A panel is recommending a dramatic increase in the counties’ share of the state hotel room tax, and is proposing that lawmakers revamp the distribution formula to deliver an extra $69 million to Honolulu and the other counties next year.

The unanimous recommendation by the State-County Functions Work Group amounts to an opening gambit in an annual contest at the Legislature as the state, counties and other players maneuver for a larger slice of the revenue from the lucrative 9.25 percent transient accommodations tax levied on hotel accommodations.

That tax generated nearly $421 million in the fiscal year that ended June 30, and has been increasing annually as record numbers of visitors arrive in Hawaii each year.

The state Legislature decides how that money is divided, and it has adjusted the formula more than a dozen times over the years to provide extra money for specific programs, help the counties or boost the amount of revenue flowing into the state’s general treasury.

This year, the counties will receive a total of $103 million, while the Tourism Special Fund that supports Hawaii’s tourism marketing and promotion efforts will receive $82 million. Another $26.5 million is earmarked for the Convention Center Enterprise Special Fund that supports the Hawaii Convention Center. Most of the rest will be deposited into the state’s general treasury.

The counties have argued for decades that they deserve a heftier portion of the hotel tax because they provide most of the services used by visitors, and therefore bear most of the burdens of modern mass tourism. Police and fire protection, water and wastewater systems, garbage disposal and many parks and transportation services are all provided by the counties.

Advocates for a larger state share reply that the state has its own array of responsibilities that must be met, including financing Hawaii’s public schools, harbors, airports, major highways and hospitals.

The annual wrangling over how to slice up the hotel tax pie prompted lawmakers in 2014 to create the State-County Functions Work Group. The panel was instructed to study the division of labor between the state and counties and draft a recommendation for an “appropriate allocation” of hotel tax money for the Legislature to consider.

The current version of the hotel tax distribution formula caps the counties’ share of the tax revenue at $103 million for this year, and will reduce the counties’ share to $93 million in the fiscal year that begins July 1.

After two years of deliberations, the State-County Functions panel issued a report Tuesday that found the city and counties spend a total of $236 million a year on tourism-related activities and services, which far exceeds the $93 million the counties will receive from the hotel tax.

The report concludes the state should eliminate the cap on the counties’ share of the hotel tax and boost the counties share to $162 million next year. The report recommends that in the following years, the counties’ income from the hotel tax should increase or decline as total collections from the tax grow or shrink.

An obvious problem with that proposal is it would cost the state’s general treasury dearly. The state general fund is projected to receive $267 million hotel tax revenues in fiscal year 2017 if the current formula remains in place, but would decline to $198 million if the Legislature follows the recommendation of the state-county panel.

State Director of Finance Wesley K. Machida declined to comment on the recommendations, saying he is still reviewing the report and needs to discuss it with Gov. David Ige.

However, the proposed state budget submitted by Ige to the Legislature last week assumes the hotel tax formula will remain as is, which means giving the counties more hotel tax money would require cuts elsewhere in the budget.

House Finance Committee Chairwoman Sylvia Luke, (D-Punchbowl, Pauoa, Nuuanu) said lawmakers will take a serious look at the work group recommendations, but warned that implementing the recommendations could have an adverse impact on state services.

“Whenever we reallocate resources, we’re not creating new monies. It’s whatever money we have, and it’s asking for reallocation to the counties, so whenever you do that, it’s got to come from some state services,” she said. “If we were to agree with what the task force is recommending and we go with it, then there is going to be impact on state programs.”