Now is not time to increase tax on hotel owners

The Hawaii Tourism Authority foresees relatively rough going for the tourism industry the next few years. This year’s market plateau signals the need for aggressive pricing in the leisure market, which is down domestically and is expected to slow internationally as well.

By 2016, hotel occupancy is forecast to drop on all islands, and hotels and resorts could be forced into a price war to recapture market share from a growing number of global competitors, according to the HTA’s 2014 Industry Outlook.

This challenging environment is expected to persist through 2018, meaning that businesses that cater to the tourists who power our state’s economy will be pressed to offer absolutely the best value for the buck.

Amid this forecast, it is difficult to justify raising real property taxes on Oahu’s hotels and resorts, as Honolulu Mayor Kirk Caldwell seeks to do.

Although the proposal would generate much-needed additional revenue for city coffers, the negative trickle-down effects for Hawaii’s primary industry cannot be overlooked, especially in such a competitive business climate.

Under the mayor’s budget plan, the tax rate for Oahu’s hotel and resort properties would rise next year by $1, to $13.40 per $1,000 of assessed value, an increase that would generate $8.2 million more a year for the city’s general fund.

The City Council has given the budget item the first of two necessary approvals.

Real property taxes are the primary funding source for the municipal government, comprising more than a third of the city’s annual revenue, with various rates depending on how the land is used. The categories include residential, hotel and resort, industrial, agricultural and commercial.

The hotel and resort operators who oppose the mayor’s proposal make a persuasive case that now is no time to increase the burden on a sector that already contributes a disproportionately large share of tax revenue, and pays higher rates than other categories.

According to the Hawaii Lodging and Tourism Association, hotels and resorts account for more than 11 percent of the city’s property-tax revenues, even though the category comprises only 4.3 percent of the total assessed property on the island.

If the property taxes are raised, most of the costs likely would be passed on to customers, who are already primed to look for better vacation deals elsewhere, and therefore could result in declining occupancy.

That means hotels and resorts would have less money to invest in new hiring, wage increases for existing employees, and upgrades for the buildings and grounds that are needed to keep the properties attractive over the long term.

From the visitor’s point of view, more money spent on a hotel room means less money spent elsewhere on the island, at the restaurants, shops and tourist attractions that are so interdependent with the hotels and resorts in this price- sensitive economy.

The visitor industry employs a sixth of all Hawaii workers and generated $14.5 billion in tourist spending last year, so tax hikes affecting this vital sector must be taken with great care. Any adverse impacts are sure to have a cascading effect throughout the state.

The timing is simply not right for this proposed tax increase, which could impede the lodging industry’s ascent from a worrisome plateau.