Visitor industry backs Gov. David Ige’s plan to veto tax bill

Prominent members of Hawaii’s visitor industry are pledging to get Gov. David Ige the support that he needs to overturn a measure that would make functional changes to the Hawaii Tourism Authority and eliminate transient accommodations tax distribution to the agency as well as individual counties.

Ige, who put House Bill 862 on the veto list on Monday, has until July 6 to make a final decision on that bill, as well as 27 others on his list, including a potential line item veto of House Bill 200, the state’s finance bill.

House Bill 862, passed this legislative session through an eleventh-hour gut-and-replace effort, eli­minated the $103 million annual county share of revenue from the transient accommodations tax, or hotel tax. Instead of sending the money to the counties, the state would keep it.

The changes outlined in House Bill 862 also would take away the dedicated transient accommodations tax funding HTA has had since its founding. The bill replaced HTA’s normal $79 million annual TAT distribution with $60 million in funding from this year’s American Rescue Plan Act.

The bill would eliminate HTA’s procurement exemption, a move that would have required HTA to get state approval for all future contracts and purchases.

If Ige decides to veto HB 862, it will trigger a series of complicated consequences as legislators used that bill rather than House Bill 200 to fund HTA, the Hawai‘i Convention Center and the International Space Center for Exploration Systems PISCES.

According to the state Constitution, the Legislature may convene before noon on July 6 for the sole purpose of acting upon any such bill returned by the governor. If state lawmakers come back into session and choose to address the veto of HB 862, they may have the votes to override it.

Alternately, Ige said he could propose an amended form of a bill to address gaps, and if the legislators were able to pass it, a special session would not be required.

The Hawaii Lodging and Tourism Association, the Waikiki Improvement Association and the newly created Hawaii Hotel Alliance are among the local groups reaching out to legislators to sustain Ige’s veto of HB 862, and to ensure that HTA and other entities have the money that they need to thrive.

Mufi Hannemann, HLTA president and CEO, said in a statement Monday that HLTA, at the onset of advocating for a veto, brought together a diverse statewide group of 35 businesses, nonprofits, trade associations, and labor groups, who signed a letter for Ige that outlined the harms of HB 862.

“While his veto is just the first step, it is critical in the defeat of this measure that would have major ramifications for our local governments, businesses, and the economy as a whole,” Hannemann said. “As such, we will continue to make our case on behalf of local businesses, workforce, and our community and will continue to advocate against HB 862.”

Jerry Gibson, president of the nonprofit Hawaii Hotel Alliance, which was formed in February and is an organizational member of the national American Hotel &Lodging Association, said the organization can “help be a nexus between HTA, the governor’s office, and legislators.”

“We’re going to continue reaching out to the legislature until we don’t have any more appointments. We are trying to talk to every single person,” Gibson said, adding that bringing up the role that illegal vacation rentals play in contributing to tourism pushback will be a a key part of the messaging for legislators, who have an opportunity to reconsider HB 862.

Rick Egged, president of the Waikiki Improvement Association, said he was glad that the governor expressed his support for HTA, and for its destination management program in particular.

“I think that what’s going to be important going forward is for the industry to work with the Legislature to come up with a plan moving forward that will address the changes that need to be made, but retain the structure that allows HTA to be effective,” Egged said.

For his part, Ige said he was concerned that the “funding and functional changes” in House Bill 862 would “severely damage HTA’s shift to destination management.”

Ige said the rationale for his veto also stemmed from his concern that funding the HTA with federal American Rescue Plan Act funds instead of TAT makes funding less predictable and adds potential inefficiencies.

He said that a “3% county TAT represents a significant increase that could have a major impact on Hawaii’s nascent economic recovery.”

Ige said that coupling House Bill 862 with House Bill 200 would limit operational funding for the Hawai‘i Convention Center to $11 million, which is only 20% of the $54.1 million requested in the administration’s executive biennium budget. The move, he said, would severely restrict the HCC from attracting additional events and fulfilling its mission.

Ige said a veto of HB 862 would cause funding gaps, which could be filled by “the measure that we would propose to cover funding for debt service and some of the other priority appropriation that’s necessary to operate government.”

But there’s still a lot of moving parts.

Rodrigo Romo, PISCES director, said the current legislative session has been “a roller coaster.”

“HB 862 started as a very noncontroversial bill. It was not until the last hearing at the Senate that a lot of the provisions that were added to it made it a very controversial and toxic bill,” he said.

Romo said HB 862 funded PISCES to the tune of $550,000 and transferred its operations from the state Department of Business, Economic Development &Tourism to the University of Hawaii. Romo said the agency prefers to transfer to the University of Hawaii, but even more critical than that, is that the program get funded.

Ige said if a veto on HB 862 is sustained the counties would get their annual TAT distribution. But if Ige ‘s veto of HB862 doesn’t hold the counties would no longer receive an annual TAT distribution. Instead, the bill would allow each county to increase its hotel tax up to 13.25% from the current 10.25% for up to 10 years.

Hawaii island Mayor Mitch Roth said in a statement that the county gets roughly $19 million in TAT annually and that he was pleased with Ige’s decision to place HB 862 on his veto list.

“As we begin to emerge from the COVID-19 pandemic, we cannot afford to put further strain on our hospitality industry, one of the largest employers in the state, by allowing them to continually foot the bill,” Roth said. “We need to remember that visitors are not the only ones who use our hotels and facilities, and therefore it would not be only the visitors to suffer from the increased tax. We must do a better job of thinking outside the box to address our many budgetary issues. Otherwise, we will just keep kicking the can down the road.”