Honolulu will implement a city hotel tax. Mayor Rick Blangiardi signed the measure into law Tuesday.

Most of the revenue from the new tax will be allocated to the city’s general fund and rail. A smaller portion will go into a special fund to support natural resources affected by tourism, such as parks and beaches.

City officials estimated that the new tax could generate about $86 million a year for Oahu, based on projections from July.

Bill 40 would levy a 3% city transient accommodations tax on visitor accommodations. It would be imposed in addition to the state’s current 10.25% hotel tax.

About 58% of the revenue from the new tax will go to the general fund, about 33% will go to rail and about 8% will go to the special fund for natural resources.

After the first two years, the breakdown changes to about 42% of the new transient accommodations tax, or TAT, going to the general fund and 50% going to rail. The amount that would go to natural resources will stay consistent.

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

Honolulu’s proposed TAT would put a 3% tax on all gross rental proceeds from establishments such as vacation rentals, hotels and timeshares. It also would apply to noncommissioned accommodation brokers, travel agencies and tour packagers.

Oahu is the last county in the state to pass its own TAT.

“Bill 40 restores much-needed revenue and is expected to generate new funding to maintain core city services that will benefit our communities,” said Blangiardi. “We sincerely thank the Honolulu City Council for its support in passing this important bill which will help fund vital city functions, including police and fire protection, facility and infrastructure maintenance, improvements to parks, beaches, and roads, and the rail project.”

The Honolulu City Council passed the bill in a 6-3 vote earlier this month with Council members Heidi Tsuneyoshi, Augie Tulba and Carol Fukunaga voting against it due to the portion of the new TAT being funneled to the rail project.

Honolulu Authority for Rapid Transportation interim Executive Director and CEO Lori Kahikina praised Blangiardi’s decision to implement the measure.

“This new funding source will allow us to build and complete a functional rail system to major employment centers on O‘ahu and connect with the existing robust bus system already in place,” she said.

“I also thank our HART Board for the support they have given through the entire process, including providing a resolution to City Council and testifying at the many hearings.”

The 20-mile rail project is still facing a $1.97 billion deficit to complete its route from East Kapolei to Ala Moana Center by 2031.

On the Honolulu Star-­Advertiser’s “Spotlight Hawaii” livestream program Monday, Blangiardi was confident that the project had enough funding to get to the Civic Center.

“Beyond that is where the problem lies,” he said.

“That’s where the current deficit, I think was reported at $1.97 billion, lies.”

He was still working with the Federal Transit Authority on a plan but did acknowledge that the city is in breach of its full-funding grant agreement with the federal government, which requires the project to make it to Ala Moana Center to receive the full funds.

“We are in breach of contract with the FTA and have been for some time now,” he said.

“It could be argued that the public’s trust has been breached as well.”

Blangiardi also signed into law a measure that would grant real property tax exemptions for green energy projects, after some projects saw enormous jumps in their property tax assessments in 2020.

He also will allow to become law without his signature a measure that prohibits commercial activities on Oahu’s Windward and North Shore coast, affecting industries such as surf schools and wedding photographers. There are exemptions in the bill for the film industry.