Honolulu Mayor Kirk Caldwell wants his money, and he expects the state to give it to him.
In fact, Caldwell told lawmakers this week the city has been shortchanged when it comes to a special tax that’s earmarked for rail and that an accounting error led to the loss of $10 million last year.
A day before Wednesday’s start of the 2013 session, Caldwell appeared before two legislative committees — House Finance and Senate Ways and Means.
He wants two things: guaranteed money for rail and a larger share of tourism dollars.
Caldwell also outlined his demands in four pages of written testimony that described the priorities of his administration to “build rail better” and keep Honolulu “beautiful, safe and accessible.”
In order to build rail better — a hallmark of Caldwell’s campaign — the mayor said the city needs to be able to rely on receiving its share of the one-half percent general excise tax surcharge that is helping pay for the project.
The state collects the general excise tax surcharge on behalf of the city before sending it into the municipal coffers. For this, the state charges a 10 percent administrative fee. Caldwell would like to see that fee rescinded.
“We recognize that the GET surcharge was enacted just as the nation faced one of the worst economic downturns in history,” Caldwell wrote in his letter. “We understand that the 10 percent administrative fee collected from the surcharge has helped the State achieve a balanced budget. However, Hawaii and the nation are poised toward economic recovery and it is time to reconsider the 10 percent collection fee.”
Caldwell estimated that since 2007 the state has collected more than $100 million from the administrative fee on the rail surcharge. In 2012, he said the amount of fees collected added up to nearly the entire budget to operate the state Department of Taxation.
As a result he wants legislation that will get rid of the administrative fee and come up with a new way to equitably reimburse the Department of Taxation for collecting the surcharge.
“The Legislature could not have intended to pay for nearly the entire operation of its Tax Department through the imposition of the 10% administrative fee taken off the top of the one-half percent GET surcharge,” Caldwell said. “We ask the Legislature to look into the collection of the GET, ask for an explanation about the procedures and auditing practices put into place to ensure the City receives accurate and timely payments, and review the ‘necessary and proper’ administrative costs to collect the one half percent surcharge.”
Caldwell also mentioned an abnormality that resulted in the city not receiving $10 million from the state. According to Caldwell, the Department of Taxation told the city that there was a “reporting error” that caused the agency to reduce a payment to the city by that amount.
Yet, Caldwell said the city never received any information on what caused the error or whether the problem had been fixed.
“In fact, the City receives no information to verify that the sums it receives are correct because the State does not report accurately on the total collections for GET on Oahu businesses,” Caldwell said. “The GET surcharge was enacted to build the rail system. The taxpayers have the right to know that its taxes are being spent on the purpose intended — to build a rail system.”
According to Caldwell’s letter, the city has received $906 million in GET surcharge payments. The Legislature has tried to commandeer these funds in the past, and Caldwell’s message appears to be an attempt to preempt similar proposals.
Caldwell also told the state’s fiscal committees that he would like the Legislature to reconsider how it doles out transient accommodations taxes.
These funds, known as TAT, are collected from the rental income of businesses that typically accommodate tourists visiting the area, such as hotels and other vacation rentals. The money is then split up among the state and counties, although there is a cap on how much the municipalities receive.
Caldwell said the city only gets $41 million from TAT, which accounts for 12 percent of the total tax collected. He said this doesn’t balance out when considering Oahu generates about 80 percent of the total TAT.
A remedy, he said, is to eliminate the cap and increase the “fair share allocations” to the counties. This money could then be used to restore bus routes, clean up city parks and increase public safety.
“These services benefit both our residents and our visitors,” Caldwell said. “And without these essential services, Honolulu would not be able to attract the over seven million visitors that pass through each year.”