Neighbor Islands should not pay for rail

The state Legislature’s special session is scheduled from Aug 28 through Sept 1 and aims to address the issue of how to fund Oahu’s controversial rail system. The latest proposal unveiled to the public – created behind closed doors – calls for increasing Hawaii’s hotel room tax, or transient accommodations tax (TAT), by 1 percentage point through 2030 statewide. The increase would raise the tax from 9.25 percent to 10.25 percent. The proposal would also extend on Oahu residents only, for three additional years, a 0.5 percent general excise tax surcharge (GET).

Why is this a bad plan for Neighbor Islands?

Impact of TAT on Neighbor Islands
• Oahu occupancy rates are 10 points ahead of Maui, 13 ahead of Kauai and nearly 20 points ahead of Big Island
• From Calendar Year 2006 to CY 2016, Oahu GET base grew by 15% while Neighbor Islands remain below 2006 levels
• One percent increase in TAT would remove over $30 million from our Neighbor Island communities and economies, sending it to Oahu.

The State has already grown their share of the TAT significantly.
• The State has increased its share of TAT from $17.1 million to $291.1 million since 2007
• Since then the Counties share has dropped to $93 million, a loss of $7.8 million
• The cost of Police, Fire and Parks departments in the four counties has increased by $264 million while Counties share has been reduced.
• Without a rate increase State share will likely increase to $326 million in FY2018
• With a 1% rate increase, State share will likely increase by another $58 million to $384 million.

Neighbor Islands are again being offered the opportunity to pass the same .5% GET Surcharge for our transportation needs.
• The concern that the neighbor islands have had for years is that once we pass the GET surcharge, the Legislature will take away ALL of our TAT revenue.
• Some of us have been told directly over the years that this is their intent.
• The Neighbor Islands favor keeping a visitor-generated TAT to pay for visitor –related services. It makes no sense to shift the cost of visitor services to our resident population through either GET or property taxes when the visitors have already paid their fair share.
• The GET generated by the .5% surcharge would be just slightly higher than the amount of TAT we are currently getting.

State should work on ensuring all TAT taxing options and compliance issues are addressed before simply increasing the rate
• The State is not receiving a significant portion of the TAT revenue even though the visitors are paying the TAT or an equivalent. Amend TAT statute to ensure collection of taxes from accommodation remarketers instead of just operators. Maui County has drafted a bill to correct the problem, and it will likely be part of the HSAC package. $60-80 million in added revenue.
• Increase the basis of the calculation of TOT on Timeshares from 50% of maintenance fee to a higher percentage.
• Work with Counties to ensure vacation rentals are operating legally and paying both State and county taxes. Maui County will be contracting with internet service that will identify location and ownership of rentals being advertised on the internet.
• Instead of TAT, evaluate a Rhode Island-type 1% tax on food and beverages consumed at restaurants, bars and hotels. Restaurant Association estimates the Hawaii base at $4.6 billion. $46 million in added tax revenue

Both the Hawaii State Association of Counties (HSAC) and the Hawaii Council of Mayors (HCOM) stand in support of the position to fund rail by extending the .5% GET surcharge.
• The proposal extends the GET surcharge for just three years to 2030.
• The $1.3 billion raised by the TAT increase would be unnecessary if the GET was extended through 2033. The 3 additional years of surcharge would generate the same $1.3 billion.
• If the use of TAT fails the stress test of the Federal Transit Authority and is disqualified as a source to fund rail, will the TAT increase be reversed?

Our Legislators push the counties to increase property taxes instead of asking for more TAT.
• Hawaii has lower property tax rates, but significantly higher home values.
• Hawaii’s median home value is 5 times higher than West Virginia and three time higher than Idaho.
• Even with lower rates, the average tax on the median home value is $1,430 in Hawaii vs $1,250 in Idaho and $660 in West Virginia.
• Hawaii property taxes represent 2.1% of median household income. This compares to 2.6% in Idaho and 1.5% in West Virginia.

Distribution to Local governments of taxes generated from Lodging Revenues
• Nationwide, taxes on lodging have been established to cover the cost of services and infrastructure needed to support the visitors.
• Nationwide, 67% of ALL taxes (GET & TAT) on Lodging revenue go to the local government.
• In Hawaii, only 14% of GET & TAT generated is given to local Governments
• The Hawaii TAT accounts for about 68% of the taxes on lodging. If we were to get the Average Local government share we would get almost all of the current TAT revenue.

Hawaii is not the only small state with large expenditures on Education and other government functions, but tax distribution is very different.
• With similar populations to Hawaii, state expenditures on education in West Virginia and Idaho are close to Hawaii’s.
• When Hawaii spent $1.6 billion or 23% of its General Fund (GF) on education, Idaho spent $1.6 billion (51% of GF) and West Virginia spent $1.9 billion (43% of GF) on education.
• West Virginia has a 6% state sales tax and a 6% room tax (TAT) on lodging revenue. All proceeds from the 6% room tax go to the local government.
• Idaho also has a 6% state sales tax and authorizes local government to impose “local option” taxes on lodging accommodations, drinks by-the-glass, retail sales, etc. The total taxes in resort areas appear to be about 12%. The state receives the 6% sales tax and the local government receives the rest.
• This type of comparison deserves a closer look if we hope to bring a stronger sense of “partnership” to the relationship between our state and counties.

The promise to make permanent the $103 million to the Counties is questionable.
• The Legislature’s history on keeping promises is weak. We all know that any action taken by today’s body can be reversed in any future session.
• There was a promise that the 2% increase in TAT after the recession in 2008 would sunset after 5 years. It is not likely it will ever sunset.
• The $103 million to the Counties still falls short in terms of the Counties being awarded their fair share.

There was hope that the recommendations of State-County Working Group would be taken seriously
• The Counties’ share of the TAT would have been $184 million this past year if the legislature accepted the findings of the working group they established.
• The working Group found that Counties provided 56% of visitor related expenditures from State or County general funds
• Counties were willing to accept the lower 45% share compromise reached in the working group.
• The Legislature has ignored the Working Group findings, maintained the cap and taken all of the increased revenue.

Tax Review Commission recommendations would increase revenues by over $300 million per year
• Not all the recommendations are popular
• Sugary beverage tax of $.02 per ounce – $50 million
• Increase collection of taxes on e-commerce/online retail sales – $30-40 million

I encourage Maui County residents to contact state legislators. Call or email them at reps@capitol.hawaii.gov and sens@capitol.hawaii.gov to let your voice be heard.

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16 Responses to Neighbor Islands should not pay for rail

  1. Joan Hiyakumoto says:

    Ladies and Gentlemen – Aloha from Maui. .
    I do not want my money, which I paid to the State in taxes, or the Neighbor Island Room taxes to pay for the rail on Oahu. If you want to raise a lot of money let’s get the Lottery going and funnel some the money that goes to Las Vegas into our local treasury.

  2. Michael DUCHENEAU says:

    If I am going to pay higher taxes it better be to improve and move highway 30 from Ukumehame to Lahaina. We on Maui do not benifits from rail. We need relief from traffic and improvements to our life line to hospital and airport and delivery of goods.

  3. Rose Sabino says:

    I firmly believe the Neighbor Islands should not pay for rail. More than likely we would never use it and we never had a say if we wanted it or not.

  4. Michele Yoshikawa says:

    My husband and I are Lanaians and on a fixed income. We DO NOT want to be paying for something we may never use in our lifetime.

  5. Peter says:

    I support Mike White and represent Maui County and stress that Neighbor Islands should not pay for rail based on facts presented in this article. http://mauicouncil.org/newsroom/neighbor-islands-pay-for-rail/

  6. Jess Cabradilla says:

    It’s Honolulu’s rail not the neighbor islands why should we pay for something we may ride few times if at all.it’s unfair,and bogus nuff already

  7. Richard Tom says:

    Oahu Rail reminds me of the freeway to nowhere that used to be located right in the city of San Francisco when I lived there in yhe 1970s. I forget why it was stopped but glad to see it’s no longer there to block the views of San Francisco Bay! Will the Oahu Rail be slated for the same fate? Born and raised in Honolulu, but now a resident of Kula, Maui.

  8. Michael Thomson says:

    Vote no on rail bail out plan. Not only will it not help, the cost to operate is not even addressed. Find a way for C&C of Honolulu to cover what they started. All other counties should not be held liable.

    Sent from my iPad

  9. Celso Vila says:

    This is why people in Hawaii end up being homeless. People can’t afford it anymore. I meant people that works hard can’t afford it anymore so rephrase that. It was a no no to begin with but one of you thought you all new it all so u should all take a pay cut and pay for it and not the people.. Hawaii needs to stand for its people and not let America dictates our Way of life.. We should let America take care of this problem and not just Hawaii people who is already living an all time high cost of living. Come on.!

  10. Lou Ann Alo says:

    Thank you Mr. White for sharing this information. I hope legislators can come to terms by not raising the hotel or property tax but raising the sales tax statewide to 5% permanently. All counties need our tourist to continue to vacation on our islands. Homeowners just got an increase in property taxes. Oahu should pay a higher sales tax to fund rail and not include the other counties.

  11. I don’t​ feel it is right to make the other islands “PAY” for something that we don’t use. O’ahu should be the ones to take care of that!

    Ask the “Mayor” to drop his “PAY” since he is all into this. Don’t make the other islands pay for something they will never use!!!

  12. FJ Forest for MauiOTA says:

    If we neighboring Islands are stuck with this TAT increase, at LEAST get the legislature to offer these two ‘perks’ as part of the deal – 1) Some type of substantial ferry service between all the Islands (accommodating autos would be prefered) and 2) Opening the State airports to carriers like Southwest Airlines to allow true competition and lower fares between the Islands. If residents or visitors to the outer Islands have to pay for a rail system on Oahu, let’s ‘shrink’ the distance between them so everyone can benefit, by implementing these two suggestions.

  13. Dave Stein says:

    Maui residents should not pay for Honolulu rail!!!

  14. Elizabeth fulton says:

    We should absolutly NOT have to spend a penny on THEIR rail transit!!
    Raise the gas tax!
    Start a lottery, even if it’s temporary. ..those who are adiment against Rail, don’t have to buy a ticket…

    Why the Hell isn’t the original contractors being held liable for their bid??

  15. Ben says:

    I like the idea someone else mentioned…Raise the gasoline tax on OAHU! Maui driver’s pay the MOST in the state! Maui people pay about 50 cents more than Oahu..I don’t think it’s fair! Raising the gasoline will encourage more Oahu residents to use the rail…it’s Oahu’s problem…NOT neighbor islands problem!
    Raising Hotel tax-that’s why I don’t travel to Oahu! Airfare,car, & hotels are just TOO outrageous as is. Rather fly out of state & get more bang for your dollar. I feel sorry for locals who have travel to Oahu…can’t afford it!…like someone said before “rail people better start selling a lot of plate lunches!”

  16. Mathew Goodrich says:

    I had an injury that requires my being in Honolulu 4 days a week from my home on Molokai and I ride the city bus. Before that, I had a construction company that required multiple trips to Honolulu and clogged the freeway with my slow driving from Molokai. Every time I fly to Honolulu the plains are full of shoppers and folks going to Queens, our Molokai folks are low income and use the transit system and the roads and we should pay our share for the opportunity the rail will afford our families. It is no secret Honolulu pays the lions share of our state taxes and I would be one tax payer from Molokai that would not mind paying in, as I know those folks on Oahu have shouldered more than their share of projects on our island.

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