Hawaii’s four mayors and county councils are working to reach unanimous agreement on key tax issues so they can lobby the Legislature next year with a louder and more unified voice, officials said.
The counties want to protect their share of the hotel tax revenue and have the state grant them a new taxing power so they can raise more funds, according to interviews with mayors, council members and legislators.
The Hawaii State Association of Counties has invited the Hawaii Council of Mayors to its meeting Wednesday in the hopes of reaching consensus on how to approach state lawmakers about the transient accommodations tax, general excise tax and other issues.
The association’s president, Mel Rapozo, a Kauai County Council member, said it’s the first time the two lobbying groups have formed a partnership in their annual effort to push bills that benefit the counties.
Rapozo anticipated a “colorful” discussion and was optimistic they would reach an agreement at the meeting.
The councils had agreed among themselves to back certain bills prior to the last session, which ended in May, and the mayors did the same to support certain pieces of legislation. But the councils and the mayors did not collaborate.
Time is running out to join forces before the next legislative session starts in January. A united front could make the difference between the counties getting what they want or the state simply doing what it wants in the face of division. During the last session, county requests were largely ignored.
Sen. David Ige, chair of the powerful Ways and Means Committee, said he has told county leaders that if they could reach a consensus it would increase their chances of success.
But he offered no guarantees the counties would get what they want, particularly given the state’s financial forecasts.
“There’s not a whole lot of margin in the budget,” he said, noting the high cost of recent union agreements coupled with a less than rosy economic prediction from the state Council on Revenues.
The state is expected to engage in deficit spending for the next two years, Ige said. Hawaii can weather it only because of how much money the state has left in the bank.
The state closed fiscal year 2013, which ended June 30, with a carryover balance of $844 million. Based on collective bargaining agreements and the budget adopted last year, Ige said the state plans to spend $145 million more than it expects to bring in next year and $341 million more than it will likely take in the following year.
Preserve the Hotel Tax
The counties’ top priority is protecting their share of revenue from the 9.25 percent transient accommodations tax that hotels charge their guests. The money is intended to ease the financial burden that the tourism industry places on county roads, sewers, parks and emergency services.
The state collected nearly $324 million from the TAT in 2012, doling out $93 million to the four counties.
The Legislature rejected pleas from the mayors and council members last session to either raise the TAT or remove the temporary cap of $93 million that the state imposed on the counties’ share. Lawmakers made the cap permanent instead.
This was a significant move because it freezes the maximum amount of money the counties can expect from the hotel tax. Before the limit was established in 2010, when the economy was in dire straits, the counties lived with the same fluctuation in TAT revenue as the state.
Now, with the tourism industry experiencing record profits and the economy continuing to rebound, the state gets to keep the extra TAT revenue instead of sharing it proportionally with the counties.
The hotel tax revenue is a significant slice of each county’s operating budget. Mayors and council members fight to keep it seemingly every year, even though it’s just a sliver of the state’s multi-billion-dollar budget.
“It’s a constant issue,” Maui Mayor Alan Arakawa said. “We’re always concerned about the TAT. It seems everyone is interested in it. Why? I don’t know. It could be that it’s the lowest-hanging fruit and it’s a good way for the state to threaten us every year with something.”
Arakawa said he feels the counties are likely to keep their TAT money, but at the same time every dollar is important.
“It’s that much more money we don’t have to raise in taxes on our community directly,” he said.
Maui’s share of the TAT is a little over $20 million. That’s about 4 percent of the county’s overall operating budget of $556 million this year.
On Kauai, the hotel tax revenue comprises 8 percent of the county’s $158 million operating budget. The Garden Isle’s share of the TAT was $13.4 million last year.
And as Kauai Mayor Bernard Carvalho Jr. points out, without the cap, the county would have brought in another $10 million.
“We’re all challenged fiscally, all of us,” Carvalho said. “We’re trying to keep the core services alive and wanting to keep our share.”
To county leaders, it’s as much a financial issue as it is one of fairness.
“The cap they put on the TAT is very unfair,” Arakawa said. “I can understand when they’re desperate because the economy’s really bad and they’re in need, but when the economy is getting better then the outer islands should have the benefit of the better economy as well. It shouldn’t be capped and kept on Oahu.”
Having lost the fight to remove the cap last session, the counties want to hold on to what they have and push for a new revenue stream.
Specifically, mayors and council members want the state to give each county the power to raise the general excise tax up to 1 percent.
Honolulu is the only county that has GET taxing power at present. Voters approved a half-percent GET increase to fund the rail project.
The new tool — which wouldn’t directly hit the state budget — could generate an extra $80 million on Maui, for instance, and $14.5 million on Kauai, according to the mayors.
Kauai would use the money for specific projects, like funding a new landfill, which is expected to cost at least $40 million, Carvalho said.
Arakawa said Maui has supplemented state services and has not been adequately compensated for it, so additional tax revenue could help offset those costs.
For instance, almost every school has an accompanying playground that was provided by the county, not by the Department of Education, Arakawa said. And the county has had to fight invasive species, such as the coqui frog, because the Department of Land and Natural Resources has been so slow to respond. About $30 million in county money has also supplemented state social service programs, he added.
“We don’t mind that, but what we don’t want is, whenever the state has an economic challenge, for them to take money away from the county,” Arakawa said. “We shouldn’t be punished because we are being efficient. Taking the TAT would be a way of punishing us.”
Ultimately, it’s all a lot of political maneuvering.
“What we have to do is make sure we can maintain a consistent budget for our community,” Arakawa said. “No one wants to raise a new tax directly because it’s politically, or shall we say, it’s not the best thing for the public image.”
Rapozo, the president of the association of counties, said he thinks the councils and mayors will be able to easily agree on the need to keep the hotel tax money. He’s less sure there will be a consensus on giving the power to counties to raise the GET by 1 percent, or even by a half-percent.
Honolulu City Councilman Stanley Chang, the association’s secretary, said that if the state continues to reduce the TAT, the counties will have to increase property taxes.
“We should not be shifting the burden from visitors to residents,” he said.