The Honolulu City Council took an initial step on Wednesday toward implementing a city visitor tax.

Bill 40 would levy a 3% city transient accommodations tax on visitor accommodations. It would be imposed in addition to the state’s current 10.25% visitor tax.

The Legislature this year ended a sharing portion of the state tax through which counties received a total of about $130 million annually, with Honolulu County receiving 44%, or about $45 million. The measure passed by lawmakers allows counties to recoup funds by implementing their own transient accommodations tax, or TAT.

Kauai and Maui counties have already decided to assume the new taxing authority, and both are expected to start imposing a TAT on Nov. 1.

Honolulu’s proposed TAT would put a 3% tax on all gross rental proceeds from establishments such as vacation rentals, hotels and time shares. It would also apply to non-commissioned accommodation brokers, travel agencies and tour packagers.

While Bill 40 creates specific allocations for the city’s TAT revenue, it does not specify how much would go to each proposed fund. Part of the TAT revenue would go to the city’s general fund, other portions would be reserved for mitigating the effects of tourism on public facilities and transit matters.

Andrew Kawano, who heads the city’s Department of Budget and Fiscal Serv­ices, pointed out that there are two transit funds, one for the city and one for the Honolulu Authority for Rapid Transit. It was not clear in the bill which transit fund would receive the revenue, he said. The bill points to the law that establishes the city’s transit fund, ROH 6-61.

“I do believe we’re going to have to have more discussion in committee,” Kawano said. “Perhaps make some technical changes so it’s clearer as to what the intent is.”

Mayor Rick Blangiardi voiced his support for the proposed tax, but stopped short of advocating for funds to be used on the city’s rail project.

“I support a city version of the TAT to restore a revenue base which has been lost – allowing us to continue services to our people,” he said. “I am committed to a functional rail project and delivering expanded transit service to our communities. However, if the numbers do not make sense, the strategy does not make sense. Right now, we do not have the numbers to discuss a specific allocation for rail.”

The HART Board of Directors passed a resolution during a meeting in late September asking the Council to implement a city visitor tax, with a portion of TAT revenue dedicated to the rail project. But Councilmember Heidi Tsuneyoshi pushed against language in the measure that would direct TAT proceeds to the cash-strapped project.

“Now what we have in front of us is a bill that is going to use that money that was supposed to help with the impacts of tourists to pay for rail,” she said. “I have serious concerns about this.”

The Honolulu City Council voted 7-2 to move Bill 40 out of first reading, and to a committee hearing. Tsuneyoshi and Councilmember Augie Tulba cast the no votes.

Councilmember Calvin Say noted that a city TAT could serve as a way to offset the $45 million loss of state revenue, which was incorporated into the current budget. He added that balancing the budget was difficult, and that expenses are expected to increase for the city.

“If none of us want to take the 3% TAT, we don’t have to,” Say said. “But we’ll go back in the budget next year to come up with balancing our budget.”

According to the state’s calculations, if Oahu implemented a city TAT, it would see about $48 million in revenue. If Honolulu implements its own TAT, it would be the only other source of revenue controlled by the city besides property taxes.

As the way state law is now written, counties are tasked with their TAT collection. However, the Council approved a resolution supporting state legislation that would allow the state to collect Honolulu County’s TAT and disperse the funds to the city.

In other action, the Council selected Arushi Kumar to serve as city Auditor. She will be taking over for Acting City Auditor Troy Shimasaki, who has held that post since 2019.

The Council voted 7-1 to approve Kumar, who currently serves as a fiscal and policy analyst for Seattle’s city budget office. Kumar holds a master’s degree in public policy and a bachelor’s degree in economics. She also previously worked in the U.S. Government Accountability Office.

Councilmember Fukunaga voted against the nomination, citing a lack of experience and a lacking credential (Certified Treasury Professional Associate designation), which she said was a factor in not continuing Shimasaki’s term. Councilmember Andria Tupola also encouraged Kumar to secure certification, but supported the nomination.

Kumar said: “I understand that the issues specific to Honolulu may be different in detail than issues specific to Seattle.” She added, “But I think ultimately the lessons learned in those in those opportunities have given me the skills to bring to Honolulu and help serve the taxpayers.”