When the recession was at its worst in Hawaii a couple of years ago, the Legislature decided to scoop the top of revenue from hotel room taxes otherwise destined for the counties. The state’s economy now is well on the road to recovery, and it should restore full proceeds of that tax to the counties, as had been customary.
State legislators approved a measure in 2011 that capped at $93 million the amount of money counties gathered from the state hotel tax, or transient accommodations tax (TAT). The tax was created in 1990 because of what lawmakers recognized as "many of the burdens imposed by tourism" falling on the counties, such as police and fire protection, parks, beaches and other tourism-related expenses. From the start, in an admirable case of home rule, most of the TAT was returned to the county where it was raised.
When the 2011 Legislature considered dipping into the counties’ hotel tax proceeds to cope with the bad economy, county mayors said they recognized the "unprecedented financial challenges" of the state. The Legislature decided to raise the hotel room tax by 2 percentage points to 9.25 percent through fiscal 2015, capping the amount distributed to counties at $93 million and skimming the rest for state coffers.
"Although this may appear to be a move to maintain parity," Lowell Kalapa’s Tax Foundation of Hawaii warned at the time, "what is disconcerting is that there is the great possibility that lawmakers may become accustomed to the increased revenues as the visitor industry and economy improves. Will lawmakers consider making this rate increase and siphoning of the TAT revenues to the (state) general fund permanent?"
As expected, Senate Ways and Means Committee Chairman David Ige now says, "The budget’s very tight." He and House Finance Committee Chairwoman Sylvia Luke promise to consider the mayors’ plea to lift the cap. Honolulu Mayor Kirk Caldwell and other mayors are justified in asking that the Legislature stop the hotel tax dip into the county pots sooner than the end of fiscal 2015. But, of course, nothing is promised. The counties will need to make compelling cases to legislators about the many deficiencies and demands on their localized tourism hubs — and there are many — that warrant outlay of reinvestment funds.
In another state-county fiscal tug, the state is confiscating 10 percent of Oahu’s half-percent general excise tax surcharge being collected for Honolulu’s rail project. That amount is supposedly for administrative costs, but Caldwell rightly noted that in 2012 alone, the state’s $21.2 million take was nearly as much as the state Tax Department’s entire budget.
"Obviously I’m biased on this," Caldwell said, "but I really would like to see the 10 percent come back to the city."
Indeed, a review by lawmakers is due to gauge the state’s true cost to administer Oahu’s GET rail surcharge, and to right-size that percentage.
While the state and counties can bicker over taxes that seem to cross lines, they should pursue making Hawaii’s unique tax system — where local property taxes don’t pay for the school system — work optimally and fairly.
