2019-02-19 Letter to Sylvia Luke and Ty J.K. Cullen HB 631, HD1 Relating to Taxation

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Harry Kim Mayor County of Hawaii Office of the Mayor Wil Okabe Managing Director Barbara J. Kossow Deputy Managing Director 25 Aupuni Street, Suite 2603 • Hilo, Hawaii 96720 • (808) 961-8211 • Fax (808) 961-6553 KONA: 74-5044 Ane Keohokalole Hwy., Bldg C • Kailua-Kona, Hawaii 96740 (808) 323-4444 • Fax (808) 323-4440 February 19, 2019 Representative Sylvia Luke, Chair Committee on Finance Representative Ty J.K. Cullen, Vice Chair Committee on Finance Dear Chair Luke, Vice Chair Cullen, and Committee Members: RE: HB 631, HD1 Relating to Taxation Thank you for the opportunity to testify on HB 631, HD1, which would authorize each County to impose a surcharge on the State's transient accommodations tax. We appreciate the innovative approach this bill brings to the table, and the recognition of the counties as partners in the affairs of Hawaii governance. We do not shy away from the responsibilities that these bills would place on the counties to raise their own revenue, and appreciate that the State would still "levy, assess, collect, and otherwise administer the county surcharge," because it would be wasteful and prohibitive for each County to set up parallel structures. Having recognized the benefit of HB 631, we do have to express concerns. Hawaii County gets 18.6% of the TAT revenue allocated to the counties, which most recently came out to $19.2M. Hawaii Island does not generate 18.6% of the TAT, so to achieve the same revenue from a County -based surcharge, the surcharge rate has not yet been calculated but surely would be very high. If the Legislature is not willing to give us that much flexibility, or does not think such a rate would be good policy, then some other pathway forward needs to be found. An alternative is proposed in SB 198, in which the counties would be authorized to impose a surcharge of up to 2%, while continuing to receive $103M under HRS 237D-6.5 with no change to the existing allocation formula. We would ask this Committee to consider that approach, or some other mechanism that would be fair to all counties and assure that none suffer a revenue loss, while still asking the counties to accept some responsibility for raising their own operating capital. Res+ectf ly Submitted, Harry Kim MAYOR County of Hawaii is an Equal Opportunity Provider and Employer.