County Council Update
THE FATE OF THE TAT: The County’s share of the Transient Accommodation Tax (TAT) revenues is the County’s second largest source of income, after real property taxes. This tax on hotel stays and rental vehicles was created in the early 1990s with the objective of funding the Counties’ tourism related costs. Once fully implemented, the County’s share of the TAT revenues was 95 percent with the State receiving a five percent administrative fee.
Granting the TAT revenues to the Counties as its source of funding for tourism related expenditures was based on an extensive study by the Tax Review Commission. That study found that approximately 53 percent of all public outlays for tourists are made by the counties, versus expenditures by the state. The Tax Review Commission also found that approximately 64 percent of the Counties expenditures benefited tourists while only 14 percent of the State’s expenditures benefited tourists. The study pointed out that failure to provide independent taxing authority for the County results in excessive centralization of power, an inefficient allocation of resources, less responsive government and a loss of accountability.
Yet over the years the Counties’ portion has been cut over and over again: first to fund the Honolulu located Convention Center and the State’s Hawaii Tourism Authority Fund. By 2001, the Counties’ portion was reduced from 95 percent to 44.8 percent. Beginning in 2009, State legislators further targeted the Counties’ TAT rather than figure out ways to secure its own new streams of income or curb its spending. Also in 2009 and again in 2010, the State raised the TAT rate by one percent each year, increasing the total TAT rate from 7.25 to 9.25. None of that two percent increase was distributed to the Counties. Then in 2011, the State also placed a cap on the County’s portion, first at $93 million and later at $103 million for fiscal years 2015 and 2016. That cap is set to revert back to $93 million in 2017.
Effective since 2008, the State increased its allocation of the TAT revenues by over 2000 percent, while the Counties’ allocation increased by only 2.2 percent. The Counties’ portion is now 23.5 percent. Had the State removed the cap, as had been promised, the Counties share last year would have been in excess of $170 million, rather than capped at $103 million.
THE STATE-COUNTY FUNCTIONS WORKING GROUP: The State legislature has now formed a State-County Functions Working Group to recommend what portion of these TAT revenues should be allocated to the Counties versus to the State. That report is due prior to the 2016 legislative session. There are 13 members in the Working Group, with one from the County of Hawaii, Finance Director Deana Sako. I attended the Working Group’s April 1 meeting. At the meeting, the State Department of Taxation reported on the above discussed Tax Review Commission’s report and stated that the principles contained in it are still applicable.
In my public testimony, I suggested the Working Group forgo further researching of the division of duties as between the State and the Counties and permanently allocate 50 percent of the TAT revenues to the Counties, or at least the previous 44.8 percent, and remove the cap.
Unless the Counties take up a more active role in these Working Group proceedings, it is likely the Working Group will recommend that the Counties receive an unduly small portion of the revenues, and the State legislature will follow the Working Group’s recommendation.
COUNTY BUDGET REVIEW: On April 22 at 9 a.m. the Council will hear from Mayor Kenoi concerning his overall budget. Please come testify in person in Hilo, or at one of our videoconference sites.