City Council passes new Oahu visitor tax which could generate $86 million a year

A hotel tax that will charge Oahu visitors an additional 3% for accommodations was passed Wednesday by the Honolulu City Council during its last meeting of the year.

Projections from city officials estimated that the new tax could generate about $86 million a year for Oahu based on projections from July.

Most of the revenue from the new tax will be allocated to the city’s general fund and rail. A smaller portion will go into a special fund to support natural resources affected by tourism such as parks and beaches.

The 3% tax levied by Bill 40 would be in addition to the state’s current 10.25% hotel tax.

The measure still will need to be signed by Mayor Rick Blangiardi to go into effect.

He expressed his support for the bill in an emailed statement.

“We thank the Honolulu City Council for its support passing Bill 40, which ensures our ability to fund vital city functions, including police and fire protection, facility and infrastructure maintenance, improvements to parks, beaches, roads, and will help fund the rail project,” he said.

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.

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

Oahu is the last county in the state to pass its own TAT.

Although the Council members have been in general agreement that a 3% city TAT should be implemented, most of the debate over the past three months has been over how to split the funds among rail, the general fund and the special fund to support natural resources.

The Council passed a breakdown that would first divide the new 3% TAT as about 58% of the revenue going to the general fund, about 33% going to rail and about 8% going to the special fund for natural resources.

After the first two years, the breakdown changes to about 42% of the new TAT going to the general fund and 50% going to rail. The amount that would go to natural resources will stay consistent.

City Managing Director Mike Formby said this likely will mean more money for the city than was seen under the state law, which gave a set amount of funds to the counties, despite revenue from the state TAT increasing year after year.

“I think we have a significant capacity to allocate certain funds to rail that never would have been done if it had just been the $45 million coming from the state,” he said.

“I think any money above $45 million could appropriately be described as new money.”

However, Council member Heidi Tsuneyoshi did not think that any of the funds should have been allocated to the rail project. She proposed a floor amendment to the bill that failed in a 6-3 vote to take out the funding for rail.

“To those who have many times said that I am a critic of the rail, I have to always correct that to say I’m not a critic of the project,” she said.

“I live in Wahiawa, my children both went to Kamehameha Schools. I’ve sat in hours and hours of traffic for many, many, many years. I’m a critic of one project creating financial havoc on this city.”

Council member Augie Tulba echoed Tsuneyoshi’s concerns, and wanted to see more of the TAT revenue set aside for city operations.

“The focus on the discussion should be about our core city services. We should be talking about how can we use this fund to fix our parks, fix our roads, find housing solutions to deal with the homeless crisis, if you can support our first responders,” he said.

“We’ve not talked about those possibilities. Instead, most of the discussions have been focused on the rail project.”

However, Honolulu Authority for Rapid Transportation board member Kika Bukoski said rail will be integral to the future of Honolulu.

“We’ve heard how this project can create opportunities for housing within the urban core and along the rail corridor … and relieve some of the traffic, maybe not today’s traffic. But we’re talking about future traffic,” he said.

“When we talk about having vision for future growth of Honolulu, how are we going to address that? The rail may not be the catchall. But I think it’s a piece of the puzzle.”

That sentiment was expressed by several Council members as well, such as Esther Kia‘aina.

“I think when we’re talking about the totality of the issue, it is not just rail transportation,” she said.

“It is the economic development and affordable housing benefits along the corridor, all the way from the Westside to Ala Moana that is going to hopefully transform the city of Honolulu.”

The city plans to use some of the new TAT revenue to add four staff members and new software to help with collecting and processing the new tax. Currently, the city only has control over real property taxes.

The bill passed in a 6-3 vote with Council members Tsuneyoshi, Tulba and Carol Fukunaga voting against it.