Lodging industry mounts opposition to rise in property tax

Let the battle of the mayors begin.

Former Mayor Mufi Hannemann and Mayor Kirk Caldwell are on opposite sides of a proposal to raise the city’s property tax on hotels.

Hannemann heads the Hawai‘i Lodging & Tourism Association and said Tuesday he was one vote shy of the five City Council votes needed to defeat Caldwell’s proposed tax increase. The nine-member Honolulu City Council’s final vote on the tax measure, Resolution 19-55, is scheduled for today at Honolulu Hale.

Under the proposed hike, owners of hotel and resort land would pay $13.90 for every $1,000 of assessed value per year, $1 more than the $12.90 per $1,000 they now pay. The increase would add roughly $17 million to city coffers annually.

So far, Honolulu City Council members Ann Kobayashi, Carol Fukunaga, Kymberly Marcos Pine and Heidi Tsuneyoshi have backed HLTA. Hannemann needs one more vote to defeat what he calls a “shortsighted” measure that could exacerbate visitor industry softening.

“We’re working it. Almost all of the Council members, who represent resort districts, are supporting us. We’re still trying to convince (Councilman) Tommy Waters that we need his support on this one,” Hanne­mann said Tuesday during an HLTA press conference at the Royal Hawaiian, a Luxury Collection Resort.

Hannemann was joined at the event by about 50 HLTA members who came from properties all over Oahu to urge city lawmakers not to increase hotel taxes.

“We want to remind our city leaders that there’s a tipping point,” Hannemann said. “All is not well. Visitor spending and occupancy rates are declining. Labor agreements have driven up costs for the visitor industry.”

April marked the sixth month in a row that more visitors came to Hawaii than the previous year, while creating less economic benefit. Arrivals have been growing since February 2017, but tourism spending has been falling every month since November. Hannemann said hotel occupancy rates also have declined 10 out of 11 straight months.

If the Council won’t eliminate the rate hike, Hanne­mann said perhaps it might consider compromising by halving the $1 increase.

Caldwell said Tuesday during a meeting with reporters at his Honolulu Hale office that the Council must pass the hotel tax increase or face a major budget shortfall. Halving the increase isn’t viable, either, he said.

Caldwell said the increase is intended to help cover the cost of the first segment of rail, from East Kapolei to Aloha Stadium, which is slated to come online in December 2020. Operating and maintaining the rail will cost the city an estimated $30 million during its first six months. The tax revenue is also needed for first responders, parks and other departments that provide city services, he said.

“The city, like any other business, is trying to control costs but also look for revenue because our operations keep going up,” Caldwell said. “Almost 50% of those operations are beyond our control. It’s retirement benefits, health benefits, those kinds of things.”

Hannemann said the increase represents a piling on for the visitor industry, which already had withstood a property tax increase in 2014, when the rate was was raised 50 cents from $12.40 per $1,000. Oahu’s visitor industry also is dealing with another boost to the state transient accommodations tax, he said.

Honolulu Councilman Joey Manahan said the visitor industry protested in 2009 when the state raised its hotel room tax, but then went on to recover and set year after year of records.

Manahan said he gave the lodging industry a break two years ago when Caldwell tried to increase the hotel/resort rate to $13.40.

Manahan said the Council must come up with another $39 million over last year’s budget just for rail. He said next year it would be another $40 million or $50 million and more than $70 million the year after.

“We have very limited opportunities to raise revenues in the city. Our main source of revenue is property taxes,” Manahan said. “I don’t think any of us wants to do this, but that’s the reality of our budget this year. We’re trying not to raise property taxes for strictly residential properties.”