All four Hawaii mayors made an appearance before the Legislature last week in what has become a nearly annual pilgrimage. The aim: to convince state lawmakers that the counties provide more services than their current share of the state’s tax revenues can cover.
On that point there can be no doubt, and the governments serving the neighbor islands as well as the City and County of Honolulu do deserve bigger slices of the revenue pie. But that correction must be made carefully, without causing even larger problems down the road.
The best course for the Legislature is to raise the cap on how much of the revenue from the transient accommodations tax — known as the TAT or the “hotel room tax” — goes to the counties. They should receive at least the $141 million that House Speaker Joseph Souki proposed last week, instead of the limit set at $93 million as it is now.
But there is part of the mayors’ advocacy that their constituents should not endorse. They are also seeking the authority to enact a permanent surcharge on the state general excise tax (GET) of up to
1 percentage point, though all said they do not intend to do so now.
This would work against the public interest. The GET is a broad tax, applied at every transaction stage in commercial activity, so a permanent increase would weigh down economic growth and disproportionately affect lower-income residents.
In 2005, lawmakers gave all counties the option of enacting a half-percentage point surcharge on the state’s 4 percent GET, largely because Honolulu leaders needed revenue for construction of the elevated rail project. State lawmakers decided to extend the option to all the islands but only through 2022, a cutoff dictated by the construction timetable for rail.
The rail plan, as presented, was to make the operation of the system self-sustaining, without local taxpayer subsidy. Dan Grabauskas, executive director for the Honolulu Authority for Rapid Transportation, told the Star-Advertiser that extending the tax beyond 2022 will not be needed to complete the 20-mile line.
Mayor Kirk Caldwell said his administration would not raise the surcharge by 1 percentage point but added that extending the half-percentage point addition beyond 2022 would let the city consider using it to subsidize operations.
Taxpayers, however, surely need to see a good-faith effort by HART and city officials to run the system sustainably without further tax support, rather than to enable a new tax for reasons not apparent now. Further, Caldwell’s administration may be promising to restrain itself from increasing the surcharge, but future mayors may not make such pledge. Once taxation authority is given, a new tax is virtually inevitable.
State lawmakers don’t have a compelling reason to keep restricting the TAT funds the counties should get, a restriction largely driven by budgetary crises that have receded. Further, recovery of the tourism industry has produced quite a windfall for the state, which last year collected $368 million from the hotel room tax.
Neither can the state persist in arguing that it needs to keep its 10 percent fee for administering Honolulu’s GET surcharge intended for rail. That money should start going back to the city immediately, and perhaps that revenue could provide some of the cushion Caldwell wants.
But it makes no sense to enable a new tax of the kind that tends to drive down economic activity and is thus counterproductive. Never mind that current mayors say they won’t use the power unless they need it. If politicians have the power to tax, and some future off-election year presents the opportunity, the tax will come.
