Lawmakers agreed Wednesday to make permanent a temporary increase in the hotel room tax rate that was set to expire in 2015.
The rate, known as the transient accommodations tax, was raised 1 percentage point in each of the past two years to the current rate of 9.25 percent, as lawmakers sought ways to deal with significant budget shortfalls.
But improved overall tax collections allowed lawmakers to re-examine the rate, with proposals ranging from allowing it to expire as scheduled to raising it to 11.25 percent and allocating a larger portion to other agencies, programs and the counties.
The agreement on Senate Bill 1194 came after conference committee negotiations Wednesday. It included $82 million in room tax revenue allocated to the Hawaii Tourism Authority, an increase of $11 million, and maintained a cap of $93 million on revenue set aside to be divided among counties.
Negotiators said they reached agreement close to the latest Senate version of the bill, and matched its permanent rate at 9.25 percent. The House favored resetting the rate immediately to the 2011 level of 7.25 percent.
"I think this is a good compromise," said Rep. Sylvia Luke (D, Punchbowl-Pauoa-Nuuanu), the House Finance Committee chairwoman. "The important portion was increasing the allocation to Hawaii Tourism Authority to allow them to do marketing, especially in the next few years as the market is going to be soft. That was an important component."
Of the $11 million increase to the HTA, $1 million would be earmarked for operation of a Hawaiian center and museum of Hawaiian music and dance at the Hawai‘i Convention Center.
"They invested in Hawaii by giving us an additional $11 million to continue our marketing efforts and to make sure Hawaii has the best experience possible," Mike McCartney, president and chief executive officer of the HTA, said afterward.
An additional $3 million from TAT revenues would be set aside for natural resources such as beach parks and watersheds.
Gov. Neil Abercrombie was among those lobbying for the rate to remain permanent. Budget Director Kalbert Young said the compromise brings stability to the state’s financial plan over the long haul.
"Although the tax rate was not set to sunset for another two years, it’s better to have knowledge of where this rate is going to be into the long term," Young said. "Better to do it today and let the industry be able to adapt into the future. So we feel it’s a very good thing."
Counties have long sought a greater share of the hotel tax to help alleviate some of the financial burden placed on county resources that support the hospitality industry, including police, fire and rescue, lifeguard, sewer service and parks and road maintenance. They argued this year that the cap should be removed or at least increased to provide a greater share of funds.
Hawaii County Mayor Billy Kenoi, chairman of the Hawaii Council of Mayors, representing the interests of all four mayors, said he was somewhat disappointed, but at least relieved that the counties’ share was not lowered.
"Although the cap was not lifted, we appreciate the difficult decisions that the Legislature had to make," Kenoi said by telephone after learning of the agreement.
He said mayors and county representatives would return to the Legislature next year to lobby again for lifting the cap.
"We’re all working hard to balance our budgets," Kenoi said. "We see a record booming hospitality industry, but the counties’ share is capped.
"So as our economy has improved, we believe it’s time to remove that cap, so that the HTA, state of Hawaii and the counties should all benefit from an increase in tourism, because we all share the burdens of the industry."
