Hawaii lawmakers are considering giving a tax break to hotel developers to help expand the state’s lucrative visitor industry.

The industry pulled in more than $14 billion in 2012 but a recent report by the University of Hawaii Economic Research Organization suggests that the industry’s growth rate is on the decline.

The full House is planning to vote this week on two bills, House Bill 1594 and House Bill 2170, that would create a tax credit for hotel construction and renovation through 2019. Both measures have already passed the House panels managing tourism and finance.

It’s unclear how much the proposals might cost taxpayers because neither bill specifies the size of the tax credit.

“How much revenue would be lost would be hard to say,” said House Tourism Committee Chairman Tom Brower, who introduced HB 2170.

Brower said that because the tax break would help expand Hawaii’s visitors industry and have a positive ripple effect on the state’s economy, “it would be less looked at as money lost and more as money gained.”

Advocates for the measures said that the tax credits would help developers increase the capacity of the state’s tourism center, Waikiki, as well as spruce up aging hotels along Kuhio Avenue that need to be renovated.

“What we’re trying to do is get more rooms in Waikiki,” Brower said. “Generally speaking, there haven’t been any new hotels in Waikiki for a long time.”

Rick Egged, president of the Waikiki Improvement Association, said that are about 28,000 rooms in Waikiki, 4,000 fewer units than at the area’s peak. More units are expected to be lost as the Waikiki International Market Place is renovated.

The proposal could also help tourism on the neighbor islands. Maui Hotel & Lodging Association submitted testimony in favor of the idea, pointing out that the visitor industry directly employs 40 percent of the island’s population.

A task force set up by the Legislature in 2009 analyzed the impact of a tax credit that lawmakers approved in the aftermath of the Sept. 11, 2001 terrorist attacks and found that the tax breaks helped stimulate the economy. The group recommended creating a 10 percent refundable tax credit for hotel construction and renovation.

But the Tax Foundation of Hawaii opposed both measures, questioning whether it is the government’s role to subsidize private investments.

“While the credit might be viewed as critical to a taxpayer’s project, how long must all other taxpayers suffer the heavy burden of taxation so that this subsidy can be extended to a few?” the organization said in its testimony against HB 1594.

The group suggested that instead of providing tax credits, lawmakers streamline the permitting process to help projects get built faster.

The hotel industry is just one of several interest groups hoping to receive a tax credit from state lawmakers this year. The Legislature is also considering a proposal to create a tax credit for low-income residents and another to stimulate renewable energy production.

And while the visitor industry’s growth rate is slowing down, it is by no means struggling. Hawaii still brought in a record number of visitors last year and tourism is still the state’s biggest economic driver. A recent report by the state Department of Business, Economic Development and Tourism also predicted strong growth for the construction industry over the next three years.

Max Sword, lobbyist for the Outrigger Enterprises Group, said the company supports both measures, but paused when asked why the tax credit is really necessary given how well the visitor industry is doing.

“That’s a really good question,” he said. “Put it this way — we didn’t introduce the bill.”

Sword said he didn’t think the tax credit would actually incentivize more construction, but thought it might help developers undertake bigger projects than they would have been able to complete otherwise.

George Szigeti, president of the Hawaii Lodging & Tourism Association, was a lot more optimistic, contending that the proposal will spur more renovations as well as create jobs.

“I just think it’s a step in the right direction,” he said. “We all benefit from the visitor industry, I think we all know that.”

  • Contact Anita Hofschneider via email at anita@civilbeat.com or on Twitter at @ahofschneider

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