mayors are trying to bring a unified voice to the Legislature in the hopes of being more effective.Â
The Hawaii State Association of Counties, which includes representatives from all four councils, and the Hawaii Council of Mayors, which includes the four mayors, tried to come together last year but ultimately fell short.
There’s an ongoing debate among county leaders over whether they should not only ask for the TAT cap to be removed but also for a new taxing authority.
Specifically, the councils are considering whether to ask the Legislature to pass a bill that would let them tack on a 1 percent surcharge on top of the state General Excise Tax for transportation purposes.
The state gave the counties the opportunity to ask voters to let them impose a 0.5 percent GET surcharge, but Honolulu was the only one to take advantage of it, approving it to fund its rail project.
There’s an ongoing debate among county leaders over whether they should not only ask for the TAT cap to be removed but also for a new taxing authority.
Kim has said the counties passed up her offer when she was Ways and Means chair to let them each charge a sales tax of 1percent or 2Â percent. She suspects they were afraid that the state would give them the sales tax power and take away the TAT.
Instead of responding to requests for interviews individually, the four mayors worked together on a joint statement Friday in response to questions for this report.
Their unwillingness to talk one-on-one suggests a commitment to convey a united front going into the 2015 legislative session, likely hoping to avoid being divided and conquered by lawmakers as they have in the past.
Caldwell’s spokesman, Jesse Broder Van Dyke, provided the statement on behalf of HCOM:
“The four county mayors met in Honolulu this week and have only begun to discuss next year’s legislative package. The TAT cap and the GET surcharge are among the items under consideration but no decisions have been made about what to include in the 2015 legislative push.”
