Hawaii’s four county mayors said Wednesday that they want state lawmakers to give them each the power to enact a surcharge on the state general excise tax of up to 1 percent even though all said they have no immediate plans to use it.
The mayors also asked that any surcharge, including the half-percent now in effect in the City and County of Honolulu, be allowed to continue in perpetuity. The Legislature gave each of the four counties the ability to enact up to a half-percent surcharge on the state’s long-standing 4 percent excise tax in 2005, but only through 2022.
Only Honolulu has opted to use the surcharge as a dedicated source of funding for the city’s $5.26 billion rail project. The surcharge has netted roughly $1.2 billion in about seven years, about $900 million of it going to pay for rail.
The mayors, speaking to a joint session of the Senate Ways and Means Committee and House Finance Committee, said they want the discretion to impose a surcharge in case the economy sours. The proposal was one of two pushed by the Hawaii Council of Mayors, comprising Honolulu Mayor Kirk Caldwell, Hawaii County Mayor Billy Kenoi, Maui County Mayor Alan Arakawa and Kauai County Mayor Bernard Carvalho.
All four mayors said they had no immediate plans to ask their respective county councils to impose either a one-half percent or 1 percent surcharge.
"Hopefully, we never have to," Kenoi said, calling the authority "an additional tool in the toolbox."
Whether state lawmakers are receptive to the idea remains to be seen.
"I think we’ll look at it," Ways and Means Chairman David Ige said, noting that both the city and state continue to face financial challenges that need to be looked at collectively.
Earlier during Wednesday’s opening day session of the Legislature House Speaker Joe Souki floated the idea of replacing a cap on the counties’ share of Transient Accommodations Tax, the tax imposed on hotel rooms.
The counties collectively receive no more than $93 million annually from their share, ostensibly to recoup the costs they incur by providing police, fire, roads and other infrastructure that support the visitor industry. But that share has been eroded in recent years as lawmakers struggled to make financial ends meet in the state budget.
In the past, key lawmakers have proposed giving the counties the ability to impose a larger surcharge on the condition they give up their share of hotel room taxes, a proposition the mayors have refused.
Kenoi said Wednesday that the mayors want to be able to both keep transient accommodations taxes and have the authority to raise the general excise tax.
Arakawa said the erratic nature of transient accommodations tax revenues from year to year makes it difficult for the counties to work on their annual budgets.
"We’re hoping to try to stabilize the funding within the system that we have," he said. "There are many major capital improvement projects that we need … we have to be able to plan out five, 10, 15, 20 years, and in the case of our roadways, 25 years. A reliable source of income will allow us to do more than year-to-year planning."
The mayors also argued that giving the authority to them would mean they would be politically accountable for any increases instead of state lawmakers.
"We would be held accountable to our voters," Kenoi said.
But House Finance Chairwoman Sylvia Luke said even if it’s to simply grant the counties the authority, "people are just going to look at it as the state increased the GET and it will be up the counties to go ahead with it or reject it."
Kenoi said the mayors’ association members voted to include the county surcharge proposal among its priorities. Luke said she still would prefer to hear support from the individual councils for a surcharge.
"The last thing we want to do is go down this road and authorize the counties to do perhaps a speculative tax in the future and tie the hands of the state to look at a tax increase on the part of the state," she said.
Meanwhile, Caldwell took heat from state Rep. Gene Ward (R, Kalama Valley-Queen’s Gate-Hawaii Kai) for supporting both the 1 percent surcharge and extending Honolulu county’s existing one-half percent surcharge beyond 2022.
"The people of the City and County of Honolulu were told this is a temporary tax," Ward said. "And now it’s permanent and may be expanding? This is quite a shift in policy."
Caldwell said after the meeting that his administration will not propose an increase in the surcharge to 1 percent, adding that he is supporting the legislation on behalf of his fellow mayors. Another half-percent surcharge is not needed to pay for the first phase of the rail project now underway, he said.
"We’re happy with the half of a percent that we have devoted for rail."
However, he said, extending the existing surcharge indefinitely would allow the city to consider using such funding to subsidize the operation and maintenance of TheBus and rail systems or any extension of the 20-mile rail line from East Kapolei to Ala Moana.
Dan Grabauskas, executive director for the Honolulu Authority for Rapid Transportation, confirmed after the meeting that anticipated revenues from the surcharge are running ahead of schedule and that an extension of the 2022 deadline is not necessary for completion of the rail line. The first segment, from East Kapolei to Aloha Stadium, is slated to open in 2017.
"We’re on budget, and we’re on schedule," he said.
Rail opponent Cliff Slater said the move to extend the tax surcharge was not a surprise.
"This is what they’ve denied all along," Slater said by telephone. "Of course, they’re going to need a tax increase."
