HomeMy WebLinkAboutCOM 0046.006 2016-2018 DRU MAMO . oF H '�. PHONE: (808)323-4267
414FAX: (808)323-4786
Council Member
�.�..�1* EMAIL:dru.kanuha@hawaiicounty.gov
District7, Central Kona -- _
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HAWAII COUNTY COUNCIL
West Hawai`i Civic Center 74-5044 Ane Keohokalole Highway,Kailua-Kona,Hawaii 96740
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MEMORANDUM n
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DATE: September 14, 2017 -71
TO: Valerie T. Poindexter, Council Chair N
and Members of the Hawai`i County Council
trt _-
FROM: ' Dru Mamo Kanuha
VV District 7 Council Member
SUBJECT: Minutes of the Hawai`i State Association of Counties Executive
Committee Meeting Held on July 31, 2017 and August 10, 2017.
Attached are the minutes of the Hawai`i State Association of Counties Executive Committee
meetings held on July 31, 2017 and August 10, 2017.
Please place this item on the agenda for the next available Governmental Relations and
Economic Development Committee meeting.
DK/lw
Att.
Comm. No. q(01 (°
Ref. To:
Ref. Date SEP 1. E 1(132
Hawai`i County is an Equal Opportunity Provider and Employer.
• ,' peE ASS
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Hawaii State Association of Counties (HSAC) . ,`� %.ok ,
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Counties of Kauai, Maui, Hawaii and City & County of Honolulu 11 ecal
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MINUTES - • •
HSAC EXECUTIVE COMMITTEE MEETING
Thursday, August 10, 2017
Honolulu Hale, Committee Meeting Room
530 South King Street
Honolulu, Hawaii 96813
CALL TO ORDER
The HSAC Executive Committee was called to order by HSAC President Dru Kanuha
at 10:10 a.m. The following members comprising a quorum were present:
County of Hawaii: President Dru Kanuha
Councilmember, Hawaii County Council
County of Kauai: Vice President Derek Kawakami
Councilmember, Kauai County Council
County of Maui: Secretary Stacy Crivello
Presiding Officer Pro Tempore, Maui County Council
•
City and County of Honolulu: Treasurer Ikaika Anderson
Councilmember, Honolulu City Council
Others Present: Council Chair Mike White, Maui County Council
Councilmember Riki Hokama, Maui County Council
Leinani Wessel, Council Aide to Councilmember Dru
Kanuha, Hawaii County Council
Aida Kawamura, Legislative Assistant, Office of Council
Services, Kauai County Council
Brandon Mitsuda, Administrative Support Services,
Honolulu City Council
Francisco Figueiredo, Office of Councilmember Ikaika
Anderson, Honolulu City Council
Kamakana Watanabe, Legislative Analyst, Office of
Council Services, Honolulu City Council
Carla Nakata, Legislative Attorney, Office of Council
Services, Maui County Council
Scott Ishikawa, Senior Account Executive, Becker
Communications, Inc.
``S4pTE ASS�G
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Page 12 SA0r
•
II. APPROVAL OF AGENDA
There being no objections, the agenda was approved as circulated.
III. REPORTS
A. Treasurer's Report
1. Treasurer's Report for June 2017.
Treasurer Anderson reported that HSAC started the month of June with
a balance of $164,607,06 and had expenses of $7,796, leaving an ending
balance of $156,813.69. (The worksheet was provided at the July
meeting.)
Secretary Crivello moved to approve the Treasurer's Report for June
2017. The motion was seconded by Treasurer Anderson and
unanimously carried.
P. County Reports.
1. City and County of Honolulu Report. Treasurer Anderson reported that
at the Council meeting of August 9, the Honolulu City Council passed on
second reading a bill relating to accessible curb ramps and a bill relating
to special transit service. The Council passed on third reacting a bill to
establish a process for periodic review of certain city boards and
commissions to determine whether the Charter provisions or ordinances
establishing the board or commission should be retained, amended, or
repealed. Also on third reading, the Council passed a bill to expand the
commercial area subject to the City's prohibitions on sitting and lying on
sidewalks in certain areas. The Council also passed a bill on first
reading which allows the administration to set time limits on parking.
They passed a bill relating to fire safety to require existing high-rise
buildings to retrofit when determined necessary by the Honolulu Fire
Department Chief to comply with certain safety standards. The bill was
introduced in response to the catastrophic fire at the Marco Polo last
month. The Mayor attended yesterday's Council meeting to request the
bill relating to fire safety be moved forward. The Council also passed on
first reading a bill relating to smoking to expand current ordinances to
prohibit the use of electronic smoking devices as well as smoking in
vehicles when a minor is present. The Council also passed a bill to urge
the City administration to remove traffic bulb-outs from Chinatown. The
Council also referred a resolution to the Committee on Executive Matters
and Legal Affairs for discussion at the Committee's next meeting on
August 22, asking the HSAC Executive Committee to support the City's
position that a general excise surcharge remains the best and most
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Page 13 ;I SA 11*
equitable option to fund Honolulu's rail system. He also noted the
Council appreciates the support of the Maui County Council in moving a
resolution forward supporting the GET extension.
2. County of Hawaii Report. President Kanuha said there is not too much
to report since the last HSAC meeting. The Council supported a
resolution to look into furthering a shooting range on Hawaii Island. As
a rural community, there is support for not only hunting efforts, but
places where police and federal agencies can train for the use of guns.
Also, the County has been trying to enforce laws at parks and when they
can be used. He said there has been an influx of homeless, mainly on the
-Kona side, which has proven troublesome for the community. They have
• been doing clean-ups to make sure parks can be used by all individuals.
He said there are 75 or more people who have been removed from the
parks. Nonprofits have been helping. The County will do full-time
security in parks.
3. County of Kauai Report. Vice President Kawakami said yesterday Kauai
got an update from their Washington DC consultant, Smith Dawson &
Andrews. Kauai was successful in obtaining a big Transportation
Investment Generating Economic Recovery (TIGER) grant that the
County will be using to revitalize the Rice Street area, its urban area.
The County is focusing on multimodal transportation at Rice Street.
Kauai County is focused on rebuilding relationships in DC. He said the
new way to approach appropriations and funding has been through
grants, which is different from earmarks. They discussed some of the
Mayor's priorities in DC, which include saving their post office, which is
critical to the revitalization of the Rice Street area. Another issue is the
potential FAA prioritization. They touched upon current Community
Development Block Grant (CDBG) funding. Just to maintain what
Kauai has in funding is considered a victory. They discussed the
President's proposed. budget cuts and how they might impact Kauai.
They discussed how the Council could become more active in getting
priorities heard in DC_ He said the Administration is open to having
voices heard.
�l. County of Maui Report. Secretary Crivello reported the Council passed
Resolution 17-125 to request the support of HSAC and its Executive
Committee for the State Legislature's approval of an extension of the
Honolulu general excise and use tax surcharge as necessary to enable the
completion of a minimum operable segment of the Honolulu rail. The
Office of the County Auditor released its plan of audits for FY 2018, to
include the Charter-mandated Comprehensive Annual Financial Report
(CAFR), county vehicle use, a peer review of the Office of the County
Auditor, and a review of premium pay and overtime and County
employee travel. The audit plan also includes as areas of consideration
the cost of park facilities and grants. The Planning Committee is having
cius0,4,
Page 1 4 . 1 ⪻
ongoing meetings on an update of the Molokai Community Plan. The
Council's Parks, Recreation, Energy, and Legal Affairs Committee is
conducting a review of the Waiehu Municipal Golf Course. Honolulu and
Kauai representatives shared information and offered insights on their
golf course operations. The Council authorized the Chair to contract for
fiscal and performance audits of the Department of Fire and Public
Safety and the County Department of Transpo .tation.
5. Secretary Crivello made a motion to receive the reports. Vice President
Kawakami seconded the motion, which was unanimously carried.
C. National Association of Counties (NACo) Report. Councilmember Hokama said
there has been a lot of distraction at the Capitol right now with certain leaders
making interesting statements. Other issues are aviation reauthorization,
opioid abuse, and the Farm bill, which is a key component with language
regarding the Safe Drinking Water Act. The NACo board will meet in Texas in
December.
D. Western Interstate Region (WIR) Report. No updates.
IV. UNFINISHED BUSINESS
A. Discussion: Legislative strategies
1. 2018 HSAC's Legislative Package — to discuss time frame
President Kanuha said he recently sent out an email of the time
frame.He said we currently have measures approved last year that will
be brought back for incorporation this year. If there are any additional
proposals, the councils should submit them to HSAC by September 8,
2017. Hawaii County has a.Council meeting'on September 7, so there
might be a few items to include. September 29 is the deadline for the
Executive Committee to forward proposals to each county for
consideration. November 30 is the deadline for the counties to approve
the proposed HSAC legislative package. Those 10 measures voted on
last year will be included for discussion purposes this year. The
Executive Committee will decide whether it wants to keep all 10. He
asked that Executive Committee members make sure Councilmembers
are aware of deadlines.
Council Chair White asked whether there was any thought of submitting •
a bill to subject the State Legislature to the Sunshine Law. Vice
President Kawakami said he would be more in favor of Sunshine Law
reform because it eliminates collaboration and fosters a hostile work
environment.
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President Kanuha noted a document had been distributed relating to the
lifeguard liability issue. (See, attached document referencing Sections
662-1 and 662-16 of the Hawaii Revised Statutes.) Treasurer Anderson
said he and staff met with Bob Toyofuku recently. According to Mr.
Toyofuku, when a County lifeguard is performing any service related to
their duty as a lifeguard on a State beach, that lifeguard is determined to
be a State employee, so would be covered by the State in terms of any
legal liability. Council Chair White asked whether clarification had been
received as to whether the portion of a county park below the State high
water mark would be considered a designated State beach park.
Treasurer Anderson said no, that was not discussed. Council Chair
White said there is only one State beach park in each County, so this
doesn't really solve the issue. Treasurer Anderson said if the Executive
Committee would like, he could invite Mr. Toyofuku to an HSAC
meeting. The Executive Committee discussed the number of County
beach parks they have. President Kanuha said it's hard to have one
person derail the efforts of the councils and the mayors. Vice President
Kawakami said the last two times we were able to extend the sunset
date, he had introduced the legislation because on Kauai, they have Kee
Beach. Kauai is always taking the lead in trying to repeal the sunset
date. At the time, Mr. Toyofuku brought out the argument that no other
public safety officer has these types of protections, and cited this section
of the HRS. For us, you are asking our county lifeguards to protect a
State beach park that's one of the most dangerous and most popular
State beach parks and all we are asking for is some protection for our
lifeguards who are putting themselves at risk. He said at the last
moments of this session, they tried to change the Attorney General "may
defend" to "shall defend," but it still didn't rise to the level that we could
accept it. The Senate President has publicly said the Senate would
introduce a bill and pass it over to the House to repeal the sunset. So,
from the Senate side we have a commitment to it going back to the way it
originally was. President Kanuha said that will be up for discussion on
the 2018 legislative package. Secretary Crivello said she would like to
have us push for the repeal of the sunset provision. Councilmember
Hokama said maybe the key thing for Mr. Toyofuku to remember is the
last component of the statute, which says under an agreement between
the State and the County. In our County, only the Council is authorized
to allow the Mayor to execute an intergovernmental agreement. Council
Chair White said the other point is that the lifeguards, unlike other
personnel, are doing rescues in State jurisdiction, not County
jurisdiction. Other emergency personnel, except maybe Fire if they go
for an ocean rescue, are doing rescues on land, within the County's
jurisdiction. President Kanuha asked whether the Executive Committee
should invite Mr. Toyofuku to a meeting. Treasurer Anderson said he
will make the request.
Page 16 *q . SA, I
COV fr
2. Formulation of press release for legislative informational briefing
regarding GET and TAT
They have received notification that next week the House and Senate
will have an informational briefing re GET and TAT, on Monday, August
• 14. Per the hearing notice, it will be held by the Senate Transportation
and Energy; Public Safety, Intergovernmental and Military Affairs; and
Ways and Means Committees. For the House, the relevant committees
are the Committee on Transportation and Committee on Finance. The
hearing will be held at 10 am at the State Capitol. Scott Ishikawa is
here to discuss how we will proceed with this informational briefing.
President Kanuha said the Legislature wouldn't have a briefing if it
didn't already know what it was going to do. He said it would be great to
have a position coming out of HSAC and the counties.
President Kanuha said the State's draft presentation has been
distributed. Council Chair White said the presentation provides five
different funding options. He said on one page they say Oahu generates
76% of the TAT, which is incorrect. On another page, they suggest 85%
of the TAT is generated on Oahu, and the reality is it's closer to 49% on
Oahu and 51% on the neighborhood islands. On the page where they
focus on Option 3, the numbers are very muddy, and if you add them up
they don't reflect what the increase in the general excise surcharge
would be. Council Chair White questioned the accuracy of specific
numbers set forth in the presentation. (See the attached Notes on WAM
. (Ways and Means) Draft Presentation on Rail Funding Options and the
draft presentation relating to the Special Session 201.7.) He pointed out
inaccuracies in TAT generation figures. With the growth of TAT, State's
share went up by $96 million in two years, totaling $326 million.
The Executive Committee reviewed the draft presentation and discussed
whether to point out miscalculations and if so, whether the press was the
right vehicle or whether legislators should be contacted individually. The
members also discussed their availability to attend the Special Session
on Monday.
. Treasurer Anderson noted the Honolulu City Council has formed a
permitted interaction group of four members on rail funding. The
Executive Committee discussed who would testify and developing a
strategy on testimony if the opportunity is available. The Committee
requested a document outlining the corrections needed.
Councilmember Hokama said the body should not focus only on the rail
component, noting needs of the State for additional revenue to fund the
annual required contribution for the Employer-Union Health Benefits
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Trust Fund (EUTF). He provided a copy of a memo dated July 5, 2017,
on the issue (see attached).
President Kanuha said he has no problem with anyone advocating on
behalf of HSAC. He said HSAC has been pretty staunch in its position of
the 45/55 split for TAT. Council Chair White said he thought passing a
resolution supporting Oahu's position that funding for rail should be
taken care of using the GET would be a mechanism. Maui County
Council has passed a resolution to this effect. President Kanuha said he
knows Hawaii County is not in favor of an increase in TAT. Vice
President said it's easier to support an extension of the status quo, which
would be the GET. The Executive Committee requested a one-page
summary of talking points on the inaccuracies in the draft presentation
and discussed how inaccuracies would be communicated. Secretary
Crivello said she would be willing to testify about the HSAC Executive
Committee's position, if testimony is allowed on Monday.
V. NEW BUSINESS
A. Discussion and consideration of extension of the general excise and use tax
surcharge for the Honolulu Rail Project.
Maui County passed a resolution supporting Honolulu's position, and HSAC has
that issue up for discussion. Treasurer Anderson said the Honolulu Council's
position is that the fairest and most equitable option to pay for completion of the
rail project is through an extension of the GET, an existing tax citizens have
become accustomed to paying for over ten years now. He said if we do a
combination or rely on an alternative source of revenue, anything other than a
GET extension would be considered a new tax. He said GET remains the most
viable option. The pool of people who pay GET is vastly larger than the roughly
250,000 real property taxpayers on this island. Treasurer Anderson introduced
Resolution 17-208 (see, attached copy), and the Council Chair waived it.and put
it on the floor for consideration yesterday, but because the resolution mentioned
TAT, two colleagues were concerned that we would upset some State
lawmakers. His colleagues wanted the opportunity to discuss this at committee
prior to passing it on to the Council.
Vice President Kawakami questioned whether there is any value to a press
release prior to Monday, saying it wouldn't have to be negative. It could be a
statement from HSAC, saying it's pleased the members of the House and Senate
have come back to the drawing board to work out any difference remaining at
the end of the session, and that HSAC believes there is a fair and equitable way
to work out funding on rail, which is through an extension of the GET. We do
have some time to formulate a message. Mr. Ishikawa agreed HSAC needs to
have a presence at the Capitol on Monday.
Page 18 SAS:
President Kanuha said right now the Executive Committee is discussing
consideration of the extension as proposed by Honolulu. President Kanuha
focused on approving the GET extension as one of the components of HSAC's
testimony. Vice President Kawakami noted the cap was always intended to be
temporary. Some new legislators may have forgotten that. Whatever language
we put in, HSAC can say we support the extension of the GET. Sometimes less
is more. Secretary Crivello said she likes that approach. Vice President
Kawakami said for 2018 he plans to add to the package a proposal for a
complete repeal of the TAT cap. Council Chair White raised the issue of the
TAT remaining unpaid by remarketers.
President Kanuha said he is ready to support Honolulu's request that HSAC
consider the proposal to extend the GET. The Committee discussed the
potential impacts if the Legislature fails to find adequate funding for the rail.
President Kanuha asked whether HSAC should adopt its own resolution.
The resolution would say, "BE IT RESOLVED that the HSAC Executive
Committee supports the Hawaii State Legislature's approval of an extension of
the Honolulu General Excise and Use Tax surcharge as necessary to enable the
completion of the Minimum Operable Segment of the Honolulu High-Capacity
Transit Corridor Project to Ala Moana Center."
Secretary Crivello made a motion to approve the proposed resolution. The
motion was seconded by Vice President Kawakami and unanimously carried.
The resolution will be the basis of the testimony from HSAC on Monday.
VI. ANNOUNCEMENTS
A. Scheduling the next meeting.
The next meeting is scheduled for September 11, 2017, at 10:00 a.m., at
Honolulu Hale.
B. Other announcements.
There were no other announcements.
VII. ADJOURNMENT
The meeting was adjourned at 12:38 p.m.
ocs:prof:!1SAC:FY2018:1111 n it 1.e:,:170810
§662-1 Definitions. As used in this chapter the term:
"Acting within the scope of the employee's office or employment", in the case of a member of
the Hawaii National Guard or Hawaii state defense force, means acting in the line of duty.
"Employees of the State" includes officers and employees of any state agency, members of
the Hawaii national guard, Hawaii state defense force,and persons acting in behalf of a state
agency in an official capacity,temporarily,whether with or without compensation. "Employees
of the State" also includes persons employed by a county of this State as lifeguards and
designated to provide lifeguard services at a designated state beach park under an agreement
between the State and that county.
"State agency" includes the executive departments, boards, and commissions of the State but
does not include any contractor with the State. [L 1957, c 312, pt of§1; Supp, §245A-1; HRS
§662-1; am L 1988, c 135, §1; am L 1991, c 316, §1; am L 2015, c 35, §19]
§662-16 Defense of state employees. The attorney general may defend any civil action or
proceeding brought in any court against any employee of the State for damage to property or for
personal injury, including death, resulting from the act or omission of any state employee while
acting within the scope of the employee's employment. The employee against whom such civil
action or proceeding is brought shall deliver within the time after the date of service or
knowledge of service as determined by the attorney general, all process or complaint served
upon the employee or an attested true copy thereof to the employee's immediate superior or to
whomever was designated by the head of the employee's department to receive such papers and
such person shall promptly furnish copies of the pleadings and process therein to the department
of the attorney general.
No judgment by default shall be entered against a state employee based on a cause of action
arising out of an act or omission of such employee while acting within the scope of the
employee's employment unless the department of the attorney general has received a copy of the
complaint or other relevant pleadings and a period of twenty days has elapsed from the date of
such receipt.
The attorney general may also defend any civil action or proceeding brought in any court
against a county based on an allegedly negligent or wrongful act or omission of persons
employed by a county as lifeguards and designated to provide lifeguard services at a designated
state beach park under an agreement between the State and a county.
The attorney general may also defend any civil action or proceeding brought in any court
against any provider of medical, dental, or psychological services pursuant to contract with the
department of public safety when the provider is sued for acts or omissions within the contract's
scope of work. [L 1976, c 47, §1; am L 1991, c 316, §2; am L 1994, c 143, §1]
Notes on WAM Draft Presentation on Rail Funding Options
Slide 23 7th bullet-Honolulu's 44.1%share of TAT must go to Rail(S13 M=44.1%)tncorreLj Honlulu 44.1%share is$41Million)
Ten year amount would be$410M,not$130M
Slide 24 Table- 1%TAT for 10 years is$958.3 M. Neighbor Islands funding 51%or$489M -Maui$278M,Hawaii$11SM,Kauai$96M
Must be using excess of TAT since 1%TAT generates only$58M in 2018
Slide 25 Oahu 2,745,559,000 85.6%
GET Maui 199,013,000 6.2%
Hawaii 179,840,000 5.6%
Kauai 81,321,000 2.5%
3,205,733,000
Slide 26 Oahu 201,864,000 71.4%
Payroll Maui 29,567,000 10.5%
Hawaii 39,157,000 13.8%
Kauai 12,305,000 4.3%
282,893,000
Slide 27 Totally wrong-Neighbor Islands generate 51%of TAT, NOT 15%. Missing June TAT
How do Maui and Hawaii generate negative TAT in July and August?
Working Group
%Generated Distribution
48.9% S 236,956.797 hili
29.3% $ 141.980.248 \laui
12.5% $ 60.571.778 ILmaii
9.3% $ 45.065.403 Kauai
S 484.574.226
Slide 28 Slide uses only percentages, no specific numbers on what the State gets from TAT
Allocations Presentation 2018 2018
State 54.0% 61.2% 326,536,000
Counties 21.0% 17.4% 93,000,000
Tourism 18.0% 15.6% 83,000,000
Cony Center 6.0% 5.0% 26,500,000
Turtle Bay 0.0% 0.3% 1,500,000
Land&Devel 1.0% 0.6% 3,000,000
Slide 29 Slide uses only percentages,no specific numbers on what the State gets from TAT
%Generated Presentation
48.9% 76.0%
29.3% 11.0%
12.5% 8.0%
9.3% 5.0%
Slide 30 No study of impact since 1987?
No GET increase since 1965- any studies of the impact of an increase?
Slide 31 No estimate of FY 2017-Should be about$508.1M,Increase of 13.7%
Growth rate of 8.36%since inception is likely due to rate increases rather than growth in room revenues
hotel rentals Cal Year 2016 4,502,385,200
Cal Year 2008 3,130,759,275
Cal Year 2009 2,618,860,475
Slide 32 Highway funds are not part of general fund and should not be used in this justification.
County districts that generate significantly higher tax revenues willingly support districts that don't
Slide 33 Airport funds are not part of general fund and should not be used in this justification.
Neighbor Islands and All Other 115,427,432 Revenues
105,812,072 Expenses
9,615,360 Excess
Slide 34 Small harbor funds not general funds. 2016 neighbor islands were net positive
Slide 44 Why are there no totals or projections,deficits,excesses for this option??
.5%Surcharge .15%Surcharge .65%Surcharge
Collected Proposed Proposed
2016 255,000,000 76,500,000 331,500,000 7.95% 3,206,154,000
$255m surcharge is 7.95%of total GET collected of$3,206,154,000
Increase surcharge to.65%
Incorrect .5%Base 15%Added Surch Total GET
Presentation Recalculation at 99% at 99%
2018 367,594 80,931,194 272,495,602 80,931,194 353,426,796 3.89% 3,459,629,000
402,428 84,588,665 281,962,217 84,588,665 366,550,882 3.47% 3,579,818,000
420,537 87,333,400 291,111,332 87,333,400 378,444,732 3.24% 3,695,976,000
439,461 90,453,840 301,512,801 90,453,840 391,966,642 3.57% 3,828,034,000
459,237 93,583,567 311,945,225 93,583,567 405,528,792 3.46% 3,960,485,000
2023 479,903 97,011,497 323,371,655 97,011,497 420,383,152 3.66% 4,105,556,000
501,498 100,406,899 334,689,663 100,406,899 435,096,562 3.5%
524,066 103,921,140 346,403,801 103,921,140 450,324,941 3.5%
547,649 107,558,380 358,527,934 107,558,380 466,086,314 3.5%
572,293 111,322,924 371,076,412 111,322,924 482,399,335 3.5%
2028 399,295,525 499,283,312 384,064,086 115,219,226 499,283,312 3.5%
417,263,823 516,758,228 397,506,329 119,251,899 516,758,228 3.5%
436,040,695 534,844,766 411,419,051 123,425,715 534,844,766 3.5%
455,662,527 553,564,333 425,818,718 127,745,615 553,564,333 3.5%
476,167,340 572,939,085 440,722,373 132,216,712 572,939,085 3.5%
2033 497,594,871 592,991,953 456,147,656 136,844,297 592,991,953 3.5%
2,686,739,447 4,227,493,182 5,708,774,855 1,712,632,456 7,420,589,825
Difference 1,540,753,735
Through 2027 3,193,096,642 957,111,506 4,150,208,148
2028-2033 3,270,381,676
Target Funding 2,589,000,000
Excess 681,381,676
Slide 45 Title of slide states Oahu TAT, but calculation states Statewide TAT
TAT of$729.3M shown on slide is 76%of the Statewide TAT shown on Slide 49. The 76%figure coincides with the erroneous Oahu TAT claim on Slide 29
Slide 46 Are they going to provide"Worksheet 1"and"Worksheet 2" noted at the top right of the page?
The provided growth rate for TAT may be too hopeful. The growth in statewide hotel rental revenue base is 4%from 1996 to 2016
Slide 49 Evidently not much thought given to the.5%Surcharge for the Neighbor Islands!!!
DRAFT
Special Session
2017
RAIL TAX SURCHARGE
Table of Contents
1 . History of project
2. Who is the Honolulu Authority for Rapid Transportation
3. Project costs
4. Project reports and recommendations
5. Possible options for the construction of rail
6 References
History of project
How did we get here ?
Hawaii State Legislature
► 2006 - Act 247, SLH 2005 granted county surcharge up to 0.5% on the GET to
fund county public transportation systems.
► Projected cost: $3.6B
► 2015 - Legislature and City Council approved an extension of the surcharge
through 2027.
► Projected costs: $6.57B
► Five-year extension of the GET (2022-2027) was anticipated to yield $12B in
additional funds.
► 2017 - the City sought an GET extension via SB 1 183
10. Projected costs: $8.2B
tA- Includes contingency funds
Excludes debt service ($lOB projected cost with rail financing)
Charter Amendments voted by the Oahu
residents
City and County of Honolulu
► 2008 Charter Amendment: "Shall the powers, duties and functions of the city, through
its director of transportation services include the establishment of a steel wheel on steel
rail transit system."
► The Vote was: Yes: 52.6% No: 47.4%
► 2010 Charter Amendment: "Shall the Revised City Charter be amended to create a
semi-autonomous public transit authority responsible for the planning, construction,
operation, maintenance, and expansion of the City's fixed guideway mass transit
system."
t. The Vote was: Yes: 68.6% No: 31 .40
► 2016 Charter Amendment: " Should a unified multi-modal transportation system be
created."
► The Vote was: Yes: 69% No: 32%
Collection of funds to date
GET Surcharge
► Projected revenue totals $5.2B from the inception of the surcharge on
January 1 , 2007, through the current sunset date of December 31 , 2027.
► As of July 31 , 2017 - HART has received $1 .98 billion from the GET surcharge.
Federal Funds
► $1 .556 federal Full Funding Grant Agreement (FPGA) approved in 2012 to
pay for the construction of Honolulu's rail project.
FTA has obligated $806 million - HART has a drawdown on $794.3 million
through July 18, 2017 .
► Remaining obligation: $743.7 million
•
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Phases of ._
Construction
► Segment I (West Oahu/Farrington Hwy) fr'\
;'-111
► E. Kapolei to Pearl Highlands �f1g'5 �fiRa01, .
(7 miles/6 stations) b ���¢� ' ''; � '
o► Segment II (Kamehameha Hwy) �ti : �' f �'�'1 '°o,,�
► Pearl Highlands to Aloha Stadium . ..-. ,,,
(4 miles/3 stations) ,% •
► Segment III (Airport) y,�
6.o, Aloha Stadium to Middle Street • )..,11
(5 miles/4 stations) ,,.N •
f
M
s Segment IV (City Center)
► Middle Street to Ala Moana Center
(4 miles/8 stations) I HONOLULU HIGH-CAPACITY TRANSIT CORRIDOR PROJECT
Major Project Delays
► Legal delay costs related to the Notice to Proceed, Archaeological Inventory
Survey, and Traditional Cultural Property have incurred $172M in delay costs.
► The West Oahu/Farrington Highway Guideway section incurred a total delay of
23.5 months and $107M in costs.
► Protests by unsuccessful vendors over the Design-Build-Operate-Maintain
Contract resulted in a 9 month delay in awarding the contract and a $8.7M
settlement of delay claims.
"Premature" notice to proceed on contracts
Other costs related to construction
ot- Change Orders
► HART Board approved nearly $15M in additional change orders in March
2017 to help cover changes of prematurely awarded construction contracts.
► $65M unresolved change orders Kiewit
► HART has already approved more than $284M in change orders to Kiewit,
including $57M in 2014.
► $27M for Ansaldo in change orders
► HART Administration/Staff
I. $22.9 million
► Eminent Domain (cost of acquiring parcels along rail route)
► Contingency - $1 . 1B in allocated and unallocated contingency
► The FFGA included $644M in allocated and unallocated contingency
Who is HART ?
Who is the Honolulu Authority for Rapid mom
Transportation ( HART) ?
to- HART is responsible for the planning, construction and expansion
of the Honolulu Rail transit project.
r Semi-autonomous agency established on July 1 , 2011 through an
amendment to the Revised Charter of the City and County of
Honolulu.
► KRISHNIAH N. MURTHY, P.E., F. ASCE, Interim Executive Director of
HART. (Term December 5, 2016 to December 4, 2017)
► ANDREW ROBBINS - new executive director to start in September
t. HART is governed by a 10-member volunteer Board of Directors,
serving five-year staggered terms.
HART Board ofDirectors
r\, _ . , . .,t1...: , , .,.., ,„ .. . . , •. „. .. :. , ' 7- :
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Damien Kim 'Terrence ee John Henry Wes Frysztacki Ford
Chair Vice-Chair Felix Fuchigami
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Glenn M. Ember Shinn Kathy Hoyt H. Zia
Terri Fujii Nohara Sokugawa
Project costs
GET Surcharge Collections vs Cost of
Construction vs Debt Service
(in $ millions)
$1,200.0
$1,000.0 -
$800.0
$600.0 -
$400.0
$200.0
$-
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
GET Surcharge Collections Cost of Construction
umCost of Debt Service Linear (GET Surcharge Collections)
2 per. Mov. Avg. (Cost of Construction)
Estimated cost for completion
Estimate at Cost and Percentage Completion of
Contract Summary Status Completion
Major Contracts Awarded:
Active Contracts (includes allocated $ 4,129,313,000
contingency) ► West Oahu/Farrington Highway Guideway
($662M, 97.1 %), Kamehameha Highway
Unawarded Construction (includes $ 1 ,928,548,000 Guideway
allocated contingency) ($82M, 88.9%); Maintenance and
Storage Facility ($274M, 100%); Core Systems
Staff and Consultants (includes $ 1 ,286,632,000 ($601 M, 43.0 0); and Airport Section Guideway
allocated contingency)
Completed Contracts and Stations Group ($875M, 5.0%).
$ 546,950,000
HART currently has over $4.27B in either
Unallocated Contingency $ 273,641 ,000 completed or awarded contracts, which include
Total Capital Project (excludes
15.9 of the 20. 1 miles of guideway and 13 of the
$ 8,165,084,000 21 stations.
financing costs)
The Project plans to procure the City Center
Section Guideway and Station Group Design-
Build (CCGS) package and the Pearl Highlands
Garage and Transit Center (PHGT) DB package in
2018.
Project reports and
recommendations
Porter & Associates, Inc . Report
Jan. 2012 and Sept. 2012
► The Project will require an additional $80.6 million in operating
subsidies in its first full year of operation (2020) .
► The City would need to achieve a lower rate of growth in non-
transit uses of General Fund and Highway Fund revenues.
► Stress tests determined that the City would have the financial
capacity to withstand a 10% increase in Project cost, and a lower
rate of growth in GET surcharge revenues.
Tests indicated that the City could incur an additional debt
obligation of $373.2M, and may need to fund between $70.9M
and $123. 1 M in rail operating and capital costs that would need to
be satisfied from other, non-Project revenues available to the City.
Project Management Oversight
Contractor Report
2016 Risk Refresh Report
► Jacobs Engineering Group, Inc. was assigned by the FTA in 2009 to
monitor the Project and provide "information and well-grounded
professional opinions regarding the reliability of the project scope,
cost, and schedule".
► Lack of attention on risk, cost containment and management of
the project.
► Poor management of the design build contracts.
► Lack of technical capability on staff.
FederalTransit Administration
Requesting a financial plan by September 15th
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Possible options for
rail construction
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Conference Position : SB1 183 SD2 HD2 CD1
► GET Surcharge sunsets in 2027**
► 12% TAT (Increase of 2.75%) from 2018-2027
► Requiring TAT and Surcharge funds to be spent on
capital costs of a mass transit project (not 2.75% Increase of Statewide TAT $ 2,282,940,0864
operating or administrative costs)
► State Administration fee for TAT decreases from 10% 44.1% share of Honolulu TAT $ 130,000,000
to 1%. New Start Education Fund $ (500,000,000)
► Allocate $50M to the New Start Education Fund
from 2018-2027 Total (2027): $ 1,912,940,086
► Decreasing TAT allocation to counties from $103M
to $93M from 2018-2027 **Current projections already include GET
surcharge until sunset 2027. This chart shows
► Honolulu's portion of TAT allocation ($13M = 44.1%) potential identified revenue sources.
must go to fund rail from 2018-2027
► Prohibits the use of public funds for reconstruction
or redevelopment of an event venue for counties
already collecting GET surcharge for a mass transit
project
House Position : g S 1 183 SD2 HD2 HCD2 FA6
► Extend GET Surcharge to 2028
► Increase TAT 1 % from 2018-2028
► Requiring TAT and Surcharge funds to be spent on capital costs of a mass transit
project (not operating or administrative costs)
► State Administration fee for TAT decreases from 10% to 1 %.
► Allocate $25M to the New Start Education Fund from 2018-2028
► Increasing TAT allocation to counties to $103M from $93 M from 2018-2028
► Prohibits the use of public funds for reconstruction or redevelopment of an
event venue for counties already collecting GET surcharge for a mass transit
project
Surcharge Oahu Only 99% of GET $ 398,697,478
1% of statewide TAT $ 958,301 ,1 13
New Start Education Fund $ (250,000,000)
Total (2028): $ 1,106,998,591
Statewide GET Collections
GET COLLECTIONS BY COUNTY
JUNE 2017
Oahu Maui ■Hawaii Kauai
11% County Total Monthly % of
Collections Total
Oahu $ 546,243, 167.58 71 %
Maui $ 35,570,292. 18 11 %
18%
Hawaii $ 34,648,222.35 14%
71% Kauai $ 13,909,593.03 4%
4%
Statewide GET Allocationsp y a roll
PAYROLL BY COUNTY
JULY 2017 Payroll by Island ($ in thousands)
Oahu Maui .Hawaii Kauai District 7/5/17 7/20/17 Total July
Hawaii $ 19,624 $ 19,532 $ 39, 157 13.8
11% Oahu $ 97,436 $ 97, 139 $194,575 68.8
Molokai $ 659 $ 628 $ 1 ,287 0.5
Kauai $ 6, 175 $ 6, 129 $ 12,305 4.3
18% Maui $ 14,056 $ 13,548 $ 27,604 9.8
71% Lanai $348,912 $327,355 $ 676 0.2
None $ 3,027 $ 4,261 $ 7,289 2.6
Total $141 ,328 $141 ,567 $282,895 1000
MonthlyCounty TAT Collections
FY2016 - 2017
OAHU % MAUI % HAWAII % KAUAI % STATEWIDE
2017 June
May $ 33,531 ,021 77% $ 4,669,467 11% $ 3,356,994 8% $ 2,240,040 5% $ 43,797,522
April $ 29,753,496 73% $ 4,993,989 12% $ 3,782,475 9% $ 2,1 19, 1 14 5% $ 40,649,074
March $ 31 ,455,485 75% $ 4,843,511 12% $ 3,654,454 9% $ 2,038,663 5% $ 41 ,992,1 13
February $ 38,668,517 76% $ 5,295,453 10% $ 4,289,785 8% $ 2,796,437 5% $ 51 ,050,192
January $ 36,008,613 77% $ 4,61 1 ,520 10% $ 3,362,353 7% $ 2,586,243 6% $ 46,568,729
2016 December $ 24,176,733 78% $ 3,323,893 11% $ 2,092,990 7% $ 1 ,601 ,212 5% $ 31 ,194,828
November $ 25,858,142 79% $ 3, 127,132 10% $ 1 ,982,008 6% $ 1 ,815,875 6% $ 32,783,156
October $ 28,869,931 81% $ 2,616,844 7% $ 2,272,422 6% $ 1 ,784, 129 5% $ 35,543,327
September $ 32,149,967 81 % $ 3,042, 120 8% $ 2,424,324 6% $ 2,232,205 6% $ 39,848,616
August $ 67,643,459 98% $ 2,620,279 4% $ (3, 129,130) -5% $ 1 ,989,682 3% $ 69,124,290
July $ 50,658,531 125% $ (9,488,553) -23% $ (2,477,686) -6% $ 1 ,986,277 5% $ 40,678,568
TOTAL FY17 4. 365,242,874 85% 24,986, 188 6% I. 18,253,994 4% ', 20,949,838 5% 1. 429,432,893
Statewide TAT allocations
TAT ALLOCATIONS
County TAT Collections and
Allocations
TAT COLLECTIONS
JUNE 2017
Oahu Maui •Hawaii Kauai
County Distribution
(per HRS 237-D)
11%
Oahu 44. 1 %
Maui 22.8%
13% Hawaii 18.6%
5%
76% Kauai 14.5%
Statewide TAT increases
TAT Rate Changes and Effective Dates, Research by several
1987-Current University of Hawaii
Effect Date Rate economics professors found
that Hawaii's 5% TAT of 1987
January 1 , 1987 5.0% did not have a statistically
July 1 , 1994 6.0% significant negative
January 1 , 1999 7.25% revenue impact on lodging
July 1 , 2009 8.25% suppliers. (Mak, 2016)
July 1 , 2010 9.25%
Source: The Auditor, State of Hawaii, 2015
TAT Historical Growth Statewide
( 2006 - 2016 )
2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006
TAT Total $ 446,794 $420,981 $395,242 $368,576 $323,950 $284,472 $224,250 $210,622 $229,388 $224,942 $217,008
Revenues
change 6.13% 6.51% 7.23% 13.78% 13.88% 26.85% 6.47% 1 .98% 3.66%
Per B&F, (29 year average growth rate since inception in 1987 is 8.36%. Last 10-year average,
including Great Recession, is 8.52%)
Statewide highways collections
tj
and allocations
HIGHWAY SPECIAL FUND
ALLOCATIONS
Highways Oahu Hawaii ■Kauai Maui
Fiscal Year Ending June 30, 2016
County Gross Revenue % Generated
25% --_
Oahu $ 80,977,632 60%
Hawaii $ 23,546,086 170
Kauai $ 9,809,793 7% 44%
Maui $ 20,433,625 15%
Total $ 134,767,137 31%
Statewide collections and
allocations
_ imimminnip
Airports
Fiscal Year En_din• June 30, 2016 ,,, ,,
Total Honolulu Int. Hilo Int. Kona Int. Kahului Lihue All others
Revenue $ 353,071 ,282 $ 237,643,850 7,286,685 $ 24,062,346 $ 57,926,473 $ 24,424,710 $ 1 ,727,218
Expenses $ 259,222,720 $ 153,410,648 $ 14,549,461 $ 21 ,629,608 $ 28,865,902 $ 19,649,703 $ 21 ,1 17,398
Statewide harbors cand
allocations
Small Boat Harbors (DOBOR)
2015 2016
Revenues Expenses Difference Revenues Expenses Difference
Hawaii $ 2,296,010 $ 3,618,440 $ (1 ,322,429) $ 2,535,556 $ 2,328, 168 $ 207,387
Maui $ 2,795,562 $ 2,325,249 $470,312 $ 2,988,353 $ 2,279,622 $ 708,731
Oahu $ 6,941 ,574 $ 5,593,023 $1 ,348,550 $ 6,273,589 $4,708,488 $ 1 ,565,370
Kauai $ 1 ,000,780 $ 2,275, 132 $ (1 ,274,351 ) $ 915, 170 $ 1 ,771 ,337 $ (586, 166
Possible project options
► Option A: Stop at Middle Street
► Option B: Stop Downtown at Aloha Tower
► Option C: Complete to Ala Moana
Option A : Stop at Middle Street
► No extension on GET surcharge needed (legislature would not need to convene
a Special Session)
► Current date (2027) provides funding to build to Middle Street
This would include the release of the second obligation of $743.7 under FFGA
• FFGA funds will have to be paid back to FTA
► City would need to figure out how to make up $1 .556 funding gap
HI I/ LNMtNI 1
)gc)NOLUIU A)/TI)clAlt'V ft.RAPID TRANSPORTATION
WHAT IF WE WERE TO STOP NOW?
TOTAL DOLLARS SPENT TO-DATE $2,649 million
(JANUARY 2017)
REPAY FTA FOR FFGA FUNDS DRAWN TO-DATE $712 million
RETURN REMAINDER OF FTA GRANT $838 million
REMAINING CONTRACT OBLIGAI IONS $150 million
EXISTING CONTRACTS TERMINATION
EXPOSURE TO CLAIMS $1,806 million
REMOVAL & DISPOSAL OF EXISTING
STRUCTURES $250 million
DEFAULT ON FULL FUNDING GRANT Negative Standing with
Federal Government for Decades
CITY EXPOSURE Exposure to Lawsuits from Developers
and Investors with Developments
Near the Rail Alignment
HONOLULU RAIL TRANSIT PROJECT
24-Hour Project Hotline (808) 566-2299 www.HonoluluTransit.org
Option B : Stop at Aloha Tower
►
$6.8B
► Public-Private Partnerships (need enabling legislation) to assist with project costs
continuing on to:
► Civic Center
► Kakaako
► Ala Moana
► FFGA funds will have to be paid back to FTA
► City would need to figure out how to make up $1 .556 funding gap
Option C : Complete to Ala Moana
► Option # 1 : Extend Oahu GET Surcharge only
► Option #2: Increase Oahu GET Surcharge
► Option #3: Extend Oahu GET Surcharge + Oahu TAT increase
► Option #4: Extend Oahu GET Surcharge + Statewide TAT increase
► Option #5: Statewide GET surcharge + Statewide TAT Increase
► Remaining obligation of $743.7M under FFGA released
► Condition surcharge funds
Possible Conditions . _
► Forensic Audit
► A forensic audit could be conducted and forwarded to the City Council for its review
and evaluation to include, but not limited to, project controls, management and
cost containment; review and justification of change orders; amount of
contingencies and its drawdowns; administrative cost to operate HART.
► Provided that The Mayor of the City and County of Honolulu and HART submit to the
City Council by the end of 2017 for its review and evaluation.
► Public-Private Partnership at stations to assist with project costs (need enabling
legislation)
► State Match County Fwirk
► The State will provide (X) amount to be matched by the City.
• If the City cannot provide the matching dollars upfront, the State is not obligated to
fund the project.
Methods of Disbursement
► Drawdown method options:
Straight reimbursement of receipts; or
I. Grant-in-Aid; or
I. Special Loan Fund
► By limiting the use of the funds for the rail project the Legislature will be free
from the fiduciaryobligations which belongs to the citybecause it is a cit
project. The option is to limit the use of the funds to thcost of new construction
rlted to the erection and installation of the rail only excluding debt service,
administrative costs, operating costs, engineering and or contracted A&E
services costs.
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Option # 1 : GETSurcharge only
GET extension would be for an additional 7 years but ends up costing the
project more because of the financing debt.
Collections vs Cost of Construction vs
Cost of Debt Service
2034 (in $ millions)
GET extension (over $ 2,987,200,328 $1,200.0
2027) $1,000.0 --
$800.0
Deficit $ (2,588,823,281 ) $600.0 AdigalliV‘
$400.0
Excess $ 398,377,047 $200.0
$-
I� CO 0' O N M V v') 'O N. 00 M V I)
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0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
GET SurchargeCollections
cV
Cost of Construction
imsCost of Debt Service
- --2 per. May. Avg. (Cost of Construction)
Option # 2 : Increase Oahu GET
Surcharge
2033
99% GET Surcharge at 0.65% Current projections already include
2018 $ 367,594 0.5% surcharge until FY2027. An
2019 $ 402,428 g
2020 $ 420,537 increase in the surcharge would
2021 $ 439,461 bring in additional revenue equal to
2022 $ 459,237
2023 $ 479,903 0. 15% until 2027.
2024 $ 501 ,498
2025 $ 524,066
2026 $ 547,649
2027 $ 572,293
2028 $ 399,295,525 An extension of the surcharge,
2029 $ 417,263,823 beyond 2027, would include the full
2030 $ 436,040,695 0.65% in revenue.
2031 $ 455,662,527
2032 $ 476,167,340
2033 $ 497,594,871
Option # 3 : Oahu GET + Oahu TAT
99% Oahu GET Surcharge TAT Increase
*Any amount in excess of the $2.59B deficit will remain in the general fund or designated
elsewhere.
Collections vs Cost of Construction
2032 (in $ millions)
$1,200
GET extension (over $ 2,048,498,010 $1.000 - --- --
2027) $800 - --
$600 -
1 % TAT Statewide $ 729,261 ,720 $400
$200
TOTAL: $ 2,777,759,730 $-
Dof i c i t $(2,588,823,281 ) AQ ° \ 0 ° 0 `�'` o � n �0 oor o0roo �o0 oo �o� � y1, (1, y � � �
Excess $ 188,936,449 GET Surcharge Collections
___ .Cost of Construction
miTAT Collections
--2 per. Mov. Avg. (Cost of Construction)
Descriptions (Including Assumptions) Worksheet 1 Worksheet 2 GET
*Executive Summary of Potential Funding for Rail provided by Budget and Finance GET Oahu Only & & TAT All Islands
TAT All Islands
GET Growth Rate (Per Department of Taxation) 4.5% 4.5%
TAT Growth Rate (Variable rate for Worksheet 2 determined by Department of 8% 8%
Taxation based on Council on Revenue projections)
Total Project Costs (Based on HART's May 26, 2017 Financial Projection: Breakeven $8.165 billion $8.165 billion
Analysis Schedule)
Total Bond Financing Costs (Based on HART's financing schedule) $1 .399 billion $1 .399 billion
Adjustment for $21 million per year of revenues for Rail operations through $(294 million) $(231 million)
financing period
Total Project & FinancingCosts &
Adjustment $9.270 billion $9.333 billion
Total GET Tax Collections 1/1/2007 - 6/30/2017 (June 2017 estimated based on $1 .981 billion $1 .981 billion
average of previous 11 months)
Total Projected GET Extension Revenues 7/1/2017 - 6/30/2027
$3.143 billion $4.440 billion
Total Federal Grant $1 .55 billion
$1 .55 billion
Total Other Sources (Based on HART's May 26, 2017 Financial Projection: Breakeven $7 million $7million
Analysis Schedule)
Total Tax Revenues, Federal Grant & Other Sources
$ 6.68 billon $7.98 billion
TARGETED FUNDING SHORTFALL
$2.59 billion $1 .35 billion
# 4 : Oahu GET + Statewide TATOption
99% Oahu GET Surcharge + i g Statewide TAT irtr4trios
*Any amount in excess of the $2.59B deficit will remain in the general fund or designated
elsewhere.
Collections vs Cost of Construction
2031 (in $ millions)
$1,200
99% GET Extension $ 1 ,705,704,013 $t,000
(over 2027) $800
1% TAT Statewide $ 1 ,407,578,097 $600 --$400 - ..
TOTAL: $ 3, 1 13,282, 1 1 1 $200
Deficit $(2,588,823,281 ) $-
�� �> � 1' � � � 4
Excess 524,458,830 �O �O �O �O �O �0 �0O � (i9 19 �0
GET Surcharge Collections
_:Cost of Construction
STAT Collections
---2 per. Mov. Avg. (Cost of Construction)
Option # 5 : GET Statewide
Surcharge
+ Statewide TAT
99% Statewide GET Surcharge 4,ikpityleide TAT Increase
*Any amount in excess of the $2.59B deficit will remain in the general fund or designated
elsewhere. Collections vs Cost of Construction
(in $ millions)
2028 $1,200 -__-_--
99% All Islands GET $�,°oo
$ 569,567,826 $800
Extension (2028) $600
1 % TAT Statewide $ 958,301 , 1 13 $400
(2018-2028) $200
$
TOTAL: 1 ,527,868,939
$ p�1 pN�p\q pti0 p�1 ti? r19
��ppb ry5 ppb �1 p�4 �q(19 (i?
p�\ �� �� ,�p,p��
Deficit $( 1 ,354,232749)
GET Surcharge Collections
Excess $ 173,636, 190 ___Cost of Construction
■ a TAT Collections
----2 per. Mov. Avg. (Cost of Construction)
0 . 5% Surcharge for Maui , Hawaii
and Kauai
Maui Hawaii Kauai
State Debt vsn r l Fund Ge e a T
Revenues
► Pension Unfunded Liability - $8.8B in 2015 (State's portion $7B)
► $5. 1Bin2006
► 72% growth in 10 years
► Health Benefits Unfunded Liability - $1 1 .8B in 2015 (State's portion $9B)
► $6.3B in 2006
► 87% growth in 10 years
► Tax-Exempt General Obligation Bonds Outstanding - $6.6B
• $4.3B in 2006
• 53% growth in 10 years
► General Fund Tax Revenues - $5.7B in 2015
► $4.4B in 2006
► 30% growth in 10 years
*Data provided by Budget&Finance"State General Fund Financial Plan and Impacts to the State Budget".
State Debt vs General FundTax
Revenues
► The State has identified more than $3B in deferred
maintenance that is needed to maintain and repair
State facilities/buildings.
► Summary: Increase in general fund tax revenue growth
has not kept up with the increase in State debt
*Data provided by Budget & Finance "State General Fund Financial Plan and Impacts to the
State Budget".
..I
References
► Alternatives Analysis Report (2006)
► Final Financial Plan for Entry into Final Design (201 1 )
► Full Funding Grant Agreement (2012)
► HART Recovery Plan (2017)
► Update Financial Capacity Assessment by Porter & Associates, Inc.
► Project Management Oversight Contractor (PMOC) Report (2016)
► How Hawaii's State Government Shares Transient Accommodation
Tax Revenues with Its Local Governments," UHERO; James Mak
(2016)
Budget & Finance "State General Fund Financial Plan and Impacts
to the State Budget"
•
July 5,2017
Memorandum •
To: Chair Colleen Takamura, Tax Review Commission
Vice Chair Vaughn Cook, Tax Review Commission
Ray Blouin,Tax Review Commission
Nalani Kaina,Tax Review Commission
John Knox, Tax Review Commission
Dawn Lippert,Tax Review Commission
Billy Pieper, Tax Review Commission
Titin Sakata, Hawaii Department of Taxation
From: Randall Bauer, PFM
Re: State of Hawaii Tax Study High Level Findings
Introduction
PFM Group Consulting LLC (PFM)was retained by the Tax Review Commission(Commission)to
study three specific(and often inter-connected)areas of interest for Hawaii tax policy: who bears the
burden of Hawaii's taxes; options to reform Hawaii's taxes to make them less regressive; and the
best ways to generate more revenue through new and existing sources and through improved
compliance with Hawaii's tax laws.
To conduct these studies,the PFM project team held numerous meetings with key Hawaii
stakeholders, including elected officials,state government leadership and subject matter experts, all
members of the Commission and members of the business and academic communities. PFM also
benchmarked and reviewed state taxation trends and best practices around the country and gathered
and analyzed economic, demographic and revenue and expenditure data for Hawaii.
As part of the project plan, PFM provides high level findings to assist the Commission in its
deliberations and to provide a general perspective on how PFM will shape its final report and
recommendations to the Commission. These findings are also made available to assist the
Commission in providing feedback on the direction of the PFM final report,which will be provided in
approximately one month.
High level findings are primarily findings of fact or supportable conclusions. They do not generally
make recommendations or even suggest conclusions. They are also, of course, subject to
modification as additional information and analysis is conducted through the remaining weeks of the
project.
The findings are organized into the three basic study areas undertaken by the PFM project team:
1. Who bears the burden of Hawaii's taxes?
2. What are ways to reform Hawaii's taxes to make them less regressive?
3. What are ways to generate more revenue through new and existing sources and through
improved compliance with Hawaii's tax laws?
1
Who Bears the Burden of Hawaii's Taxes?
Tax burden is an important consideration, as it impacts on key principles of taxation, particularly
equity(both horizontal and vertical)and economic competitiveness. Principles of taxation were
discussed at length in the PFM report to•the 2012 Commission,
For the following analysis, PFM used State of Hawaii tax data from 2014-2015. It is notable that the
higher marginal tax rates that were in place for tax years 2009 to 2015 were allowed to expire for
2016 and 2017. Therefore,the tax burden analysis reflects these higher rates. During the 2017
session, the Legislature reinstated these higher rates for following tax years. As a result, the effective
rates and share of Hawaii incomes taxes paid by high income taxpayers would be lower than what is
shown, should the Governor not sign those tax changes into law. This will be a settled issue by the
time the final report is written. PFM will,where appropriate, discuss the likely impact of those
changes in the final report.
According to a national tax burden analysis, Hawaii's middle and upper income taxpayers
have relatively lower tax burdens!
For tax burden comparison purposes, PFM has used data from an annual study conducted by the
Chief Financial Officer for Washington DC.2 This study compares the tax burden for the District of
Columbia and each of the largest cities in all 50 states. It uses a family of three at different income
levels for its analysis. The study is useful because it provides a national point of comparison of state
and local taxes. PFM has used this study as a starting point in multiple state and local tax projects,
including the study for the 2012 Commission.
According to the most recent annual tax rate and tax burden study, Honolulu households with
incomes above$50,000 have low tax burdens relative to most other large cities in the US.
Households with incomes between$50,000 and$150,000(the highest income cohort included in the
study)on average have tax burdens between 6.1 and 7.5 percent of income-ranking in the lowest
20 percent nationwide, as shown in Table 1.
Table 1: Honolulu,Hawaii National Tax Burden Ranking,2015
rmirerti!,:fr707,:f.;;;147.73.75;z1:77:73tilifel7p7-:i0r7,17377: FRIA-71
A
6*Th-corm
zatesd!‘°,:-.1n-cortie.",*Rro'perw,, '" Motak .N,FVreetIV.`„,,
$50,000 $823 $1,293 $692 MEE" $3,059 6.1% 46
$75,000 $1,105 $2,443 $1,178 $434 $5,160 6.9% 43
$100,000 $1,354 $3,758 $1,664 $555 $7,331 7.3% 41
$150,000 $1,653 $6,437 $2,636 $537 $11,263 7-5% 40
Source: Washington DC Tax Rates and Tax Burdens 2015
in the study,tax burden attributed to property tax is higher for those at$25,000 than other households because it is
calculated off an assumed rent for a 3-person family rather than off the assumed assessed value of a home.The median rent
in Hawaii is approximately 56 percent above the national average,resulting in higher assumed property taxes paid through
rent However,property taxes in Hawaii are relatively low—the median paid residential property tax in Hawaii was over 113
below the national average in 2015.Therefore,the project team believes a 20 percent of rent assumption is highly inflated,and
therefore that income cohort is not included in this analysis.
2 VVashington DC Tax Rates and Tax Burdens 2015—A Nationwide Comparison.Issued December 2016.
2
Hawaii's income tax structure is broadly progressive.
The most significant marginal increases in effective tax rates occur between $0 and $40,000.
Between $40,000 and $200,000, marginal increases are consistent but modest. A more significant
rise in the effective tax rate occurs between $300,000 and $300,000 and more. Households making
over$300,000 and filing as a head of household pay 11 cents on the marginal dollar, one of the
nation's highest marginal tax rates for upper income earners. The very wealthy pay at a significantly
higher effective rate than other taxpayers.
Figure 1: Effective Hawaii Income Tax Rate by Adjusted Gross Income Range, 2014
10%
7.7%
8% 0 6.8% 7.1%
6% 5.1% 5.6%
6.0% 6.2% 6.5/o
2.6% 4.3%
11111111
4%
2%
-1.2% 0.2%
0%
-2% 0� 000 000 00 000 00 000 000 000 00 00 00X
h ,0 �0• orb t,0. AGO �'lt�' 0p• c'0' 00• 00• 0
O ca �'� e�`l, con) c.,°)\
co 00• 00' 000 O0 00C 000 00• O, O
O
O O O
O
50 0 2 •
c�S0' c c��0 1 D' O O� O
ca c c
Source: Hawaii Department of Taxation, Hawaii Income Tax Statistics Tax Year 2014
Upper income households pay most of the Hawaii income tax.
Households making over S100.000 pay approximately 60 percent of all Hawaii income taxes. Those
making $300,000 and over pay nearly a quarter of all taxes, despite accounting for only 1.4 percent of
all taxpayers. Middle income taxpayers ($50,000 - $100,000) pay approximately another quarter.
Lower income households shoulder a relatively small percentage of the burden at roughly 10 percent.
3
Figure 2: Share of Total Resident Hawaii Income Tax Liability by Adjusted Gress Income Range, 2014
30%
24.4%
25%
m
ct 20% 17.1%
et 15% 13.0% 11.9%
9.5% 8.7%
10%
Z; jo
51%
5% 3.4%
Ill
° 002% 1.2% . III0% -0.01 /o . ��
0 00 Op 000 O. Op p6O ppp Opo Op Op , OOOx
-5% 3. �N� con'' �^P. ��pO X00, ��r, ��00, �G O �p 45 46.,r�pO
cp' 0. 0, O, p, p p
O p O p O O O' p' O' O
40 •
O ,�0 `LOO ,O „O hO ,. Opp 4)- Opp
c� ` ea `� 5 \ ,gyp CD riX00
oN
Source: Hawaii Department of Taxation, Hawaii Income Tax Statistics Tax Year 2014
Compared to other states,property taxes in Hawaii are relatively low.
Hawaii has the 19°' lowest median property taxes and the lowest property taxes in the nation when
measured against home values. When measured against homeowner incomes. the property tax
burden in Hawaii is the 6"' lowest of any state. For detailed property tax ranking charts by state,
please see Appendix A.
Table 2: Hawaii Property Taxes, 2015
Median Property Property Tax to Home Median Property
Taxes Paid Value Ratio Taxes to Homeowner
Median Income Ratio
Hawaii $1,482 0.3% 1.6%
Rank 19 1 6
Source: US Census Bureau, American Community Survey 1-Year Estimates
The residential property tax burden is roughly apportioned by income range.
Homeowners making ,000 account for percent of all ptaxes. This
share of the property taxover bu$50rden closely mirrors the82.3 share of homeowners residential by income roperty range. No
particular income class bears a disproportionate burden relative to its share of homeowners, as
shown in Figure 3.
4
Figure 3: Share of Homeowners and All Paid Residential Property Taxes by Income Range, 2015
X25% _ - - --
20%
15%
10% -
5% -
0%
0�5 000 000 000 000 OOp 00 00 00 000 000 000 oJe�
ch• p\o' �Oo' gnpo' o• Cco' �A`)• X00• �, „S)• 00 vp • c
00, Qi
00' 00, 00' 00, 00, 0' 0
BOO O� �O O )h6000'000' 00 041'
O
cf.
Share of Homeowners Share of All Paid Residential Property Taxes
� I
Source: US Census Bureau, American Community Survey 2015 Public Use Microdata Sample (PUMS)
As a percentage of income, property taxes in Hawaii are clearly regressive.
The ratio of property taxes to income steadily declines as incomes rise. Although comprising a very
small segment of the population, homeowners making below S5.000 pay an especially large portion
of their incomes in property taxes.
Figure 4: Paid Property Taxes as a Percentage of Homeowner Income by Income Range, 2015
60% 55.1%
50%
40%
30%
20%
10% -14.8% 3.3% 4.7% 2.7% 1.9% 1.5% 1.5% 1.3% 1.1% 1.0% 1.0% 0.6%
0% EMI mom
-10% 00 000 00 000 p0 000 000 000 00 00 000
-20% ti O,`9� NO• p• ,-50• ��• �h0 A(• ��00• �,p• X000• �s�00•
a06o
O C O OO
00 00 O O O ' 0' ' 00
43' ,�0� �0� �� cc ��0 x( 0 0000 00 0000 000
C'D\ ^ cn
Source: US Census Bureau, American Community Survey 2015 Public Use Microdata Sample (PUMS)
5
Renter housing affordability is a challenge in Hawaii.
Property taxes are generally considered to be a component of overall residential housing costs for
home owners. However, affordability issues related to rental housing should also be considered.
Rental housing in Hawaii is very expensive; Hawaii's median gross rent (including utilities) at
$1,500 is more than 56 percent above the national median. The State's median gross rent-to-
household income ratio, a measure of general rent affordability, is over three percentage points
above the US average. Renter housing affordability is a particularly severe challenge in Hawaii.
However, for low income households, the challenges are even worse. Nearly nine in ten renter
households making less than $20,000 are rent cost-burdened, paying 30 percent or more of
income in gross rent. Although this is slightly lower than the national average, Hawaii has a larger
share of such households with severe rent burdens (50 percent or more of income) than is the
national norm Hawaii has a tax credit for low income renters; however. it is limited to $50 per
exemption.
Figure 5: Median Gross Monthly Rent, 2015
$1,600 l $1,500 34%
$1,400 d �3 5% 33%
$1,200 -
$1,000 $959 32%
$800 , j ( 31%
$600 a Er'
5400 -
30.3% 30%
$200 - L- 29%
$0 — — 4- 28%
USA Hawaii
Median Gross Monthly rent --a—Median Gross Rent as a % of HH Income, 2015
Source: US Census Bureau, 2015 American Community Survey 1-Year Estimates
6
Figure 6: Percent Rent Cost Burdened, Renter Households Making Less than $20,000, 2015
0
10 0 89 0% 88.2%
0
° 78.9% 79.4%
80%
70%
60%
50% 38.9% 42.0%
40%
30%
20%
10%
0%
Rent 30% or More of Income Rent 40% or More of Income Rent 50% or More of Income
(Cost-Burdened) (Severely Cost-Burdened)
USA is Hawaii
Source: US Census Bureau, 2015 American Community Survey 1-Year Estimates
The general excise tax (GET) is regressive, with the percentage of income paid as GET
steadily rising as incomes decline.
Hawaii households making less than $50,000 pay roughly three cents per dollar earned in excise
taxes, while those making $100,000 or more pay about one cent on the dollar. This is largely because
lower income households spend more of their income on consumption expenditures subject to the
GET.
Figure 7: Ratio of Excise Taxes to Household Income by Income Range, 2014
3.0%
2.6%
2.5%
2.0%
1.5%
1.5%
1.0%
1.0%
0.5%
0.0%
Under$50,000 $50,000 - $100,000 S100,000 and over
Sources: Hawaii Department of Business, Economic Development& Tourism Honolulu Consumer Spending
2013-2014. April 2016, US Bureau of Labor Statistics, 2015 Consumer Expenditure Survey. August 2016; US
Census Bureau, American Community Survey 2014 1 Year Estimates.
7
In the aggregate, upper income taxpayers pay a disproportionate share of general excise
taxes.
Honolulu households making under$50,000; between $50,000 and $100.000; and $100,000 and
over represent nearly equal shares of Honolulu households. Those making S100,000 or more pay
approximately 46 percent of the GET. This is because these households tend to spend more money
in the aggregate on goods and services subject to the GET_
Figure8: Share of Honolulu Households and Total GET Revenues by Income Range, 2013-2014
50%
46.0%
EEE
31- .2%
10% F,
0% - - -
Under $50,000 S50.000 - $100.000 $100,000 and over
Share of Honolulu Households
--Share of Honolulu Household Excise Tax Revenues
Sources. Hawaii Department of Business. Economic Development & Tourism. Honolulu Consumer
Spending: 2013-2014. April 2016: US Bureau of Labor Statistics. 2015 Consumer Expenditure
Survey. August 2016: US Census Bureau. American Community Survey 2014 1 Year Estimates.
A previous study done for the Commission showed that when viewed over a typical taxpayer's
lifecycle. Hawaii's general excise tax structure appears less regressive 3 This occurs because
middle-aged adults tend to spend less on consumption than young adults and senior citizens, as
they save for retirement. Likewise, many young adults are, because of borrowing, consuming
more than their annual income and many seniors are using accumulated savings for consumption.
While it's true that there are cases where a lifetime incidence analysis will show a less regressive
picture, there are also many highly stressed households (and households who will be living in
poverty throughout their lifetime) where, in many years, the regressive nature of the GET is very
real.
Ways to Reform Hawaii's Taxes to Make Them Less Regressive
Regressivity is a key tax equity (and tax construction) issue, and it is closely linked with the previous
discussion of tax burden. Tax structures and/or individual taxes are often described as being
progressive, regressive or proportional. A progressive tax is one that takes a larger percentage of
income from high income groups than from low income groups. A proportional tax is one that takes
the same percentage of income from all income groups. A regressive tax is one that takes a larger
percentage of income from low income groups than from high income groups. In practice, very few
'William Fox(2006). Hawaii's General Excise Tax: Should the Base be Changed?Tax Review Commission 2005-2007.
8
(perhaps no)taxes are designed to impose rates that increase as income decreases(which would
mean there are no purely regressive taxes on their face). In practice, however,various taxes are
regressive, because a greater proportion of a lower income individual's income is dedicated to paying
the tax. For example, it is generally accepted that lower income individuals spend a greater
percentage of their income on the tangible goods and services that are subject to the GET. As a
result,the GET is considered to be a regressive tax(although the extent of that regressivity is subject
to some debate). It is also notable that an overall tax structure can be regressive while some of its
components are progressive—which is the case for Hawaii.
State tax structures are often viewed in combination with local taxes. This helps for comparison
purposes, as States have made differing determinations of how certain services(such as K-12
education)will be provided and who(state or local governments and taxes)will pay for them. Hawaii
is notable in that it is the only state that assumes nearly all the costs of K-12 education at the state
level. In other states,this is generally more of a shared state and local funding responsibility.
Recent changes made by the Hawaii legislature make the State's tax structure more
progressive.
Across the country,the tax that is most frequently identified as a progressive tax is the individual
income tax. Most states have a progressive individual income tax,with higher marginal tax rates
applying as income increases.
The individual income tax is also often used as a method to ameliorate regressive features of the
overall state tax structure. That is the case in Hawaii,where a refundable credit is available to
individual income taxpayers who are renters and/or pay the GET.
HB209, currently awaiting Governor Ige's signature, enacts changes to income tax rates after
December 31, 2017 that increase the rate for high income taxpayers. This, of course, makes the
Hawaii individual income tax more progressive and raises additional tax revenue.Additionally,the bill
establishes a state earned income tax credit and repeals the sunset date for amendments made to
the refundable food/excise tax credit. These are also progressive features,which are essentially paid
for by the higher income tax rates for high income taxpayers.
Changes to the GET that generally increase revenue would mostly be considered regressive.
In general, excise taxes apply without regard to the taxpayer's ability to pay the tax.Additionally, the
GET is broader based than many similar types of excise taxes(which,for state sales and use taxes,
often exempt'necessities'like food, utility payments and medical services that are taxed by the GET).
Of course, part of the reason that the GET has been kept at relatively low rates(compared,again to
other state sales and use taxes)is because the base is so broad.
Other possible measures to raise revenue are considered in the following section,in terms of their
impact on regressivity.
9
•
Ways to Generate More Revenue through New and Existing Sources, and through Improved
Compliance with Hawaii's Tax Laws
In general there are four ways to raise additional tax revenue:
1. Create a.new tax
2. Expand the base of an existing tax
3, Increase the rate of an existing tax.
4, Increase taxpayer compliance of an existing tax
There are advantages and disadvantages to each approach, From a tax burden/regressivity
perspective, the final approach (increased compliance)has the benefit of not imposing an additional
tax or increasing an existing tax's base. On the other hand, compliance rates on most major taxes
are already relatively high (and further increases can be costly from an administrative perspective).
As a result tax policy changes usually focus on the first three alternatives.
The additional revenue required to fund the annual required contribution to the Employer-
Union Benefits Trust Fund(EUTF)is$535 million in 2019,growing to$703 million by 2023.
In July 2013,Act 268 was signed into law. In addition to establishing the EUTF Task.Force to
examine further steps to address unfunded liability. the law requires the State to pay additional
amounts toward reducing the unfunded liability until 2019,when 100 percent of the annual required
contribution must be paid. Commencing in 2019, GET revenues will be used to fund any difference
between the annual required contribution (ARC)and the payment made by the State.4
With this change in mind,the project tearn's charge, as outlined in the scope of the project, is to
determine:
'how much revenue will be needed to maintain the current level of government services(tax
adequacy), including unfunded or underfunded liabilities for pension and health care benefits for
retired state workers the study can take as a goal raising enough additional revenue to fund the
annual required contribution (ARC)to the Employer-Union Benefits Trust Fund.'
The State's 2017-2019 budget includes estimated payments of$555.9 million each year from 2017-
_
2021.;*Assuming that amount would have been held flat through 2023 had Act 268 not been signed
into law, the additional revenue required is$535 million in 2019, increasing to more than$700 million
by 2023, as shown in.Table 3,
Table 3: EUTF Retiree Health Care Plan Annual Required Contribution(in Millions)
.0041P ' 4 SAZ,
Annual Required Contribution $1,091,0 $1,128.7 $1,173,7 $1,215,2 $1,258,5
Budgeted Contribution $555.9 S555.9 $555.9 $555.9 $555„9
mr,-----77z-z-,,,rtiam57$1,6-54,741711yro
-ACIattargralq*C13:9:-RVICAP-2`AMil : ;7:
Sources:July 1 Actuarial Valuation, State of Hawaii Budget
State of Hawaii 201.6 CAFR
5 Per 2017-2019 Pension and Other Post-Employment Benefits Liability Table(Budget Appendix 6)
The project team's proposed revenue initiatives generally align with the goal of making the
State's tax structure less regressive.
An oft-quoted explanation of tax policy was provided by the former French Finance Minister, Jean-
Baptiste Colbert: "The art of taxation consists in so plucking the goose as to procure the largest
quantity of feathers with the least possible amount of hissing." It goes without saying that any
additional tax revenue is going to come with a'deadweight loss'.that will have some negative
economic impacts.
As previously noted, some taxes in their application may be regressive while the structure as a whole
is progressive or proportional. A well-balanced tax structure applies a variety of taxes based on
consumption, income and wealth. This helps create a more stable structure than one that relies on
only one primary tax source or one type of tax. It also spreads the impact throughout the economy.
The following are possible revenue raising measures,with a brief description of their overall impact
on general tax policy and state tax structure.All revenue estimates are preliminary and subject to
revision.
In many instances,the following alternatives were also explored in PFM's report to the 2012
Commission. However,the project team has also chosen to not analyze some of the 2012
alternatives, primarily because of concerns about regressivity.
Excise Tax Alternatives
■ Increase cigarette/tobacco tax to$4.00 per pack(currently$3.20). This is an excise tax
that is applied in all 50 states. It is considered regressive but is also a'user tax'that has
been shown to decrease consumption, particularly among younger smokers. Estimated
annual impact: $20-25 million.
■ Increase beer/spirits/wine tax by 10 percent. This is an excise tax applied in all states with
a licensed retail market system. It is considered regressive as generally applied (as a tax on
volume)but is also a'user tax'that has been shown to decrease consumption. Estimated
annual impact:$5 million.
■ Increase car rental tax to$4.00 per day(currently$3.00). This is an excise tax applied in all
50 states. .A significant portion of the tax is exported to visitors. Estimated annual impact:.
$18 million.6
• Sugary beverage tax of$0.02 per ounce.'.This is an excise tax applied in only a few
jurisdictions, most notably the City of Philadelphia(1.5 cents per ounce). It is considered a
regressive tax but may have health benefits,which is currently a subject of debate. Estimated
annual impact:$50 million.
• Tax medical marijuana at 15 percent.This is an excise tax and considered somewhat
regressive.Estimated annual impact:$8-12 million.a
• Institute a carbon tax. No state has instituted this form of tax, and there is some debate as
to whether it is a significantly regressive tax. However,there are positive environmental
impacts. Estimated annual impact: up to$365 million,depending on the nature and extent of
the tax.
• Institute a vapor/e-cigarette tax.Seven states and Washington DC currently impose a tax
on e-cigarettes,and more than 20 others have contemplated legislation. Estimated annual
impact: Less than$5 million.
6 Revenues from car rental taxes are deposited Into a special revenue fund.
Estimate includes a non-compliance adjustment of 20 percent.
e Estimate is incremental revenue resulting from taxation at 15 percent instead of 4.5 percent.
11
Transient Accommodations and Timeshare Occupancy Tax Alternatives
• Increase the TAT to 10.0 percent(currently 9.25 percent after expiration of reduction in
2015). An opportunity to export additional revenue. Estimated annual impact: $20-25 million.
• Begin collecting TAT on resort fees. An opportunity to export additional revenue.
Estimated annual impact:$20-30 million.
• Begin imposing TOT on Airbnb rentals. An opportunity to export additional revenue.
Estimated annual impact: $5-10 million.
Income Tax Alternatives
• Move to a single 9 percent corporate net income tax rate. Who pays corporate income
tax is a subject of considerable debate. The following corporate income tax initiatives all
raise revenue, but the question of who pays for them is subject to debate. Estimated annual
impact: $30 million.
• Increase corporate net income taxes by 50 percent. Estimated annual impact: $42 million.
• Increase corporate net gains capital rate to 5.0 percent(currently 4.0 percent). Estimated
annual impact: $5 million.
• Eliminate exemption for pension income over$25,000. Most states provide for some
taxation of pension income;with the provision to exempt the first$25,000 of pension income,
this would be considered a progressive tax feature. Estimated annual impact: $46 million.
Eliminate exemption for foreign pension income over$25,000. Most states provide for
some taxation of pension income;with the provision to exempt the first$25,000 of foreign
(out of state) pension income,this would be considered a progressive tax feature. Estimated
annual impact:TBD.
• Implement a personal income tax rate recapture. This would implement a top-rate
recapture mechanism for high income taxpayers. In this approach,for taxpayers with taxable
income above a certain level, which could be$100,000,the benefit of lower brackets would
be phased out, and when income reaches$150,000,the taxpayer would pay the top rate on
the first dollar of income. This would be a highly progressive feature. Estimated annual .
impact:TBD.
Property Tax Alternatives
▪ Eliminate the Real Estate Tax Deduction. This effectively reduces property tax burden by
providing a deduction against income taxes. To the extent the property tax is regressive,this
would increase regressivity. However,for individuals with no state income tax liability(or who
do not itemize),there would be no additional tax implications from this change. As a result, it
would likely be a progressive feature. Estimated annual impact$30 million.
• Shift certain K-12 education expenses to property taxes to lower State costs. Because
the State Constitution prohibits a state property tax,the only mechanism to increase the use
of this tax(and thus reduce the use of other major taxes)would be to shift expenditures from
the state to local governments. As mentioned previously, Hawaii is the only state that fully
assumes the operational costs of K-12 education at the state level. Of course, any shift to
property tax from more progressive taxes(such as the income tax)would be regressive—
however, it would be possible to ameliorate some of these impacts through expanding
refundable credits such as the GET/renter's credit. Under this initiative,the State could select
specific expenditures to shift.As an example, it could shift the DOE's Public Libraries general
fund operating costs to property taxes. Estimated annual impact: $35 million.
12
Compliance Alternatives
Compliance initiatives are important, because they can increase voluntary compliance and create
greater confidence in the system by those taxpayers(who are the vast majority of Hawaiians)who
pay their taxes in full and on time.
There are notable instances across the country where taxpayer compliance can be a significant issue
for the amount of tax revenue that can be generated. There are taxes where'black markets'are
fostered because of taxes owed on specific products,such as cigarettes. More recently, concerns
about payment of sales and use taxes owed because of online purchases has become a prominent
issue for States—and also for Hawaii as it relates to the GET.
■ Increase collection of taxes related to e-commerce/online retail taxes. This is not a new
tax—it is a method of enhancing collection of an existing tax. An area with significant
legislative action across the country, although the constitutionality of some recently enacted
state laws is being challenged in several state and federal court cases. Estimated annual
impact: $30-40 million.
The State is in the process of implementing a data warehouse; in other states,this has provided
opportunities to improve compliance and collect additional revenue. These include:
■ Tax gap programs. Several states have increased revenue collections through use of
sophisticated software connected with a fully functional data warehouse.
■ Additional audit programs. Most studies suggest that additional audit staff is cost effective,
both in finding additional tax revenue and in spurring additional voluntary compliance.
Summary
PFM looks forward to discussing these high level findings with the Commission. The PFM project
team is beginning the process of creating the final report detailed outline and refining analysis of the
revenue measures that are under discussion. The project team is prepared to complete the analysis
and provide the written draft report within the timeframe provided to the Commission.
•
13
Appendix Al: Median Property Taxed Paid by State, 2015
New Jersey 1111111ININIIIINIMININNIMMIMINNIMINIMMINNIIMII 7,777
Connecticut 111111111111MMINIMENIMION 5,560
New Hampshire 5,349
New York 4,868
Massachusetts INNIMMIIIIMIIIII=IIMIMMIM 4,273
Vermont 4,106
Illinois MIINIIIIIIIMIIIIMINE111111MINI 4,101
Rhode Island MMIMM1111111111111111111=111 3,965
California 3,395
Wisconsin 3,227
Maryland 1111,111 3,220
Alaska 11111111=11111111=111111111111M 2,979
Washington 2,895
District of Columbia MMIMNIIIMMININIII 2,843
Texas 111111111111=1111111111111 2,755
Oregon 2,753
Pennsylvania 2,671
Nebraska 2,528
Maine 2,435
Minnesota 2,240
Michigan 2,211
Ohio 2,121
Iowa 2,043
Virginia 2,026
South Dakota INIIII=1111111111111 2,025
Kansas 1,949
Montana 1,744
Florida 11111=1111=111111 1,733
North Dakota IMMIIIIMM 1.724
Utah 1,545
Nevada 1,529
Colorado 1,513
Hawaii 1,482
Missouri 011=11 1,445
Georgia MIMMINIIII 1.425
Arizona 1,393
North Carolina IIIIMIIIMEN 1,365
Delaware =MIMI 1,319
Idaho IN=1=M 1,315
New Mexico 1,273
Wyoming 1,256
Indiana 1,129
Oklahoma 1,114
Tennessee 1111=111I 1,099
Kentucky 1,093
Mississippi IMMO 877
South Carolina MIMI 844
Louisiana 800
Arkansas NM 744
West Virginia MI 642
Alabama MI 556
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
14
Q
110
Appendix A2: Property Tax to Home Value Ratio by State, 2015
New Jersey MINIIIIImM11111=Nommimmimm1 2.4%
Illinois 2.3%
New Hampshire 2.2%
Connecticut 2.1%
Wisconsin 1.9%
Vermont 11111=MENIIMOIIIIIMIIMMINIMMINI 1.8%
Texas IIMMINNEINEMIl 1.8%
Nebraska 1.8%
New York IIIMIIIMINMMMIM 1.7%
Rhode Island 1.6%
Michigan 1.6%
Pennsylvania IIIIMEMINIMmom 1.6%
Ohio 1.6%
Iowa 1.5%
Kansas 1.4%
Maine 1.4%
South Dakota 1111111MINIIIIIIIIMINI 1.3%
Massachusetts 1.2%
Alaska 1.1%
Minnesota 1111111111111=1111111111111111 1.1%
Maryland 1.1%
Oregon 1.0%
Washington IIMIIIMIMINIMININE 1.0%
Missouri 1.0%
Florida 1.0%
North Dakota 1.0%
Georgia IIMI=MMININ 0.9%
Oklahoma 0.9%
Indiana 0.9%
North Carolina 0.9%
Kentucky IMINNIMEMINEN 0.8%
Montana miNNEMMENI 0.8%
Virginia 1.111111111MINIIIIIIII 0.8%
Mississippi 11111.1111111111111111011111 0.8%
New Mexico IMMI 0.8%
California 0.8%
Idaho 0.7%
Tennessee 0.7%
Arizona iimmimimi 0.7%
Nevada NIMINI 0.7%
Utah INMMENN 0.7%
Arkansas 0.6%
Wyoming MENIIIIIMI 0.6%
West Virginia mom= 0.6%
South Carolina 1111111111111=11111 0.6%
Delaware 0.5%
Colorado 1111111111111111M 0.5%
District of Columbia 0.5%
Louisiana =MENEM 0.5%
Alabama 0.4%
Hawaii 0.3%
0.0% 0.5% 1.0% 1 5% 2.0% 2.5% 3.0%
15
1101
Ap•endix A3: Median Pro•erty Taxes to Homeowner Median Income Ratio by State, 2015
New Jersey 8.0%
New Hampshire 1111111111111111MIIIIMMINNIMMIMMIIIIM 6.2%
Vermont MMMMININIMMIMmIIIMIMMIIIIMIMMI 5.9%
Connecticut IMMIN1111=NIIIIIIIIIMIII 5.8%
New York 1111111111111111INIMMINIIIMMIMINEI 5.8%
Illinois omMilimM111111111111Milm 5.4%
Rhode Island 4.8%
Wisconsin 4.6%
Massachusetts 111111111111IIIMMINNIM=1 4.5%
Oregon 3.9%
Maine 1111111111111111111111MINIMMIMI 3.9%
California 3.9%
Pennsylvania 3.9%
Texas 3.8%
Nebraska IIIMIIMIIIIIM1111111181= 3.6%
Washington 3.6%
Michigan 3.6%
Maryland 111111111111MENIMMIIIIMI 3.4%
! Alaska 3.3%
Ohio 3.2%
Iowa 1111111111111MIIM 3.1%
South Dakota 3.0%
Florida 1=MEMNIIIIIIIIIIMINE 2.9%
Minnesota IIIMIIMMENIMMINIII 2.9%
Kansas IIIIIIIIIMMIM=111111 2.9%
Montana 2.9%
Virginia 2.5%
District of Columbia 2.3%
Missouri 1111111181111 2.3%
New Mexico MIMMININII 2.3%
Idaho INSINIMIIIIMON 2.2%
North Carolina 2.2%
North Dakota 2.2%
Nevada 2.2%
Arizona 2.2%
Georgia 2.2%
Utah 2.0%
Kentucky 1.9%
Colorado NomImmi 1.9%
Tennessee MII=MINI 1.9%
Oklahoma 1.8%
Delaware 1.8%
Indiana ENNI118 1.8%
Wyoming 1.7%
Mississippi 1.7%
Hawaii 1.6%
South Carolina 1.5%
Arkansas IMMEM111 1.4%
Louisiana MOM= 1.3%
West Virginia 1.3%
Alabama 1.0%
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%
16
.i�curer yam; I
-=0_•::`: CITY COUNCIL
• �� •` CITY AND COUNTY OF HONOLULU -17-208
HONOLULU,HAWAII No.
RESOLUTION
REQUESTING THE SUPPORT OF THE HAWAII STATE ASSOCIATION OF
COUNTIES AND iTS EXECUTIVE COMMITTEE FOR THE HAWAII STATE
LEGISLATURE'S APPROVAL OF AN EXTENSION OF THE HONOLULU GENERAL
EXCISE AND USE TAX SURCHARGE AS NECESSARY TO ENABLE THE
COMPLETION OF THE MINIMUM OPERABLE SEGMENT OF THE HONOLULU
HIGH-CAPACITY TRANSIT CORRIDOR PROJECT.
WHEREAS, recent revenue and expenditure projections for the Minimum
Operable Segment("MOS") (from East Kapolei to Ala Moana Center) of the Honolulu
High-Capacity Transit Corridor Project("Rail Project") indicate that an additional $2.847
billion in revenues will be needed for the City and County of Honolulu ("City") to
complete the MOS of the Rail Project; and
WHEREAS, Section 2 of Act 247, Session Laws of Hawaii ("SLH"), Regular
Session of 2005, codified as Hawaii Revised Statutes ("FIRS") Section 46-16.8,
authorized the Honolulu City Council to establish a one-half percent Honolulu general
excise and use tax surcharge ("GET surcharge")to fund the operating and capital costs
of the locally preferred alternative ("LPA")for the Rail Project and related improvements
to comply with the Americans with Disabilities Act("ADA"); and
WHEREAS,the LPA would connect West Kapolei with the University of Hawaii
at Manoa, going through downtown Honolulu and skirting the Daniel K. Inouye
International Airport and the Ala Moana Center; and
WHEREAS, pursuant to Act 247, the Honolulu City Council enacted Ordinance
05-07,which approved the GET surcharge, effective on January 1, 2007, and which •
was to be repealed on December 31, 2022; and
WHEREAS, the MOS, as established by Resolution 08-261, calls for a 21-mile
alignment connecting East Kapolei with the Ala Moana Center with a total of 20 transit
stations;and
WHEREAS, in the Final Financial Plan for the Full Funding Grant Agreement
between the City and the Federal Transit Administration, dated June 2012,the
estimated cost for the Rail Project was$5.163 billion; and
WHEREAS, among other things, Section 3 of Act 240, SLH, Regular Session of
2015, amended HRS Section 46-16.8 to authorize the City to implement a five-year
extension of the GET surcharge from December 31,2022, to December 31, 2027; and
0CS2017-0793/8/1/2017 2:51 PM 1
•
•;(..;;' = COUNCIL •
t �: CITY
`•`'d=�:%• CITY AND COUNTY OF HONOLULU 17-208
;),1 HONOLULU.HAWAII NO.
RESOLUTION
WHEREAS, on October 15, 2015, the Honolulu Authority for Rapid
Transportation C'HART"), the agency charged with construction of the Rail Project,
projected that the cost for the Rail Project would be $6.178 billion; and
WHEREAS, the Honolulu City Council thereafter enacted Ordinance 16-1 which,
among other things, implemented the five-year extension of the GET surcharge to
December 31, 2027; and
WHEREAS, recent discussions with officials of the Federal Transit Administration
have indicated that the City may be required to repay the federal government for its
financial contributions to the Rail Project to date if construction of the MOS is not
completed as agreed upon in the Full Funding Grant Agreement; and
WHEREAS, on November 16, 2016, the Honolulu City Council passed
Resolution 16-248, CD1, which reaffirmed the Honolulu City Council's support of
extending the GET surcharge in order to complete the MOS of the Rail.Project to Ala
Moana Center; and
WHEREAS, on December 1, 2016, HART submitted the Draft Update of the
Financial Plan for the Full Funding Grant Agreement, which stated that the estimated
cost, with additional funding for the financing required to complete the MOS for the Rail
Project, is approximately$9.5 billion, which would result in a shortfall of$2.847 billion;
and
WHEREAS, during the 2017 regular legislative session, the Hawaii State •
Legislature ("Legislature")considered Senate Bill No. 1183 and various drafts thereof,
which specified a number of funding sources to assist the City in its completion of the
MOS and included proposals to further extend the GET surcharge or increase the
transient accommodations tax("TAT") by 30 percent, none of which was ultimately
adopted by the Legislature; and
WHEREAS, it is anticipated that a special session of the Legislature will be held
within the coming months to consider funding options to assist the City with its
completion of the MOS; and
WHEREAS, the TAT is a much more volatile revenue source than the GET
surcharge, thereby making it more difficult for HART to engage in any long-term
planning and financing for the Rail Project; and
WHEREAS, raising the TAT would put the entire State, including all neighbor
island counties, at a competitive disadvantage in regards to tourism, and could result in •
a ripple effect that may negatively impact small businesses in all of Hawaii's counties;
and
0CS2017-0793/8/1/2017 2:51 PM 2
•
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CITY COUNCIL
� ` -�� 17-208
; d_l ,7. CITY AND COUNTY OF HONOLULU
1` HONOLULU,HAWAII NO.
RESOLUTION
WHEREAS, to remain competitive, hotels may choose not to pass on the
increased tax to guests and instead absorb the costs, which could lead to staffing
cutbacks; and
WHEREAS, the GET surcharge is a comparatively stable funding source that is
imposed only on business operations in the City, and would allow HART to engage in
long-term planning for the Rail Project; now, therefore,
BE IT RESOLVED by the Council of the City and County of Honolulu that it
respectfully requests the support of the Hawaii State Association of Counties and its
Executive Committee for the Hawaii State Legislature's approval of an extension of the
Honolulu General Excise and Use Tax Surcharge as necessary to enable the
completion of the Minimum Operable Segment of the Honolulu High-Capacity Transit
Corridor Project to Ala Moana Center; and
BE IT FINALLY RESOLVED that copies of this Resolution be transmitted to each
member of the Hawaii State Association of Counties Executive Committee.
INTRO UCED Y: •
e . • .
DATE OF INTRODUCTION:
AUG - ? 2017
Honolulu, Hawaii Councilmembers
0CS2017-0793/8/1/2017 2:51 PM 3
Z,IpTE Assoc,-
Hawai`i State Association of Counties (HSAC) -�Q` c.9
,
Counties of Kaua`i, Maui, Hawai`i and City & County of Honolulu ` i a
• * * -
MINUTES couNt
HSAC EXECUTIVE COMMITTEE MEETING
•
Monday, July 31, 2017
Honolulu Hale, Committee Meeting Room
530 South King Street
Honolulu, Hawaii 96813
CALL TO ORDER
The HSAC Executive Committee was called to order by HSAC President Dru Kanuha
at 11:40 a.m. The following members comprising a quorum were present:
County of Hawaii: President Dru Kanuha
Councilmember, Hawaii County Council
County of Kauai: Vice President Derek Kawakami
Councilmember, Kauai County Council
County of Maui: Secretary Stacy Crivello
Presiding Officer Pro Tempore, Maui County Council
City and County of Honolulu: Treasurer Ikaika Anderson
Councilmember, Honolulu City Council •
Others Present: Council Chair Mel Rapozo, Kauai County Council
Council Chair Mike White, Maui County Council
Councilmember Riki Hokama, Maui County Council
Leinani Wessel, Council Aide to Councilmember Dru
Kanuha, Hawaii County Council
Aida Kawamura, Legislative Assistant, Office of Council
Services, Kauai County Council
Brandon Mitsuda, Administrative Support Services,
Honolulu City Council
Francisco Figueiredo, Office of Councilmember Ikaika
Anderson, Honolulu City Council
Todd Swisher, Legislative Analyst, Office of Council
Services, Honolulu City Council
Carla Nakata, Legislative Attorney, Office of Council
Services, Maui County Council
Scott Ishikawa, Senior Account Executive, Becker
Communications, Inc.
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Page I2 iSAS
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II. APPROVAL OF AGENDA
Treasurer Anderson moved to amend Section 18 of the Bylaws to change the word
"shall" to "may," so that the Section reads:
SECTION 18. The corporation is not a "board" under chapter 92,
Hawai'i Revised Statutes (HRS), having been created by other than
the "constitution, statute, rule, or executive order." The corporation, •
however, in the conduct of its business, [shall] may comply with the
procedures and requirements set forth under chapter 92, HRS.
Vice President Kawakami seconded the motion. President Kanuha noted the meeting
agenda had not been posted at the meeting site six days prior to the meeting. Honolulu
staff contacted the Office of Information Practices to confirm the meeting could
proceed. Because HSAC is not a board for purposes of the Sunshine Law, and is not
bound by the Sunshine Law other than through its Bylaws, the motion was made to
amend the Bylaws to allow the meeting to proceed. The motion was unanimously
carried.
There being no objections, the agenda was approved as circulated.
III. MINUTES
A. Minutes of the June 19, 2017 HSAC Executive Committee meeting
•
Treasurer Anderson moved to approve the IVlinutes as circulated. The motion
was seconded by Vice President Kawakami and unanimously carried.
IV. REPORTS
A. Treasurer's Report
1. Treasurer's Report for June 2017.
Treasurer Anderson reported that HSAC started the month of June with
a balance of $164,607,06 and had expenses of $7,796, leaving an ending
balance of $156,813.69. See attached worksheet for additional
information.
The Executive Committee thanked Kauai (Council Chair Rapozo and
staff Aida Kawamura) for a good conference, raising revenues, and a job
well done. Vice President Kawakami moved to approve the Treasurer's
Report for June 2017. The motion was seconded by Secretary Crivello
and unanimously carried.
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B. County Reports.
1. City and County of Honolulu Report. Treasurer Anderson provided the
attached update on Honolulu City Council meetings and events.
2. County of Hawaii Report. President Kanuha reported that on June 23,
2017, the Hawaii County Council passed a resolution increasing the fuel
tax rate. The new rate takes effect August 1, 2017, and will be 15 cents
per gallon (previously 8.8 cents per gallon). It is anticipated to generate
about $4.5 million for the current fiscal year. .He said the Council took a
tiered approach, with the fuel tax rate increasing to 19 cents for the
following fiscal year, then to 23 cents per gallon the year after. The fuel
tax will bring in much needed revenue. He said on July 7, the Council
authorized the County to enter into a sister-city relationship with
Cabugao in the Philippines. The Council sent to the Environmental
Management Commission changes to legislation concerning Styrofoam
food containers and food service ware. He said Hawaii County has been
undergoing repairs to Kona water wells. Because of maintenance
problems, there had been a 25-percent mandatory restriction on water
use in the Kona area. They are trying to upgrade the wells as soon as •
possible. On July 18, the Council amended the Hawaii County Code to
comply with National flood insurance program regulations.
3. County of Kauai Report. Vice President Kawakami reported upwards of
$90,000 in revenue was raised from the HSAC Conference. He said
• Kauai has already circulated an internal timeline for legislative
priorities for HSAC.
4. County of Maui Report. Secretary Crivello reported the Maui County
Council's Infrastructure and Environmental Management Committee is
working on a proposed moratorium on sand mining. She noted the
Council's Policy, Economic Development, and Agriculture Committee is
beginning to consider a recent Charter amendment allowing the Council
to establish by ordinance additional qualifications for administrative
heads appointed by the mayor. She said a resolution has been proposed
to urge the Mayor to allow an additional deferred compensation plan.for
County employees.
Treasurer Anderson made a motion to receive the reports. Secretary
Crivello seconded the motion, which was unanimously carried.
C. National Association of Counties (NACo) Report.
• July 21-24, 2017 NACo Annual Conference —Franklin County, Ohio
Councilmember Hokama reported that the content of the annual conference was
solid. President Kanuha has been appointed an at-large director. By National
i�ptEA,fs.�
•
Page 14SAC
'OkCOUN���
Bylaws, all past presidents continue to serve as board directors until they leave
County service. With Councilmembers Arryl Kaneshiro from Kauai and
Councilmember Ikaika Anderson from Honolulu, the State of Hawaii has four
directors on the NACo board (including past president Hokama). Next year the
conference will be held in Nashville, Tennessee. There is a board meeting in
December in Tarrant County, Texas, for board directors. The National Council
of County Association Executives has extended an invitation to Hawaii to be the
conference site of choice for 2019. About 150 people would attend. Any county
could be the host. He said it might be a good time for Hawaii to consider
whether it wants to have an executive director. NACo is willing to consider
Hawaii as an associate member. Key committees will be Transportation
(aviation reauthorization) and Water (farm bill and water bill).
The motion to receive the report was unanimously carried (individuals making
and seconding the report were inaudible).
D. Western Interstate Region (WIR) Report.
President Kanuha said the WIR Fall meeting will be held in Wyoming in
October. He encouraged other members to attend the WIR conferences. He
asked whether the Executive Committee wants another person from Hawaii on
the WIR board of directors. Secretary Crivello said that may be an issue for
posting on the next HSAC Executive Committee meeting agenda. Vice
President Kawakami said it was a good point to bring Hawaii's issues, such as
sea level rise, to WIR.
Secretary Crivello made a motion to receive the report, which was seconded and
unanimously carried. •
E. Communications Report—Scott Ishikawa — Becker Communications
Mr. Ishikawa distributed an outline of his proposed media communications
strategy and timeline for the 2018 State legislative session. He suggested
focusing on three or four top legislative priorities. A copy of his proposal is
attached. He said that because some bills did not die, lobbying can begin in
October or November. He said he would await feedback on the upcoming
Special Session. President Kanuha said Mr. Ishikawa was hired to help HSAC
with communications and media this past year. Vice President Kawakami
noted the Becker Communications draft strategy needs to be flexible because
the Executive Committee still needs to identify priorities, and new pieces of
legislation may be developed. Councilmember Hokama said he believed
emphasis should be given to online communications to get the message out.
Council Chair White noted the lifeguard liability measure and the transient
accommodations tax and rail funding are big issues. He said every one percent
increase in TAT would take away about $26.7 million from the Big Island,
Kauai, and Maui economies, and bring it to Honolulu. Treasurer Anderson said
Q``S�ptE ASyp
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oFeoue+'nes
• he understands the neighbor island position on rail funding. Secretary Crivello
said there may be other legislative considerations from the counties. She said
the body needs to decide how the Facebook account and HSAC website will be
maintained moving forward. Councilmember Hokama said community
• television allows free five-minute public service announcements on Maui and
asked whether Special Session issues could be communicated in this manner.
Treasurer Anderson moved to receive the report. The motion was.seconded by
Vice President Kawakami and unanimously carried.
V. NEW BUSINESS
A. Nationwide's consideration to submit proposals to provide services for all
counties.
Secretary Crivello said a decision needs to be made whether this is something
the individual counties want to pursue or whether HSAC should talk to the
mayors. She said Maui County has proposed a resolution to request its Mayor
to seek opportunities for an additional deferred compensation plan. It was
noted that Kauai is considering whether this is something they can do, and that
Honolulu already offers a separate deferred compensation plan (not
Nationwide). Councilmember Hokama cautioned care should be taken in
structuring a proposal and that procurement laws would need to be followed. If
an entity comes in and does a presentation, there is a potential to disqualify
• that entity from bidding. The Executive Committee decided to keep this matter
on the agenda for further discussion.
B. 2018 HSAC Legislative Package.
President Kanuha said there are continued considerations from 2017. Secretary
Crivello noted unfunded liabilities may be a good consideration for next
legislative session. President Kanuha asked about a schedule for introducing
measures for the 2018 package. Secretary Crivello said HSAC should not wait
until the Legislature gets back in session. She asked whether ERS and
unfunded liabilities will occupy next session. Vice President Kawakami said for
the bills that are still alive, HSAC may want to reintroduce them and get new
bill numbers, and start reaching out to advocates.
C. Hawaii State Legislature Special Session relating to the transient
accommodations tax (TAT).
The Special Session has been announced for August 28 through September 1,
2017. President Kanuha opened the discussion on how HSAC would address
the Special Session. Secretary Crivello said the body should decide .how
involved it will get in the Special Session and expressed some urgency in the
decision.
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Council Chair White provided the attached report from the University of Hawaii
Economic Research Organization (UHERO), dated March 8, 2017, entitled "Is
Hawaii's Hotel Room Tax Law Obsolete?" The article discusses the State's suit
against online travel companies and urges a re-examination of the State's TAT
law.. He said there are some states that have redone their room tax laws. When
you go onto Expedia or another travel company's site, they will charge the same
amount the hotel charges, but will keep the TAT and pay the GET. He
suggested HSAC consider asking the State Legislature to rewrite the TAT law
to include reinarketers. He noted concern over a proposal to increase the TAT
by 2.75 percent. Council Chair White summarized some historical TAT data,
including TAT collections for 2015 through 2017. He said the counties in the
State receive the smallest share of tax revenues on hotel lodging of anywhere in
the country. He said perhaps the State might look at the option of a restaurant
tax instead of increasing TAT.
President Kanuha asked whether these things would be valid considerations
during a Special Session. Vice President Kawakami said emergency
appropriations for the Hawaii Health Systems Corporation were considered
during the Special Session on marriage equality, so members of the House and
Senate might want to see other issues thrown in. From a revenue side, it might
be.something to ponder. Council Chair White said he believed HSAC needs to
go into the Special Session with a very strong position.
The Executive Committee said it was difficult not knowing exactly what would
be proposed during the Special Session. Vice President Kawakami said it
appeared the Executive Committee would be deliberating on an official position
for the Special Session. Secretary Crivello said the counties had not taken an
official position on the general excise tax extension, just on the TAT. Secretary
Crivello said she sees reauthorizing the GET as a means for Honolulu to
support the rail. President Kanuha said the Executive Committee should keep
Scott Ishikawa posted on any position the counties take. Secretary Crivello said
she wants not to have to use the neighbor islands' share of TAT to fund rail.
Council Chair Rapozo said HSAC previously supported the task force
recommendation. He said the only thing HSAC can lobby for is what was
passed in the package, so just the TAT and lifeguard liability, because GET was
not in the package. He said the Bylaws do allow the Executive Committee to act
on anything that affects home rule or revenues, so HSAC's position could
probably expand to include that, but to be careful, especially with GET, because
all the counties are different. He said the Executive Committee will probably
need to know today whether HSAC will aggressively pursue the Special Session.
Council Chair Rapozo questioned whether to take out a full-page ad to identify
legislators who did and did not support the counties' efforts. He said it may be
simplest to use a sales tax. Council Chair White distributed calculations on tax
generation and distribution to the State and County. He said the UH Maui
``S�ptE�SOri
S:.
Page 17SA
+ Z:
s
O�,.COU1it�b
College might serve as a resource to help with some statistics. Councilmember
Hokama said HSAC may want to consider using NACo's County Explorer
program and perhaps Dr. Estrada with the NACo Research Office.
Vice President Kawakami said he would like to see HSAC take a position on the
extension of the general excise tax to fund rail. Treasurer Anderson said it
seems the options to fund rail right now are either to extend the existing GET
surcharge for a certain number of years, or a combination of the GET extension
and TAT. He noted it has also been said that the Legislature is looking at
funding the rail strictly through TAT. It's been the position of the Honolulu
City Council that the fairest and most equitable way to fund rail construction is
through a GET extension. He said this is not a tax increase, but an extension of
an existing tax Honolulu is already paying. He noted this is not a project that
the other islands would benefit from. But he feels HSAC needs to see what the
Legislature is proposing definitively before it figures out a position. Secretary
Crivello said she likes the idea of supporting the extension of GET and leaving
the TAT alone. She asked whether there would need to be a special meeting if
the Executive Committee wants to come out with a position on the GET.
Council Chair White said it may make some sense to have a position on both the
extension of the GET and opposing the increase of the TAT. He noted the rail
does not go to Waikiki either, so it may not make sense for TAT to support it.
Treasurer Anderson said the only reason he has heard for using the TAT for rail
is because visitors do not vote. Council Chair White said anything that
increases the price of the room has to go on the web, whereas the same does not.
apply to restaurant taxes.
Vice President Kawakami said the difficult thing is that there is no known
agreement on the Special Session. Council Chair White said we need to go back
and find out the respective delegations' positions. President Kanuha said right
now HSAC'does not have a position on the GET. Vice President Kawakami said
he has heard a lot of different proposals, and asked where that puts HSAC. He
suggested the representatives go back to their delegation and House and Senate
leadership to find out their positions. President Kanuha said the body should
try to find a good date to come back together prior to the Special Session, and in
the meantime representatives should go back to their individual counties and
talk with House and Senate representatives.
Treasurer Anderson said he would like to ask his colleagues on the Honolulu
City Council to support a resolution requesting HSAC support of the GET
surcharge extension to support rail funding, but he wanted to make sure the
Executive Committee is okay with that before he does. Secretary Crivello said
she does not have a problem with that. Council Chair White asked whether he
wanted the other councils to consider similar resolutions. Treasurer Anderson
said he wasn't sure whether the other councils would want to see something
from Honolulu before they go on record. He said he would propose a resolution
at the next Council meeting and asked Honolulu staff to draft a resolution.
3P``iSp1 E ASSOC'
SA,*,
Page I S
OF COUNt��-.
Council Chair White asked if he could give Maui a draft that Maui could
consider posting for its next Council meeting. President Kanuha asked that the
draft resolution be sent to the other HSAC representatives so that each council
could do what they want with it.
VI. UNFINISHED BUSINESS
A. 2017 Legislative Update and Plan for Lobbying Efforts (Bills still alive for next
session)
President Kanuha said the Executive Committee will be talking about the
lifeguard bill. He said this past session Councilmember Victorino was part of
the lobbying effort. The Executive Committee discussed whether they wanted a
paid lobbyist moving forward. Secretary Crivello noted she did not think a paid
lobbyist is warranted at this time. Vice President Kawakami agreed. Council
Chair White said perhaps HSAC should work in the direction of hiring an
Executive Director stationed on Oahu who could follow the legislative session on
a continual basis. President Kanuha agreed.
B. Status of Senate Concurrent Resolution 77, requesting the establishment of a
bona fide agricultural producer task force to create a definition for the term
bona fide agricultural producer, which was adopted by the Senate and the
House of Representatives.
Secretary Crivello noted Maui is still trying to define agriculture. She asked
how the other counties handle this. Vice President Kawakami said he thinks
that is the definition they have been asking for from the State for quite some
time.
C. Correspondence from U.S. Senator Mazie Hirono, relating to a draft resolution
for consideration regarding potential cuts to federally funded Native Hawaiian
programs and to strengthen these programs.
The Executive Committee discussed the status of this request and noted it is up
to each Council to determine whether they support the resolution. The
Committee received the attached correspondence dated May 12, 2017, from the
Office of the County Attorney for Kauai County stating "the draft resolution
would be legal according to the legal tenets governing resolutions." President
Kanuha said there are a lot of specifics in the resolution dealing with Native
Hawaiian programs. It appears the concern in the resolution is with taking
• money away from Native Hawaiians and giving it instead to Native Americans.
Secretary Crivello moved to support the resolution. Vice President Kawakami
seconded the motion, and the motion was unanimously carried. He said the
resolution would be sent to each individual Council for their information.
AssOCe
Page I 9 *I•
SA�)
VII. ANNOUNCEMENTS
A. Scheduling the next meeting.
The next meeting is scheduled for Thursday, August 10, 2017, at 10:00 a.m., at
Honolulu Hale.
B. Other announcements. -
•
There were no other announcements.
VIII. ADJOURNMENT
The meeting was adjourned at 2:05 p.m.
ocs.proj:HS.AC:FY3018:Mi nu.tes:170731
Hawaii Slate Association of Counties
REVENUES COLLECTED AND EXPENSES PAID
Period June 1 through June 30,2017
BEGINNING BALANCE 9164.607.08
May -June FY 2017 FY 2017
2017 2017 Year to Date Budget
REVENUES
' Membershie Fees $0.00 $000 $43.680 00 $43,680.00
Conference income •
SO 00 $000 319,168 26 $18,000.00
Interest Income $2.92 $2 63 $27 81 ' $28 00
Corporate Sponsorship $0 00. SO 00 $0.00 $0.00
Miscellaneous SO 00' $000 $9.73 $000
NACa Prescription Drug $542.00 SO 00 , $3,063 60 $6.000.00
Fund Balance,prior FY $0 00 5107.164 00
Total $544 92 32 63 565,949.40 5174.872 00
Total Receipts This Period $2.63
EXPENSES
HSAC
Executive Committee Travel-Air.Ground Lodging
8 Membership $2,705.29 $1,007 40 . $15,407 67 $17 600.00
Auditing Services $0.00 SO 00 $4.166.67 55X00.00
Stationery $0.00 SO 00 $726 21 5150.00
Misceiianeous $588.29 SO 00 510,712 78- $2.000.00
Online Gulclibooks Monthly Fee $41.75 $41.75 $499.80. 5500.00
Special Committees
Travel $0.00 $0 00 $000 : $500.00 .
Miscellaneous $0.00 $000 50.00 • $10000_
$0.00
NACo •
Board Travel-Air.Ground.and Lodging $4,076.19 $1,505 18• 517,313.19 $20.00000 •
Steering Committees Travel-Air.Ground&Lodging $0.00 SO 00 $6.000.00
Promotional $0.00 $0.00 SO:oO $260.00 ....
Dues $3,507.00 $0.00 530,258 00 : $27.268 00
Miscellaneous $0 00 tido • $3,442.20.• $1.00000
NIIR ; .
WIR Travel-Air,Ground and Lodging. $0.00 $0:00 .$1,953.57 $10,500.00
WIR Promotional $0.00• $0.00 $0.00 $0.00
WIR Dues - 0_ .
._._.. ._. .... 50.00. ...... t0.Q0 ... SO QO..: ... . 53804.00. .
WIR Miscellaneous $0.00 $0 CO • $0.00 $1,000.00
WIR 2015 Conference $0.00 , $080 $0.00 x0,00.: :
OTHER
. .. . .. ... _... ..
Adjusbnents for Travel and Related Expenses SO 00' .. .. . SO 00. • $000 $6.295.00..: :
National Conference Fund 5_0.00 . $0 CO $000 $44.000.00
Prescription Diug Scholarship Program $0.00 4•
$0 00 $0.00 $8,500.00 : : .
•dainty_Leadersteg Institute Attendee , _ $0.00.. $0.00 . . SOW_ $3,000.00 .
Prescription Drug Promotion $0.00 . $0.00 S0 CO 55.000 00 '
HSAC Promattan $1.500.00 $5,241.67 $14.868.96 • $11.505.00 : •
Total $12.418 52 57.798.00 $99,349 05 i $171,972.00: ......
Total apenaes+Tial!Period97,796.00
ENDING BALANCE -$1$61813.69.
To: The Honorable Ikaika Anderson, Treasurer
From: Brandon Mitsuda, Council Liaison
Date: July 31, 2017
Re: Honolulu Report
Hawaii State Association of Counties Executive Committee
Meeting
Update on Honolulu City Council Meetings
•
• The Honolulu City Council at our last Full Council Meeting on July 12,
2017 passed on Third Reading Bill 59 (2016), FD1, CD3: Relating to the
use of bags provided to customers. (Regulating the use of bags provided to
customers.)
• The Honolulu City Council at our last Full Council Meeting on July 12,
2017 passed on Third Reading Bill 43, CD1: Relating to the maintenance
of channels, streambeds, streambanks and drainageways. (Amending the
conditions under which a private stream owner is held to maintain, dredge
and clear such stream.)
• The Honolulu City Council at our last Full Council Meeting on July 12,
2017 passed on Third Reading Bill 79 (2015), CD2: Relating to the Land
Use Ordinance. (Making miscellaneous amendments to the Land Use
Ordinance.)
• The Honolulu City Council at our last Full Council Meeting on July 12,
2017 passed on Third Reading Bill 67: Relating to curb ramps. (Preserving
access to curb ramps designed for use by persons with disabilities.)
• The Honolulu City Council at our last Full Council Meeting on July 12,
2017 passed on First Reading Bill 68: Relating to special transit service.
[Clarifying the operations of the City's special transit service (The Handi-Van)
and establishing policies for improved and efficient operations of special
transit services in the City and County of Honolulu.]
1
Update on Honolulu City Council Projects and Events
• The Honolulu City Legislative Branch has begun preparations for the 2017
Honolulu City Lights Celebration that showcases the Holiday Spirit here at
Historic Honolulu Hale.
2
E • K E
ONLINE, OFFLINE AND INLINE WITH YOUR GOALS
HAWAII STATE ASSOCIATION OF COUNTIES (HSAC)
Media Communications Strategy/Timeline
(Summer 2017—May 2018)
OVERARCHING POSITIONING STATEMENT:
During each legislative session, the Hawaii State Association of Counties (HSAC)
submits measures in hopes of improving the quality of life for residents across the state.
All measures presented before this upcoming legislative session are meant to provide
the following:
• Maximize the effectiveness and performance of the county governments;
• Enhance the fiscal health of our county-level governments, and in turn;
• Benefit the taxpayers by avoiding the need for future increased taxes and user
fees to make up for unnecessary deficits.
GOALS:
1. Lobby the state Legislature to approve HSAC-related measures
2. Build groundswell of public support using a variety of communications tactics
3. Enable and encourage public advocacy among existing supporters
4. Attain our legislative goals as ONE entity;not allowing outside forces to divide
and conquer us
TOP LEGISLATIVE PRIORITIES:
Here are the suggested HSAC issues to have media and public focus on:
1)Fairer TAT distribution between state and counties
2) Return of limited liability protection for county lifeguards
3) Additional ambulance services for Kauai and Hawaii Island
. ._:,.-. �ACTLVITY .DESCItI'P'1'ION... .. . . .. .... ...._„.. ” < .�:
July through Community Outreach:
September Determine organizations/business groups/unions to reach out to regarding
2017 speaking engagements and potential support for HSAC-related legislation:
(Determination • Chambers of Commerce (COC)
of legislation o COC of Hawaii
for submittal o Hawaii Island COC
during 2017 o Maui COC
session) o Kauai COC
• Other major business associations on each island
• Hotel industry
o Hawaii Tourism Authority
o Hawaii Lodging and Tourism Association
• Unions
o HGEA
o UPW
o HSTA
o SHOPO
o Hawaii Fire Fighters Association
o Private unions
Online Marketing and Communications:
• Monthly E-Blast
o Draft editorial calendar for 2018 legislative session
• Website
o Draft text for upcoming legislative session
• Facebook
o Work with four counties on social media plan
October 2017 Editorial Solicitation:
• Begin scheduling editorial board meetings for December
(Continual • Confirm speaking engagements to begin in late November/early
planning and December
scheduling)
Community Outreach:
• Speaking engagements (October-early January)
November Community Outreach:
2017
• Speaking engagements (October-early January)
Editorial Solicitation:
• Finalize schedule for editorial board meetings/media briefings
December
2017 Community Outreach:
• Speaking engagements (October-early January)
(Pre-
Legislative Editorial Solicitation/Scheduled Coverage:
Session
Coverage) Interviews with respective neighbor island newspapers before the session
(Early January):
• Big Island (Hawaii Tribune-Herald, West Hawaii Today)
• Maui (Maui News)
• Kauai (The Garden Island)
Line up potential signees for letters to editor throughout session
Press Release:
• Finalize HSAC legislative press release for internal approval
January 2018 Community Outreach:
(Beginning of • Speaking engagements (October-early January)
Legislative
Session) Editorial Solicitation:
Hold editorial board meeting/briefings with Oahu media publications covering
legislative session(early January):
Suggested Media Organizations for Editorial Board Meetings:
• Honolulu Star-Advertiser (Lucy Young-Oda, Kevin Dayton, Sophie Cocke)
Hawaii Public Radio (Wayne Yoshioka)
• Civil Beat(Nathan Eagle)
• Pacific Business News (Kam Napier)
Benefits of Meeting with the Editorial Board:
• They could assign a story to a reporter about topics discussed at the
meeting.
• They will come away from this meeting with a better understanding of
HSAC's priorities.
• It will improve the lines of communication between the two parties and
provide an opportunity to gain a better understanding of the media's
needs and deadlines.
• They are less likely to publish future stories about the topic without first
reaching out to get our reaction.
• The editors might even be motivated to write an editorial about topics
discussed.
Potential appearances on the following media outlets:
• KHON2"Wake Up 2Day"
• Hawaii Public Radio's "The Conversation"
• Hawaii News Now's "Sunrise" show
Press conference/media availability at HSAC Open House
• Also make HSAC members available to media during first week of
Legislative session (Jan. 15-19)
Press Release:
• Also release HSAC legislative agenda/objectives release during first week
of 2017 legislative session
Letters To Editor:
• Start drafting third-party letters to editors
February 2018 Legislative Deadlines/Benchmarks:
(Mid-February Editorial Solicitation:
—First Lateral) • Begin assigning letters to editors to third-parties for submission
March 2018 Editorial Solicitation:
(Mid-session) • Op-ed to island newspapers providing HSAC legislative agenda update
• Make HSAC members available to media during committee hearings
• Have third-party submit letters to editor during budget crossover
April 2018 Editorial Solicitation:
(Crossover • Make HSAC members available to media during conference committee
periods) • Have third-party supporters submit letters to editor during crossover
periods
May 2018 Editorial Solicitation:
• Provide op-ed to each island daily newspapers at end of 2018 legislative
(Final vote on session on HSAC progress report
legislative
measures,
wrap-up of
legislative
session)
# # #
r ,
1
IS HAWAII'S HOTEL ROOM TAX LAW
. . .
U OBSOLETE?
417 VITIMYOF HMO
With tax collections falling behind expectations, State lawmakers are
pressuring the tax department to increase effort to collect uncollected
taxes from internee sales. In 2015 the State /Attorney General's Office scored
a major" victory when The Hawaii Supreme Court ruled that online travel
companies (OTCs) are required to pay Hawaii's general excise tax (GET)
on their hotel bookings. Subsequently, the Tax Appeal Court ordered OTCs
to pay $53.1 million in back general excise taxes plus interest to the state.
The State had also sued the OTCs for underpaying Hawaii's transient accommodation tax(TAT), also known
as the hotel room tax.'That was a major loss for the Attorney General's Office.At issue in that suit was whether the
OTCs should have been remitting TAT on the full retail price of the rooms they charge their consumers,or only the
tax on the wholesale room rates(called net rates)that they pay to hotels for the rooms they contract with the hotels
and resell to consumers.The State argued that OTCs should have been paying TAT on the full retail room rates;
OTCs disagreed.The Hawaii Supreme Court(March 17, 2015)sided with the OTCs.2
Hawaii enacted its TAI'in 1986. Hawaii's TAT is levied on the operator of transient accommodations. Hawaii
Revised Statutes Chapter 237D states: the TAT is"assessed and collected each month...on the gross rental or
gross rental proceeds received from furnishing transient accommodations. Every operator shall pay to the State
the tax imposed by this section as provided in this chapter.An "operator"is "any person operating a transient
accommodations whether as owner or proprietor or as lessee, sublessee; mortgagee in possession,licensee, or
otherwise, or engaging or continuing in any service business which involves the actual furnishing of transient
accommodation."
The Hawaii Supreme Court,basing its decision on the legislative history of the`IAT,determined that"...a
single operator is associated with the furnishing of transient accommodations...Here the hotels in the Assessed
Transactions arc acknowledged by all parties to be an operator within the meaning of the use of that term as
provided by HRS &237D-1;thus, for purposes of the TAT Assessments,only the hotels arc operators in the
Assessed Transactions.Therefore, the OTCs are not operators and the TAT is not applicable to the OTCs in the
Assessed Transactions."That Hawaii lost so handily shouldn't have been surprising from the very beginning given
the way the TAT statute was written.
'In the Matter of Travelocity v.Dir.of Taxation,346 P3d 157(Haw.2015)
=In the Matter of Travelocity v.Dir.of Taxation,346 P.3d 157(Haw.2015)
UHERO
The dispute between states and local governments in the U.S. and OTCs over the appropriate tax base for
online lodging sales has been going on since at least 2004.According to the Tax Foundation,which keeps tabs on the
ongoing litigations,as of February 2016, tax jurisdictions in 34 states and the District of Columbia have filed similar
lawsuits against the OTCs; OTCs have won in 23 states and lost in 6 states.'
That OTCs have won most of the litigations is not surprising because in most cities and states hotel occupancy
tax statutes were written before the advent of OTCs, and were not worded in a way that would allow state and local
governments to prevail.Travclocity and Expedia didn't even exist before 1996.
Traditionally, hotel guests booked directly with hotels or with the assistance of travel agencies.Travel agencies
acted as brokers and received a commission from the hotels. Under this"agency model"the hotel is the merchant of
record.(The agency model is still in use by brick-and-mortar travel agencies and online travel companies.)The hotel
guest paid his/her room rent to the hotel and not to the travel agency. Either way,what the hotel received from the
guest was the same whether the booking was made directly with the hotel or through a travel agency.Typically,hotel
occupancy tax statutes—including Hawaii's TAT--specify that the hotel room tax is some percent of the room rental
revenues/price hotels received.
- In the digital era, the relationship between hotels,guests and travel intermediaries changed as the OTCs found
a more profitable business model. Under the "merchant model" OTCs arc the merchants of record.They contract
for rooms with hotels at wholesale rates(net rates), add their mark-up and "service fee and taxes" (bundled together)
and resell them to customers. Hoteliers contract with OTCs to collect all the money, including applicable taxes.
Consumers pre-pay their stay to the OTCs and not to the hotels. After check out,hotels invoice the OTCs; OTCs
then pay the hotels the negotiated net rates and the taxes collected from the guest based on the net rate.
Thus, under the merchant model of distribution what a hotel guest pays to the OTC for the right to occupy the
room and what the hotel receives from the OTC arc not the same. Obviously,under traditional hotel occupancy
tax statutes, taxes calculated on the net rates arc lower than if they were calculated on the full retail rates paid
. by consumers.The same room booked by a hotel guest directly with a hotel will have a higher tax bill than one
purchased from a merchant model OTC, assuming the rooms are sold at about the same price.'
For the consumer, the only price that matters is the total price charged by the OTC,inclusive of the net rate,
mark-up, fees and taxes. If he/she does not pay the total price, he/she cannot occupy the room. Indeed, in 2014,the
Wyoming Supreme Court ruled that OTCs' mark-ups were"services necessary to complete the sale" and hence part
of the sale price subject to Wyoming's sales tax.'
3 Tax Foundation, Litigation Ongoing against Online Travel Companies for Hotel Occupancy Tares,February 17,2016.Most of the law suits
have been filed by cities.
'They are.See Michael Mazerov,State and Local Governments Should Close Online Hotel Tax Loophole and Collect Taxes Owed,Center on
Budget and Policy Priorities,April 12,2011.Agreements between hotel chains and OTCs tend to maintain price parity between the two chan-
nels of distribution.
5 Travelocity.Com LP.et al.v.Wyoming Department of Revenue,Wyoming Supreme Court,No.S-13-0078,April 3,2014,reported in Sales
Tax Institute,"Online Travel Companies Liable for Tax on Total Amount Paid by Customers in Wyoming,"April 7,2014.
UHERO
If one agrees that the appropriate tax base should achieve tax neutrality—i.e. the correct tax base should be the
rental price paid by the hotel guest(excluding taxes)6 regardless of how the room was purchased--then many existing
hotel occupancy tax statutes should be rewritten.'
New York State did just that. In 2010 New York State revised its state sales tax statute to ensure that OTC mark-
up and fees arc fully taxed. Chapter 57 of the Laws of 2010 effective September 1, 2010 was enacted "to ensure
that state and local sales taxes(sales tax)arc paid on the full amount charged to customers by businesses such as
Web-based travel companies(hereinafter room remarketers) for hotel occupancy in New York State."t'The new law
defines "room remarkeler as'a person who reserves,arranges for,conveys, or furnishes occupancy,whether directly or
indirectly,to an occupant for rent in an amount determined by the room remarketei;directly or indirectly,whether
pursuant to a written or other agreement'...Businesses,such as travel agencies, that reserve rooms on behalf of
their customers and do not have the right to determine the amount of rent their customer pays for the room...arc
not room remarketers for purposes of this new law" Under the new law,a room rcmarketer is considered a hotel
operator.9
New York State's law also applies to the hotel room occupancy tax imposed and administered by New York City
requiring the hotel room occupancy tax in the City to be paid on the entire amount paid by consumers for a hotel
room. Expedia filed a law suit against New York City,but the City won.1D
In 2010 the District of Columbia also amended its lodging tax statute(Title 47 of the District of Columbia
Office Code.) requiring online travel companies to pay sales tax on the total amount paid by consumers to online
travel companies,including the retail margins." Section 47-2202 (2)was amended to read as follows: "If the
occupancy of a room or rooms, lodging, or accommodations is reserved,booked, or otherwise arranged for by
a room rcmarketer, the tax imposed by this paragraph shall be determined based on the net sale or net charges
received from the transient by the room rcmarketer." Net sale or net charges is defined as "the gross receipts from
the sale of or charges for any room or accommodations received by a retailer from a room rcmarketer."The law was
upheld by the D.C. Superior Court in 2012 and again by the D. C. Court of Appeals in 2015.12
6This would require the OTS to separate the"fees and taxes"on consumer bills.
'Mak,J.2012."What Should Be the Appropriate Tax Base for OTCs'Hotel Room Sales?"Pages 775-786 Tar Analysts.Tax Analysts,Falls
Church,Virginia.;Mazerov,2011;National Conference of State Legislatures,NCSL Task Force on State and Local Taxation Principles for the
Taxation of Online Travel Companies,August 12,2013.
'New York State Department of Taxation and Finance,Office of Tax Policy Analysis,Taxpayer Guidance Division,Amendments Affecting
the Application of Sales Tax to Rent Received for Hotel Occupancy by Room Remarketers,TSB-M-10(10)S,Sales Tax,August 13,2010;also
Breen M.Schiller,"Mind the Gap:The Current Debate Between States&Municipalities and Online Travel Companies over the Taxability of
the Remittance Gap,"Journal of State Taxation,January-February 2011.
9 New York State Department of Taxation and Finance,A Guide to Sales Tax for Hotel and Motel Operators,Publication 848(2/15),p.9.
'°Schiller,2011;http://law justia.com/eases/new-york/court-of-appeals/2013/180-1.html
" D.C.Law 18-364.Payment of Full Hotel Taxes by Online Vendors Clarification Act of 2010.
12�������°t;I\ratc.ctm,"Online Travel Companies Liable for D.C.Sales Tax,Again,"July 24,2015.
UHERO •
Likewise,in 2010 North Carolina amended its state sales tax statute—G.S. 105-164.4(a)(3)—effective January
1, 2011 to tax the gross receipts of "facilitators" (OTCs) at"applicable combined state and county sales tax rates."'s
The "sales price of the rental of an accommodation marketed by a facilitator includes charges designated as
facilitation fees and any other charges necessary to complete the accommodation rental."
In 2003 the Oregon Legislature passed House Bill(HB) 2267 to establish a state lodging tax;then in 2013 the
Legislature passed HB 2656 which "requires transient lodging providers and transient lodging intermediaries to
collect and remit taxes computed on the total retail price paid for occupancy of transient lodging.""
According to the National Conference of State Legislatures,as of 2015,seven states—Georgia,South Carolina,
North Carolina,New York,Minnesota,Wyoming and Oregon—and the District of Columbia require OTCs to
pay taxes based on the full retail rates paid by consumers.''The amended statutes have generally survived legal
challenges in their highest courts.'However,there are strong anti-tax sentiments in some parts of the U.S.Florida
failed to pass similar legislation. Missouri passed legislation stating specifically that OTC mark-ups and fees are not
taxable."Indeed, the Tax Foundation advocates a federal law that would bar"discriminatory taxation of online
travel company services."18
The National Conference of State Legislatures has developed a number of principles regarding the taxation
of online travel companies, among them: "To ensure full collection of taxes that arc due and to promote equity
and fairness in tax code, states should consider requiring OTCs to remit taxes based on the rental price paid by
the user."Moreover, "To ensure that taxation is efficient,states should consider imposing any tax on online travel
companies through statutory provisions and not through administrative regulation." Hawaii state lawmakers should
re-examine the state's transient accommodation tax law and determine if it should be amended to take account of
changes in the way visitor accommodations are distributed in the digital age.
13 Sales and Use Tax Division,North Carolina Department of Revenue,Important Notice:Tax on Accommodations at http://www.dornc.com/
taxes/sales/i mpnoti ce 1210.pdf
"Oregon Department of Rcvcnue,.State of Oregon Lodging Tax Program,150-604-401 (Rev.01-17).A lawsuit filed by OTCs against the
Oregon Department of Revenue was voluntarily dismissed in 2015.
''The Baltimore Sun,"Lawmakers stir travel industry furor over taxing online hotel bookings,"March 28,2015.
"'Laws in Georgia,South Carolina and Wyoming survived challenges by the OTCs in their respective Supreme Courts.
"Travel Weekly Daily Bulletin,"New Missouri Law Says OTA Hotel Markups are Tax Free,"July 13,2012
"'Tax Foundation,Special Report 230,February 2016;also,Tax Foundation,Special Report No.198,Taxation of Online Travel Service,May, •
2012.
"National Conference of State Legislatures,NCSL Task Force on State and Local Taxation Principles for the Taxation of Online Travel Cont-
paries,August 12,2013.
0000000000000000000000000000000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
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COUNTY OF KAUAI
OFFICE OF THE COUNTY ATTORNEY
May 12, 2017 RECEIVED
TO: Mel Rapozo, Council Chair 't1 MAY 12 P3 :44.
FROM: Mauna Kea Trask, County Attorney OFFICE OF
RK
RE: REQUEST FOR- A LEGAL REVIEW OF PROPOSED R 1 C IitHE COUNTY UA
LANGUAGE
(Tracking No. 17-0678)
The Office of the County Attorney("Office")is in receipt of your memorandum
dated April 26, 2017, requesting a legal review of a draft resolution from Senator Mazie
Hirono, relating to a collaborative method to address concerns regarding potential cuts to
federally funded native Hawaiian programs. In your request you also indicated that it is
your intent to share this legal review and after discussion with you it is my position that
therefore this is not considered a confidential attorney-client communication under HRS§
626-503 and you may share this communication.
After review it is the opinion of the Office that the draft resolution would be legal
according to the legal tenets governing resolutions. Furthermore, the subject matter of the
resolution is appropriate under state and federal law regarding the status of native
Hawaiians and their special relationship with various governmental entities as an
indigenous people under various state and federal statutes.
Please accept this information in response to your request and please contact me at
(808)241-4930 if you have any further questions.
C:tQ"---
MA
County Attorney
UNTY COUNCIL OFFICE OF 1131E COUNTY CLERIC
iv" Mel Rapozo,Chair
./(1;4A0194-;),„.. e".‘
Ross Kagawa,Vice Chair
(IV W Jade K.Fountain-Tanigawa,County Clerk
Arthur Brun Scott K.Sato,Deputy County Clerk
Mason K.Chock -•"141P:04
t:• -.04,11yk.
Arryl Kaneshiro - tor y4-:Per g
Derek S.K.Kawakami Telephone: (808)241-4188
JoAnnA.Yuldmura OF , Facsimile: (808)241-6349
E-mail: cokcouncilkauai.gov
Council Services Division
4396 Rice Street,Suite 209
Mee,Kelm%Hawaii 96766
MEMORANDUM
CONFIDEN, TIAL
April 2ATTORNEY— CLIENT
2017 6,
COMMUNICATION
TO: Mauna Kea Trask, County Attorney
FROM: Mel Rapozo, Council Chair
RE: REQUEST FOR LEGAL REVIEW OF PROPOSED
RESOLUTION LANGUAGE
I would like to request your assistance in providing a legal review of the
attached resolution, which we received from Senator Mazie Hirono as a
collaborative method to address concerns regarding potential cuts to federally
funded Native Hawaiian programs. My intent is to share your legal review with the
Hawail State Association of Counties Executive Committee to help us make an
informed decision regarding the resolution.
A response by May 12, 2017 is requested. Should you have any questions,
please feel free to contact me or Council Services Staff at 241-4188.
AMK:cy
Attachment
AN EQUAL OPPORTUNITY EMPLOYER
A RESOLUTION TO ACKNOWLEDGE THE IMPORTANCE OF
MAINTAINING CRITICAL FEDERAL PROGRAMS FOR THE NATIVE
HAWAIIAN COMMUNITY
Whereas, Native Hawaiians are the aboriginal, indigenous people who settled
the Hawaiian archipelago as early as 300 A.D; and
Whereas, the land that now comprises the State of Hawaii was once
commanded by a monarchical government, established in 1810 under
Kamehameha I; and
Whereas, the Kingdom of Hawaii was recognized as an independent
sovereign nation by foreign governments, entering in diplomatic relations with
countries such as the United States; and
Whereas, western influence throughout the Kingdom of Hawaii increased
following first contact by Europeans in 1778, leading to devastating effects to the
health, culture, and social conditions of Native Hawaiians; and
Whereas, the Kingdom of Hawaii was illegally overthrown by a small group
of non-Hawaiian residents of the Kingdom of Hawaii, along with citizens of the
United States in 1893, resulting in the abolition of the sovereign government of the
Native Hawaiian community; and
Whereas, the Organic Act passed by Congress in 1900, established:
a. Hawaii's territorial government; and
b. defined the political structure and powers, along with the special trust
relationship between the United States and Native Hawaiians; and
Whereas, certain Alii, or chiefs, established perpetual trusts for the benefit of
Native Hawaiians; and
Whereas, the Association of Hawaiian Civic Clubs was founded in 1918 by
Prince Jonah Kuhio Kalanianaole, delegate to the United States House of
Representatives, for the purpose of advocating for the improved welfare of Native
Hawaiians in culture, health, economic development, education, social welfare, and
nationhood; and
Whereas, in recognition of the depressed economic conditions of Native
Hawaiians, Congress enacted the Hawaiian Homes Commission Act, 1920 which:
a. designated 200,000 acres of land for exclusive homesteading and
agricultural pursuits by native Hawaiians; and
b. affirmed the trust relationship between the United States and the
Native Hawaiian community; and
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Whereas, on March 18, 1959 Congress established an Act to Provide for the
admission. of Hawai`i into the Union, dissolving the Territory of Hawaici, and
establishing the State of Hawan; and
Whereas, on August. 21, 1959 President Eisenhower issued a presidential
proclamation formally accepting Hawaigi-into the Union; and
Whereas, in 1981 Congress instructed the Office of Education to submit a
comprehensive report on the status of Native Hawaiian education; and
Whereas, the report released in 1983 and entitled the Native Hawaiian
Educational Assessment Project confirmed:
a. Native Hawaiians scored below national benchmarks on standardized
achievement tests; and
b. were disproportionately represented in. many negative social and
physical statistics, indicative,of special educational needs; and
c. had educational needs that were related to their unique cultural
situation; and
Whereas, in response to the failing health of HawaiTs indigenous population,
language contained in the 1984 Supplemental Appropriations Act directed.the U.S.
Department of Health and Human Services to conduct the first-ever comprehensive
study of the health care needs of Native Hawaiians; and
Whereas, results of the 1984 study indicated that Native Hawaiian
communities were at a severe health disadvantage as compared to other ethnic
groups in the State of Hawaii, prompting Congress to pass. the...NO.,:ti-N #4*044.n::::.:.
Health Care Act in 1988 (renamed the Native Hawaiian Healtb.:.Care•,.,.,%MP*OVeMent.::•:.
Act, following reauthorization in 1992); and
Whereas,.the Native Hawaiian Health Care Improvement Act authorized the
Native Hawaiian Health Board, Papa Ola Lokahi, to
plan with programs related to health promotion, disease PreVe#:#40)0*.C#4*:,##.:. ..',-,.:•••':-:
•
care services for Native Hawaiians; and
Whereas, in 1988, Congress also passed the Native Hawaii Mct.to! Act.
addressing the unique educational needs of the Native Hawaiim (()n1munLtv1 along
with the role of the federal government in empoWering
organizations to assist with those needs; and
•
t.h Hawaii
Whereas, in 1993, 100 years after the overthiciWof
Congress enacted the Apology Resolution, in which
,' _�.•
a. apologized to Native Hawaiians on behalf of the people of the United
States for the overthrow of the Kingdom of Hawaii; and
b. acknowledged the historical significance of that event, which resulted
in the deprivation of the rights of Native Hawaiians to
self-determination; and
c. urged the President of the United States to support reconciliation
efforts between the United States and Native Hawaiians; and
Whereas, in 1996, the Native American Housing Assistance and
Self-Determination Act (hereinafter referred to as NAHASDA) was passed in 1996,
transforming the way American Indians and Alaska Natives were assisted in
addressing affordable housing issues; and
Whereas, NAHASDA was amended in 2000 to include Title VIII, which
addresses the housing and related community development needs of Native
Hawaiians, providing affordable housing assistance to low-income .Native
Hawaiians eligible to reside on Hawaiian home lands; and
Whereas, the federal government has long recognized Native Hawaiians as a
distinct indigenous group with which Congress has a special political, trust
relationship similar to American Indian and Alaska Native groups, evident in the
more than 150 enacted statutes aimed at improving the housing, health, education,
and economic well-being of Native Hawaiians; and
Whereas, reauthorization of critically necessary Native Hawaiian programs:
a. is essential in helping to combat the devastating effects on the health,
culture, and social conditions of Native Hawaiians; and
b. shows continued progress by the United States in its affirmation of the
special trust relationship with the Native Hawaiian community;
Whereas, Congress recognizes that Native Hawaiians share all of the
attributes and needs common to other indigenous peoples and are entitled to any
and all benefits extended to such population; now, therefore,
Be it Resolved by the Hawaii State Association of Counties that it supports
the continuation of Native Hawaiian programs at the federal level to ensure:
a. continued provision of services by the United States to meet the special
needs of Hawai`i's indigenous, Native Hawaiian population; and
b. an ongoing acknowledgment of the special political, trust relationship
between the United States and the Native Hawaiian community.
•