Funding flap ‘news to us,’ mayors say

County mayors say they were caught off guard during a budget briefing Monday when powerful members of the Legislature questioned a recent panel recommendation that state lawmakers significantly increase the counties’ share of the state hotel room tax, known as the transient accommodations tax.

“It was news to us,” said Maui Mayor Alan Arakawa following the three-hour briefing at the state Capitol, convened to give Hawaii’s four county mayors a chance to discuss their priorities as this year’s legislative session gets underway.

The briefing included members of the Senate Ways and Means Committee and the House Finance Committee.

In December a 13-member panel unanimously recommended that lawmakers reconfigure the formula for distributing TAT revenue to deliver an extra $69 million to the counties for the fiscal year that begins July 1. The State-County Functions Working Group, led by retired state Supreme Court Associate Justice Simeon Acoba, included state and city government leaders and officials from the tourism industry.

But indications from key lawmakers are that the years of wrangling between the state and counties will continue over their share of the TAT, a 9.25 percent tax levied on hotel accommodations.

During Monday’s budget briefing, Honolulu Mayor Kirk Caldwell, Kauai County Mayor Bernard Carvalho, Hawaii County Mayor Billy Kenoi and Arakawa all said that they supported the panel recommendations and they hoped the Legislature would, as well.

“While every group wants to have more, I think the science of compromise is very, very critical, and for us to be able to exist as a society, we have to be able to work together,” said Arakawa, noting that the panel, convened by the Legislature in 2014, spent more than a year working on the issue.

“Everyone had to give a little. But in the end, with the guidance of retired Hawaii Supreme Court Associate Justice Simeon Acoba, they all supported the final recommendations unanimously,” said Caldwell in prepared remarks.

But Finance Chairwoman Sylvia Luke and Senate Ways and Means Chairwoman Jill Tokuda questioned the 173-page final report, saying that the panel didn’t follow the directions of the Legislature, which were to figure out how to equitably split the responsibilities of the state and counties and distribute the TAT accordingly.

Luke said that the panel focused too narrowly on the impact of tourists on state and county resources.

Luke (D, Punchbowl- Pauoa-Nuuanu) and Tokuda (D, Kailua-Kaneohe) peppered the mayors about their thoughts on the proper distribution of responsibilities between the state and counties.

The mayors appeared caught off guard by the questioning.

“I guess we’ve got to regroup and look at how we can work closely with you folks,” said Carvalho.

The current version of the TAT formula caps the counties’ share of the tax revenue at $103 million annually, which will drop to $93 million for the following fiscal year.

The panel report concluded that the state should eliminate the cap on the counties’ share of the hotel tax and boost the counties’ share to $162 million next year.

The recommendation would cut into the state’s treasury. The state general fund is projected to receive $267 million in TAT revenues in fiscal year 2017 under the current funding formula. If the panel recommendations are implemented, the state’s share would decline to $198 million.