It’s become a longstanding battle between the counties and the state as the legislative session rolls around: the tug of war over how to fairly divvy up the statewide hotel room tax.
With so much at stake — $421 million in the fiscal year that ended June 30 and likely more this year — it’s abundantly clear why the perennial conflict exists.
This year, however, the counties begin the skirmish with a strong argument for a greater share of the 9.25 percent transient accommodation tax (TAT) levied on hotel stays.
The State-County Functions Working Group, established by lawmakers in 2014, has recommended the state revamp the hotel tax distribution formula to deliver an extra $69 million to Honolulu and the other counties next year.
It’s a needed push to increase the counties’ allotments, even if that full sum isn’t granted.
Each year, the counties try to convince lawmakers that they deserve a heftier portion of the hotel tax.
They say they provide most of the services used by visitors, and therefore bear most of the burdens of tourism. Among them: police and fire protection, water and wastewater services, and many parks and transportation services.
Nevertheless, they are routinely rebuffed without a greater share.
In a report to the Legislature released Tuesday, the working group concluded that the city and counties spend a total of $236 million a year on tourism-related activities and services, which is nowhere near what the counties see in hotel tax revenue each year.
The report concluded the state should eliminate the cap on the counties’ share of the hotel tax — the right move — and boost their share to $162 million next year.
In following years, the counties’ income from the hotel tax should increase or decline as total collections from the tax grow or shrink.
That’s a marked increase from the current version of the hotel tax distribution formula, which caps the counties’ share at $103 million for this year and reduces it further to $93 million in the fiscal year that begins July 1.
Also this year, another $82 million will funnel into the Tourism Special Fund that supports Hawaii’s tourism marketing and promotion efforts, and $26.5 million is earmarked for the Convention Center Enterprise Special Fund which supports the Hawaii Convention Center.
Most of the rest goes into the state’s general treasury.
Increasing the counties’ share, of course, would shrink the portion funneling into the state’s general fund. The general fund is projected to get $267 million in TAT revenues in fiscal 2017 under the current formula, but that would drop to $198 million if the Legislature follows the recommendation of the state-county panel.
The panel recommends that once the mandated portions of the hotel tax revenues are placed in special funds such as the Tourism Special Fund, the remainder be split between the state and counties, 55 percent and 45 percent respectively.
House Finance Chairwoman Sylvia Luke (D-Punchbowl, Pauoa, Nuuanu) said lawmakers will take a serious look at the work group recommendations, but warned that implementation would mean “there is going to be some impact on state programs.”
Luke’s response is not surprising. But with record tourism numbers exceeding 8 million, ever- increasing impact on municipal resources will necessitate more upkeep — and funds.
It’s a continual challenge to fairly divide resources between the counties and the state, which is why state lawmakers themselves created the state-county panel to study the hotel tax issue and offer a better way.
Lawmakers should act on the very recommendations they solicited.