Lawmakers consider using visitor-housing tax to fund rail along with GET

Lawmakers agreed Friday on a new way to inject funds into Honolulu’s rail project.

On Friday, a House and Senate conference committee passed a proposed revision by the House, which removed the 2-year extension using GET surcharge from Senate Bill 1183 and replaced it by increasing the Transient Accommodations Tax (TAT) by 2.75 percent.

The amended bill calls for the City and County of Honolulu to contribute $13 million of their share of the tax to fund the rail project.

“The City and HART have been telling us over and over again that the cost of rail should be put on tourists and the visitor industry,” said Rep. Sylvia Luke (Makiki, Punchbowl, Nuuanu, Dowsett Highlands, Pacific Heights, Pauoa). “We have taken them to heart and we have done that today without imposing a further tax burden on the citizens of the state.”

Lawmakers say the bill allows for a massive infusion of money now for the rail project “without putting the cost of it on the backs of our most vulnerable citizens, the poor, elderly and low-income working families.” The money generated by the increase in the hotel tax in today’s dollars is equivalent to receiving $2.4 billion in future GET revenues. This would provide more funding for rail than any package currently being proposed.

“The end goal has always been to get rail to Ala Moana so that the City fulfills its agreement with the Federal Transit Authority,” said Rep. Henry Aquino (Waipahu). “This bill gives the city more tools to use in managing and funding its project.”

The bill will still need a full vote in both the House and Senate before it can go to Gov. David Ige for his signature.

Honolulu Mayor Kirk Caldwell says he appreciates the idea, but notes that the city’s $13 million contribution will have to be made up elsewhere.

“We have to find it somewhere now. We’ll have to work closely with the council and I’m sure they’ll be looking at where we make up this shortfall,” Caldwell said. “At the end of the day, they have several revenue-raising measures that they could look at, or they have to make deeper cuts in certain programs. My understanding is they’re close to getting the budget balanced.”

The provisions of the amended bill include:

  • Removal of House’s proposed 2 year GET extension for 2027 – 2029;
  • Increase of the Transient Accommodations Tax (TAT) by 2.75% from its current 9.25% to 12% for 10 years from January 1, 2018 to December 31, 2027;
  • Revenue generated from the TAT increases will be distributed as follows:
    • $50 million will be set aside annually for education in a newly created education special fund;
    • The remainder of the $1.3 billion will go to the Honolulu Rail Project concurrently with the GET surcharge revenue that they are already receiving now;
  • $13 million of Oahu’s share of the TAT go to funding the rail project;
  • Maintaining the House position to lower the state’s share of the administrative service fee to 1%;
  • Giving all counties the option to extend the GET surcharge;
  • Requiring Honolulu to repeal any ordinance prohibiting use of county funds for rail;
  • Prohibiting the use of the GET surcharge revenue to fund HART administrative, operating, and personnel expenses.

Click here to see the entire conference draft proposed by the House.

The Hawaii Tourism Authority opposes the plan, and urges caution. HTA’s president and CEO, George Szigeti, said in a statement:

“Hawaii relies upon tourism, and this industry is extremely competitive. We need to be careful about increasing the cost for visitors to vacation in Hawaii and not price ourselves out of the global marketplace. Hawaii’s visitor results have been strong in recent times, but history tells us there is no guarantee this trend will continue. Our hotel partners will be impacted most by this TAT increase and that seems unfair to place such a burden on a single sector of our business community. Tourism supports 190,000 jobs for residents statewide. If we make it too expensive to vacation in Hawaii, it could lead to a downturn, the impact of which will ultimately will fall on the shoulders of Hawaii’s tourism employees, families, and the economy.”

Of course even with this newest influx of cash coming from the TAT, the mayor still says much more is needed to get the rail to Ala Moana.

The question is, where will that money come from?

“You ask most residents do they want to pay more, and they’re struggling, and I think they’re going to say no. So where do you distribute the pain?” Caldwell said. “Well, those second homeowners who don’t live here, or investment properties over a million, maybe they’d pay more, but we’re raising it to nine. Do we raise it higher? These are things the council will have to ask if you don’t touch hotel or resort. You can spread it to commercial or industrial.”

Caldwell says if the TAT and GET extensions come to an end in 2027, the rail could be facing shortfalls of close to a billion dollars by the year 2037.

The bill also calls for a moratorium on redeveloping the Neal S. Blaisdell Center, which is estimated to cost nearly $500 million. Lawmakers say they don’t want the City to “fiscally over extend itself” and instead, focus on rail.

The condition, Caldwell says, is something the council will have to look into.

“As you know, it’s over 50 years old, much like the stadium or airport. It’s declining in terms of value,” he said. “How much more money do you put into it and not get your return back?”

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