Honolulu Mayor Kirk Caldwell and Maui County Mayor Alan Arakawa told the state House on Tuesday that counties will be under increased pressure to raise taxes and fees unless the state lifts the cap on the counties’ share of hotel room taxes.
The state capped the counties’ share of hotel-room tax revenue at $93 million a year in 2011 to help balance the state budget, and then made the cap permanent last year. A bill sponsored by House Speaker Joseph Souki (D, Waihee-Waiehu-Wailuku) that moved out of the House Finance Committee on Tuesday would lift the cap and give the counties 44.8 percent of the hotel room tax revenue collected annually, which would likely exceed $93 million.
The state collected about $368 million from the transient accommodations tax — or hotel room tax — last fiscal year.
The debate has exposed the tension that often exists between the state and the counties over government finance. The state collects general excise taxes, hotel room taxes and individual income taxes to pay for state operations, while the counties rely on property taxes and their share of hotel room taxes.
County mayors have asked lawmakers this session for the authority to add county general excise tax surcharges to help stabilize county finances, as well as lifting the cap on hotel room taxes.
Mayors have claimed that the counties pick up a significant portion of the costs of tourism, such as parks, roads and public safety, and should enjoy a greater share of hotel room tax revenue.
Caldwell, who is expected to discuss tax and fee policies at his State of the City address Wednesday morning, said Honolulu has been working to close a $155 million projected deficit.
"So we’re really looking for help here," he said. "As mayor, I have not been afraid to go and propose fees and increases in taxes where necessary to provide the services that everyone demands and needs. And so we’re here today to ask for some help to make sure that we keep ourselves on the front edge of tourism in the world."
Arakawa told lawmakers that Maui County would have to raise property taxes this year if the state does not lift the cap on hotel room tax revenue. He said the state has openly been talking about an $844 million budget surplus, which he said he did not believe, but nonetheless argued that the state is on more solid financial ground and should give counties a greater share of hotel room taxes.
"The counties need to be made whole," he said. "It’s a fairness issue."
Under the bill that advanced Tuesday, counties would receive 44.8 percent of hotel room tax revenue each year. Of that amount, Honolulu would get 44.1 percent, Maui County would receive 22.8 percent, Hawaii County would get 18.6 percent and Kauai would receive 14.5 percent.
Kalbert Young, the state’s budget director, said the state has serious concerns about lifting the cap on hotel room tax revenue. He estimated that the state would lose $81 million next fiscal year and $126 million by fiscal year 2019.
Rep. James Tokioka (D, Wailua-Hanamaulu-Lihue), a former Kauai County councilman, said many lawmakers were frustrated by some county policy choices while the state was making budget cuts during the recession. In particular, he cited county tax relief proposals and a 60 percent to 40 percent split on health insurance premiums with public-sector labor unions while the state was negotiating for an equal share of premium costs.
"You know how frustrating it is for us sitting over here that our friends and our cousins from the counties are doing these things while we’re furloughing teachers and cutting ag inspectors and all of these positions?" Tokioka said. "So that’s the kind of thing that is very frustrating when we sit in this seat."
Rep. Sylvia Luke (D, Punchbowl-Pauoa-Nuuanu), chairwoman of the House Finance Committee, asked Caldwell and Arakawa whether they would drop their request for general excise tax authority if lawmakers lifted the cap on hotel room taxes.
Arakawa said the counties are looking for income stability. He said mayors would not need the general excise tax option if the state lifted the cap and counties did not have to fight for transient accommodations tax revenue every year. "If you continue to raid our pocket that we’ve come to count on — on the TAT — then we need another revenue source to be able to stabilize our economy," he said.
Caldwell said all four mayors would have to discuss the issue but indicated that the general excise tax question could wait until next year. He said, however, that counties would want the general excise tax option in the future.
"If you’re asking me if the TAT bill were to go forward this year, and GET was held for another year for further discussion, I think that’s a fair consideration to look at," he said. "I’m a realist. We can’t have it all."
