A measure that would establish a 3% city hotel tax advanced to final reading during a Honolulu City Council Budget Committee meeting Wednesday. Under Bill 40, revenue from the new tax would be split between the city’s general fund, rail and to support parks, beaches and other natural resources affected by tourism.

The proposed 3% city transient accommodations tax would be in addition to the state’s existing 10.25% hotel tax.

The Legislature this year ended sharing portions of the state TAT through which the four counties received a total of about $130 million annually, with Honolulu getting 44%, or about $45 million. However, the measure passed by state lawmakers allows the counties to recoup those funds by implementing their own TAT.

The Honolulu bill would levy a 3% tax on gross rental proceeds from accommodations including vacation rentals, hotels and timeshares. It also would apply to noncommission accommodation brokers, travel agencies and tour packagers.

Honolulu is the last county in the state to pass its own TAT. Discussion at the Council has revolved around the lack of clarity on how the revenue would be split between the general fund, support of natural resources and, most controversially, rail.

The Budget Committee approved a draft that divvies up the 3% TAT with 1.75% of revenue going to the general fund, 1% to rail and 0.25% to natural resources. After two years, the formula would be readjusted to allot 1.25% to the general fund, 1.5% to rail and 0.25% to natural resources.

Projections for the amount of revenue the city would see from the new TAT will fluctuate depending on visitor counts, but according to the July numbers, city Managing Director Mike Formby projected the tax would generate about $86 million annually.

Under the projections, the transit fund for rail would see about $28.6 million over the first two years the TAT is imposed. In subsequent years that number would increase to about $43 million.

The latest discussion of the proposed TAT split came as Honolulu Authority for Rapid Transportation interim CEO Lori Kahikina informed Budget Committee members Wednesday that the estimated $3.5 billion deficit to complete the 20.2-mile rail project connecting East Kapolei to Ala Moana Center could be slashed to about $1.97 billion.

The reasons for the decrease, Kahikina said, include an extremely cautious initial cost estimate, a quicker-than-expected recovery of the state’s general excise tax and TAT revenues, and HART’s efforts to look for efficiencies in the massive construction project.

Council member Esther Kiaaina expressed support for a key provision of the proposed city TAT that would help mitigate the burden of tourism on Oahu’s natural resources.

“If we’re going to make any movement to help our natural resources in our parks, this is an avenue,” she said. “The whole intent behind the TAT is to address the impact of our visitors. So I don’t believe that there is any more meritorious provision to be part of this measure.”

Under Formby’s projections, the special account for natural resources could see $7.1 million in perpetuity.

The remainder of the new TAT revenue would go into the city’s general fund to support city operations. The city would see about $50 million for the first two years and then about $36 million annually.

The proposed TAT would add another revenue stream to the city’s budget. Currently, the city relies largely on property taxes for funding.

Bill 40 passed out of the Budget Committee, with five Council members voting in favor of the measure. Council member Heidi Tsune­yoshi registered the only “no” vote. She said she wanted to see all of the proposed TAT revenue go to the general fund and to natural resources, not rail.

“I apologize that all this information and discussion has been centered around rail, but it is not something of our making. It is something of the administration’s making to say that they wanted a percent of our TAT to go to rail,” Tsuneyoshi said.

Bill 40 is expected to be heard at the full City Council meeting scheduled for Dec. 1. If approved by a majority of the nine members, it will go next to Mayor Rick Blangiardi for his signature.