Rail funding, real property tax hike weighed by Honolulu City Council in new tax bill

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HONOLULU (KHON2) — A bill to tax visitors to Oahu is moving forward in the Honolulu City Council. The 3% tax will help to fill county funds after losing out on about $45 million from the state.

For years, the Transient Accommodations Tax (TAT) was designed to help with tourist impacts on the Hawaiian islands as it was collected by the state and distributed to the counties. Now, new state law allows the counties to collect it themselves at a maximum of 3%, but some councilmembers are concerned that the money will go toward the Honolulu Rail Project.

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Under Bill 40, Honolulu could collect up to $7 million per month.

“We do need to fill that $45 million puka, and that’s the first thing that the bill does,” Tommy Waters, Honolulu City Council chair and the presiding officer, said.

That money would be divided up between:

  • Parks and natural area support
  • General fund for things like police, fire and rescue costs
  • The Honolulu Rail Project

“Now what we have in front of us is a bill that would use that money that was supposed to help with the impacts of tourists to pay for rail,” Honolulu City Councilmember Heidi Tsuneyoshi said.

The amount of revenue that would go to each has yet to be determined. Some councilmembers warn against another option to fill the $45 million lost — a rise in real property taxes.

“If there is no action taken on this 3%, there is no 45 million, then we get to cut the budget,” Honolulu City Councilmember Calvin Say said. “Let’s be honest with ourselves, I’ve publicly said all of us in this chamber. We don’t agree with raising property taxes on our residents.”

Honolulu Mayor Rick Blangiardi fully supports the bill but does not yet know how much revenue will be used for the rail.

“Clearly I have no apprehension at all about allocating the rest of those resources. We’ll determine what that is once we can deal with the specifics towards offsetting the cost of rail,” Mayor Blangiardi said.

As the economy continues to recover from the COVID pandemic, some industry experts have warned against putting a tax on Hawaii’s economic driver.

“It’s an unfortunate time for any kind of tax increase on an industry that is struggling,” Hawaii Lodging and Tourism President and CEO Mufi Hannemann said. “We would hope that the majority of these funds, if not all of it, will be for tourism-specific projects and initiatives.”

There is another belief that tourists will continue to pay to come to the islands, even with 3% added on top of the state’s 10.25% TAT.

“We’re a premium destination, and we can charge a premium price and tourists are willing to come, as long as we continue to provide that product and that would be that the beaches are clean,” University of Hawaii at Manoa Travel Industry Management Professor Dr. Jerry Agrusa said.

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Some councilmembers also proposed waiving the tax for Kama’aina, which is something they plan to talk about in future committee meetings and readings. The bill passed its first reading Wednesday, Oct. 6.

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