Special session threatens Neighbor Islands

CHAIR’S 3 MINUTES
Published in the Maui News, July 16, 2017
By MIKE WHITE

The state Legislature has scheduled a special session to discuss the controversial topic of funding Honolulu’s rail project. Planned for Aug. 28 through Sept. 1, the session could have serious consequences for Neighbor Island counties.

The legislative session ended in May without a funding mechanism for rail. The Senate voted to continue rail funding with a general excise tax surcharge for Oahu residents, but reduced the counties’ share of transient accommodations tax from $103 million to $93 million.

The House voted to maintain the counties’ TAT share at $103 million, but increase the tax on visitor accommodations by 1 percent, with the additional revenue funding rail. Neither side would budge from their position, which resulted in a stalemate and now a costly special legislative session.

All options are now on the table. One of the proposals continues to be an increase in the TAT, anywhere from 1 to 2.75 percent.

Increasing a tax on tourists seems like an easy way to close the funding gap. The problem, however, is that TAT is applied on accommodations statewide, not just Oahu. Even thinking of this solution for rail, without ample benefit to Neighbor Island counties, is simply irresponsible. Neighbor Islands receive absolutely no benefit from rail and neither will Waikiki, which generates most of Oahu’s TAT revenue.

Increasing the TAT also has implications on the overall economy. Most visitors have a fixed budget for their vacation, and an increase in the room tax will simply lead to less spending on restaurants, retail and activities. Every 1 percent increase in the TAT sends approximately $26.7 million to the state instead of remaining in the Neighbor Island communities.

Kauai, Maui and Hawaii counties generate 51 percent of TAT revenues ($247 million) while Oahu generates 49 percent ($237 million). Given this split distribution, any increases to the tax for rail should apply only to Oahu. It is unfair to expect Neighbor Islands to subsidize one of the most expensive projects in the state’s history.

The redirection of funds would also further dilute the purpose of the tax, which is to provide counties the ability to maintain the infrastructure and services necessary to support a thriving visitor industry.

Counties have absorbed additional costs in recent years since the state has failed to provide a fair share of TAT funding. From 2007 to 2017, counties have incurred over $260 million in cost increases for fire, police and parks but have only seen an additional $2.2 million from TAT revenues. Any gains have since been reduced, as the Legislature cut the counties’ annual TAT distribution from $103 million to $93 million for fiscal year 2018. Meanwhile, during the same period the state took for its operations over $220 million.

These actions have forced counties to either raise property taxes or dip into contingency funds to balance their budgets. In the end, the actions at the Legislature hit the pockets of residents despite the facade of only impacting visitors.

It is vital that the House dispense with the idea of increasing the TAT and instead focus on the Senate’s proposal, which maintains Oahu’s 0.5 percent excise tax surcharge for an additional 10 years, with no impacts on the Neighbor Islands.

As the special session approaches, 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.

The Legislature must stop playing games and instead make sound and fair decisions. They have already allowed the law that granted immunity for county lifeguards to expire on June 30. The counties are now liable to defend frontline personnel at our own cost, even at state beaches.

Another hit to the Neighbor Islands is unwarranted, and we should have no part in picking up the cost of Honolulu’s rail!

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