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When Hawaii industry tourism executives decried a proposal to raise a hotel room tax to help bail out the struggling Honolulu rail project, lawmakers responded with more than a little skepticism Monday.
Although the proposal is significant – an 1 percentage point increase in the tax that would raise an estimated $1.3 billion over 13 years – lawmakers questioned whether the cost to an average visitor, about $3 a night for a $300 room, would really drive tourists away.
“Now that’s going to break the back of the industry?” a dubious Sen. Brickwood Galuteria asked George Szigeti, president of the Hawaii Tourism Authority.
Szigeti didn’t answer.
Galuteria turned over the mic to Sen. Donna Mercado Kim, who launched her own series of pointed questions about resort fees and escalating rates.
Tourism executives hoping for a warmer reception from the House of Representatives on Wednesday might recall what happened last session: the House supported a rail bailout bill much like the one now under consideration during a special session. Then, as now, an increase in the hotel tax was part of the plan.
In addition to raising the hotel room tax to 10.25 percent from 9.25 percent, the measure would extend by three years a 0.5 percent surcharge on the general excise tax imposed on Oahu to pay for the 20-mile rail line from East Kapolei to Ala Moana Center. The project is, for the moment at least, projected to cost about $8.165 billion, not counting interest.
On Wednesday, House members are scheduled to discuss the measure and take testimony during a joint hearing of the Transportation and Finance committees.
Several hospitality industry executives said Monday the bill could lower demand for rooms and lead them to hire fewer workers. Former Honolulu Mayor Mufi Hannemann, now president and chief executive of the Hawaii Lodging and Tourism Association, said Hawaii faces a variety of threats that can disrupt travel to the state, from king tides and Kim Jong Un to the rise of Cuba as a culturally rich sun-and-sand destination.
But senators were largely unmoved.
Sen. Glenn Wakai, whose district includes Kalihi, Salt Lake and Pearl Harbor, grilled Szigeti for evidence that the hotel tax has ever driven away tourists.
Including Oahu’s 4.5 percent general excise tax, the visitors to Honolulu currently pay an additional 13.75 percent of the cost of a hotel room in total taxes.
That puts Honolulu toward the middle of the top 150 urban centers based on total lodging tax rate ranking for 2015, according to tourism consulting firm HVS Convention, Sports & Entertainment’s “2016 HVS Lodging Tax Report – USA.”
Honolulu’s rate would still be lower than tourist destinations like Anaheim, California (17 percent); San Antonio (17 percent); New Orleans (14.75 percent); New York (14.75 percent); Portland (14.5 percent) and Boston (14.45 percent). The tax rate is already higher than Miami (13 percent), Nashville (13 percent) and Orlando (12.5 percent).
“Any time you take a price increase on anything there is possible consumer pushback,” Szigeti said, referring to the general notion that increasing the cost of a consumer good causes demand to decline. “That’s all we’re concerned about.”
Wakai persisted, finally saying, “Let me show what history shows rather than the anecdotes you believe in.”
In 2009, when the Legislature increased the hotel tax from 8.25 percent to 9.25 percent, there were 6.5 million visitors to the state, Wakai said. Visitor levels have grown by almost 50 percent since then, to 9.25 million, he said.
Data from the Hawaii Department of Taxation supports Wakai’s point:
Sen. Donna Mercado Kim has repeatedly questioned why hoteliers continually raise room rates and impose resort fees if they are concerned that higher prices will “kill the goose that laid the golden egg.”
Typically ranging from $15 to $40, resort fees are often mandatory and cover amenities that were once standard, like pool access and in-room coffee machines. The fees are not subject to the hotel room tax.
If hoteliers really were concerned that a $3 tax increase would drive tourists away, Kim has repeatedly said, they wouldn’t be charging $15 resort fees for “amenities.”
Consumers paid approximately $2 billion in resort fees in 2015, a 35 percent increase over the previous year, the Federal Trade Commission estimates. Bjorn Hanson, a professor with New York University’s Jonathan M. Tisch Center for Hospitality and Tourism, pegged the number higher, at $2.45 billion in 2015, and an estimated $2.6 billion in 2016.
Although the American Hotel & Lodging Association says resort fees are on the decline and that only 7 percent of hotels levy them, the trend does not seem to apply to Hawaii.
The website resortfeechecker.com listed 56 Oahu properties with resort fees as of October 2016. One rough estimate, in a study by the travel website Travel-Hawaii.com, said 102 Hawaii hotels collected $270 million in resort fees in 2015.
Not all lawmakers looked askance at the tourism officials. Sen Kaiali’i Kahele, who represents Hilo, used Monday’s hearing to give Ed Case, a spokesman for Outrigger Hotels and Resorts, the chance to explain how his company’s resort fees benefit guests.
“Generally, it covers discretionary services over and above the actual hotel room itself,” Case said. In the case of Outrigger, that includes a bus tour around Waikiki, a canoe ride and other amenities, Case said.
“There is some value to the resort fee if it’s paying for, like you said, canoe rides, rides around Waikiki, access to the fitness center, or the beautiful swimming pools and water falls and landscaping that these hotels invest in,” Kahele said. “That’s part of the experience of visitors staying in one of these hotels.”
Case agreed and added: “If the visitor doesn’t want to pay the resort fee, they don’t have to pay the resort fee.”
But a call to Outrigger’s reservations line Tuesday suggested Outrigger’s policy might not be so clear to tourists.
The kamaaina room rate at the Outrigger Waikiki Beach Resort, the resort line operator said, was $243 per night for a room with a partial ocean view in October.
That did not include a $30 resort fee that covered items such as bottled water, in-room Wifi, ukulele and hula lessons and use of a Waikiki trolley. The fee was not optional, according to the operator.
A room at the Ohana East hotel was $112. A $15 resort fee, cut to $7.50 for kamaaina, covered a string backpack, Wifi and pool access, the operator said, again saying the fee was not optional.
When booking a room online at the Outrigger Reef Waikiki Beach Resort, the payment summary listed a room rate of $229, $31.97 in taxes and “fees” of $31.41. The stated rate policy says, “Waikiki Collection Fee of 30.00 USD plus taxes, per day, per room will be added to the Cost Summary at check-out.”
Nowhere does the policy say the fee is optional.
Monica Salter, an Outrigger spokeswoman said that the operator was mistaken and that the fees were optional. She said it was an isolated mistake.
Salter said guests booking online are not charged the resort fees until they check out and are given the option to decline the resort fee packages when they check in. Salter said that fee does not include a canoe ride, as Case testified, but rather one $10 discount for one canoe ride per guest, per stay.
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