Legislature leaves state hotel tax split as is

House and Senate negotiators have agreed to provide the four counties with the same amounts of money in hotel tax revenues as they are receiving this year.

That decision by key lawmakers Wednesday concludes for another year the annual debate over how the state, the counties and other players divide up the lucrative 9.25 percent transient accommodations tax levied on hotel accommodations.

That tax generated nearly $421 million in the fiscal year that ended June 30, and has been increasing annually as record numbers of visitors arrive in Hawaii each year.

The Legislature decides how that money is divided, and it has changed state law more than a dozen times over the years to provide extra money for specific programs, to help the counties or to boost the amount of revenue flowing into the state’s general treasury.

This year the counties will receive a total of $103 million while the Tourism Special Fund that supports Hawaii’s tourism marketing and promotion efforts will receive $82 million. Another $26.5 million is earmarked for the Convention Center Enterprise Special Fund that supports the Hawai‘i Convention Center. Most of the rest will be deposited into the state’s general treasury.

The $103 million in hotel tax revenue that goes to the counties is divided up among Honolulu, Oahu, Kauai, Maui and Hawaii counties. Honolulu receives 44 percent of that amount under a formula set by state law, and the other counties divide up the rest.

Lawmakers decided Wednesday to approve a draft of Senate Bill 2987 that would leave intact the formula for dividing up the hotel tax. That bill will now go to the full House and Senate for further consideration, where it likely will be approved.

The counties have argued for decades that they deserve a larger portion of the hotel tax because they provide most of the services used by visitors, and bear most of the burdens of modern mass tourism. Police and fire protection, water and wastewater systems, garbage disposal and many parks and transportation services are provided by the counties.

A panel of state and county officials last year recommended a dramatic increase in the counties’ share of the state hotel room tax, proposing that lawmakers revamp the distribution formula to deliver an extra $69 million per year to Honolulu and the other counties.

That recommendation by the State-County Functions Work Group was rejected by lawmakers.

House Finance Committee Chairwoman Sylvia Luke said House and Senate negotiators couldn’t come to an agreement on how much to increase the counties’ share or for how long, so they settled for the existing arrangement.

Luke (D, Punchbowl- Pauoa-Nuuanu) said the Legislature in the years ahead should reconsider how the hotel tax money is divided up, and how the state and counties share the various responsibilities for supporting the visitor industry. However, she said she does not see any need to revive the working group.

Maui County Councilman Mike Victorino, president of the Hawaii State Association of Counties, said the counties were not as successful as they had hoped, but it could have been worse.

“I’ve got to say, we’re thankful for what we got. We hoped for a lot more, but like everything else, it is what it is,” he said. “We’re hoping that next year we can resolve this more amicably.”