HomeMy WebLinkAboutCOM 0358.001 2014-2016 Margaret Wille •+t,;o"N•, Phone No. Hilo: (808)961-8027
Council Member cP°'�� +., Phone No. Waimea: (808)887-2043
District 9-North and South Kohala " �y)��°� Fax No.: (808) 887-2072
.*-..,..s..'1 Fi E-Mail: mwille@co.hawaii.hi.us
HAWAII COUNTY COUNCIL
County of Hawai`i
Hawaii County Building Holomua Center West Hawaii Civic Center Bldg.A
25 Aupuni Street 64-1067 Mamalahoa Highway,Suite C-5 74-5044 Ane Keohokalole Hwy.
Hilo, Hawaii 96720 Waimea, Hawaii 96743 Kailua-Kona, Hawaii,96740
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TO: Dru Mamo Kanuha, Council Chair c
And Members of the Hawai`i to ty Council
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FROM: Margaret Wille, Council Me 1,- ' '''°. 1-l- t '
-
DATE: July 21, 2015 �3
SUBJECT: Additional Information for Communication 358
Please find attached the following for reference during the Communication 358 discussion on
July 23, 2015:
1. Eugene Tian Memo
2. Allocation of TAT Funds
3. TAT Distribution
4. Chair Acoba Memo 5-29-15
5. COM 0258.001 2014-2016
6. COM 0258.002 2014-2016
7. County TAT Comparison
8. TAT Legislation
9. TAT Working Group Dates
10. TAT ApprovedMinutes04-01-15
11. TAT ApprovedMinutes05-06-15
12. TAT ApprovedMinutes06-03-15
Thank you.
MW/dh Comm. No. 3 SS
au Ref. To: PLTL?Yl- L'
Serving the Interests of the People of Our Island Ref. Dote.JUL 2 3 795
Hawai`i County Is An Equal Opportunity Provider And Employer
. �
To: Eugene Tian/DBEDT,
Bcc:
Subject: Comments on TAT Working Group Recommendation
Base on the TAT Working Group recommendations, I have the following:
Assuming TAT revenue=$400M (FY 2015= $395M)
HTA first allocation $83M
State allocation =90%x(400-83)x 60% =$171.2M
County allocation=Q096x(40O-83)x4OY6=$114.1M
Remaining =%400M '$83'$1712(N -$114.1M =$31JM
The above will result in a county share of 285%
Historically, county shares are the following:
1090 29.596
1991 95.0%
1992 94.896
1993 94.8%
1994 88.1%
1995 79.2%
1996 79.296
1997 79.2%
1998 79.296
1999 44.8%
2000 44.8%
2001 44.8%
2002 44.8%
2003 44.8%
2004 44.8%
2005 44.8%
2006 44.8%
2007 44.8%
2008 44.8Y6
2009 42.9%
2010 38.2%
2011 35.9Y6
2012 28.9%
2013 20.696
It seems that the county share is on the low side.
As for the allocation among the counties, I have the following comparison:
If based on If based on If based on place
Current TAT daily visitor visitor of hotel
County allocation census spending operation
Honolulu 44.10% 47.309& 51.30% 42.50%
Maui Z2.80Y626.70% 26.30% 34.50%Hawaii 18.6O -' 14.40% 12.70% 13.2096
Kauai 14.5096 11.5096 9.70% 9.80%
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TRANSIENT ACCOMMODATIONS TAX(TAT) DISTRIBUTION
As of July 1, 2015
Transient accommodations tax revenues collected under Section 2370-6.5(b), HRS, shall be distributed
in the following priority,with excess revenues to be deposited into the general fund:
(1) $1.5 million allocated to the Turtle Bay Conservation Easement Special Fund beginning July 1,
2015, for the reimbursement to the general fund of debt service on reimbursable GO bonds,
4-11'1 until the bonds are fully amortized;
(2) $26.5 million allocated to the Convention Center Enterprise Special Fund;
(3) $82 million allocated to the Tourism Special Fund;
(A) Of$82 million allocated;
(I) $1 million allocated for the operation of a Hawaiian center and the museum of
Hawaiian music and dance at the Hawai'i convention center;and
(ii) 0.5 percent of the$82 million shall be transferred to a sub-account in the Tourism
Special Fund to provide funding for a safety and security budget; and
(B) Of the revenues remaining in the Tourism Special Fund, funds shall be deposited into the
Tourism Emergency Trust Fund;
(4) Allocated to the counties:
$103 million for FY 2014-2015
$103 million for FY 2015-2016
$165,000 appropriated out of the$103 million for the State-County Functions Working
Group for FY 2015-2016 ($15,000 for actual expenses;$150,000 to procure consultant
tom'' services)
$93 million for each fiscal year thereafter
Beginning FY 2018-2019, a sum that represents the difference between a county public
employer's annual required contribution for the EUTF and the amount of the county
public employer's contributions into the EUTF shall be retained by the State director of
finance and deposited to the credit of the county public employer's annual required
contribution in each fiscal year, if the county fails to remit the total amount of the
county's required annual contributions;
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Memorandum
TO: Chair Acoba
Members,State County Functions Working Group(TAT)
From: Ray Soon
Members of the Allocation Models Investigative Group
Re: Report on our Progress to Date
Your investigative group met on Thursday, May 21'1. Present were Sandy Baz, Mary Alice Evans, Ed Case
and Ray Soon. We enjoyed a spirited and informative discussion. We centered our discussion around
the following optional allocation models:
1. Allot the TAT funds according to the proportionate share of tourism expenses incurred by the
Counties and the State
The basic concept is to figure out the total public expenditures (operating) and the
proportionate share of that total attributable to the State and to the Counties. We would then
allocate all TAT by those percentages.
The primary strengths of this approach are that it is simple and that it appears to be the logical
extension of the instructions of the legislation setting up the TAT working group; so is,therefore,
probably most acceptable. The primary weakness lies in the difficulty in estimating the
expenditures in both the County and the State. The exercise that we just completed is
characterized by gross estimates,which, if they are truly to determine the proportions, demand
more precision than we can give them in the remaining time we have available.
2. Allot the TAT funds according to the historical intent of the TAT legislation passed over the years
The basic concept is the revisit the Legislative intent from the TAT's beginnings. Where the
intent is unclear, we would make assumptions. Using this approach, the model could look
something like:
A. Using 9.25% as the total TAT charge,take the first 5.0 percentage points each year and
allocate 95%of it to the Counties and 5%to the State as originally legislated in Act 185 in
1990,the first year in which an allocation was envisioned.
B. Take the next 2.5 percentage points each year and allocate it to the amortization of the
Convention Center and to the HTA for expenses as it appears to be envisioned in
subsequent legislation, notably Act 156 in 1998.
C. Take the final 2.0 percentage points each year and allocate it to the State in its entirety as
envisioned by Act 5 in 2009.
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Memo to the State-County Functions Working Group
May 29, 2015
Page 3
RECOMMENDATION
After much discussion, the investigative group decided that they would prefer to make a
recommendation to the full Working Group. This was not a required outcome when the group was
formed, but we felt it was a natural culmination to our discussion. The recommended model is a hybrid
of the models we discussed and its basic features would be:
1. Take the first$83 million and allocate it to the HTA for their purposes. This gives the industry
some certainly that their taxes will go directly to a body over which they have some control.
2. Take 90%of the balance and allocate it 60%to the State and 40%to the Counties, but in either
case, no less than $100 million. This would give the Counties the opportunity to enjoy any
upside, with some certainty that the downside will be limited and certain. The funds for the
Convention Center and for any Legislative set asides(e.g. those to DLNR)would come from the
State pot.
3. Take the remaining funds and leave it for Legislative discretion, with the recommendation that it
be spent on visitor related expenditures. This reflects the political reality the problems that
cannot be anticipated arise and that the Legislature will go to the TAT to help solve those
problems.
The primary weakness of this model lies in the allocation of 60-40 State and County. The split should
probably be calculated from the expenditure data that the State and Counties are currently gathering.
Our feeling was that it was fair, but it probably requires more discipline and precision to be defensible,
and we would leave that calculation to the consultants.
The investigative group adjourned without the intention of meeting again, and instructed the discussion
leader to prepare these notes for the broader body's consideration. We sincerely hope that this is just
the start of a more in-depth conversation at the Working Group level.
Margaret Wille �iy;os;-- ., Phone No.Hilo: (808)961-8027
%�'"'•'.'ro' Phone No. Waimea: (808)887-2043
Council Member cP.''� '.'•.
a'�� Fax No.: (808)887-2072
District 9-North and South Kohala '� � �'„�`���
N-,-..:_:•-,..--4'
• E-Mail: mwille@co.hawaii,hi.us
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HAWAII COUNTY COUNCIL
County of Hawai`i
Hawaii County Building Holomua Center West Hawai'i Civic Center Bldg.A
25 Aupuni Street 64-1067 Mamalahoa Highway,Suite C-5 74-5044 Ane Keohokalole Hwy.
Hilo, Hawaii 96720 Waimea,Hawai'i 96743 Kailua-Kona,Hawaii,96740
t`” -.mt)
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TO: . Dru Mamo Kanuha, Council Chair
cn
And Members of the Hawai`i County Council .u•J c-,
0) = :ern
FROM: if'Margaret Wille, Council Member VI. -50%
ca
DATE: April 13, 2015 `a-
SUBJECT: Council Member Wille's Report for Communication 258 -
Please find attached Council Member Wille's Report for the Communication 258
discussion on April 14, 2015.
I
Thank you.
MW/dh
att
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Comm. No: 2' ' t
Serving the Interests of the People of Our Island
Hawaii County Is An Equal Opportunity Provider And Employer Ref. To: op 1 � .EaG
Ref. Date A R 14 2015
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April 13, 2015
Page 2 of 3
raised the TAT rate by 1%each year, increasing the total TAT rate from 7.25 to 9.25.None of that
2% increase was distributed to the Counties. Then in 2011,the State also placed a cap on the
County's portion of the base 7.25%portion of the tax, first at 93 million and later at 103 million for
fiscal years 2015 and 2016. That cap is set to revert back to 93 million in 2017. The Counties'
portion is now only 23.5%.
Effectively since 2008, the State has increased its allocation by over 2000%,while the Counties'
allocation increased by only 2.2%. Had the State removed the cap, as had been promised (and even
memorialized in a 2011 Conference Committee Report), the Counties' share last year would have
been in excess of$170 million.
The Counties' portion of the TAT revenues is split between the Counties in a manner that
theoretically reflects the number of tourists. Between 2011 and 2013 Hawai`i Counties' share has
been between 12 - 13%, with Honolulu receiving around 47- 48%, Maui around 30%, and Kauai
between 9 and 10%. Hence the County of Hawai`i's portion of all TAT revenues is now only
around 3% of the total TAT revenues.
THE STATE—COUNTY FUNCTIONS WORKING GROUP: The State legislature has now
formed a State—County Functions Working Group to recommend what portion of these TAT
revenues should be allocated to the State versus to the Counties. That report is due prior to the 2016
legislative session. More specifically the Working Group is responsible to evaluate the division of
public services related duties and responsibilities between the State and the Counties, and submit
recommendations to the Legislature on the appropriate allocation of the transient accommodation
tax revenues. There are 13 members in the Working Group, with one from the County of Hawai`i,
Finance Director Deanna Sako. The Group's meetings are held on the third Wednesday of the
month, which date usually conflicts with our Council meetings.
I attended the Working Group's April 1St meeting. At the meeting, the State Department of Taxation
reported on the above referenced Tax Review Commission Report and stated that the principles
contained therein are still generally applicable. (A copy of the Department of Taxation's April 1St
report will be provided in a separate communication.) The Working Group has formed
subcommittees to research the relative duties and responsibilities of the State and Counties with
respect to public services. There is also an Industry subgroup that will tend to stress State tourism
related infrastructure.
Other than one other private individual, I was the only member of the public present. In my public
testimony, I suggested the Working Group forgo further researching of the division of duties
between the State and the Counties and permanently allocate 50%of the TAT revenues to the
Counties, or at least the previous 44.8%, and remove the cap.
My overall impression of the working group is that the State is the major player and likely to
recommend a disproportionate allocation to the State. It is clear to me that unless the neighbor
islands play a more pro-active role in these Working Group sessions, we will continue to receive an
unduly small portion of the TAT revenues that were originally intended to go entirely to the
Counties.
Other Related Comments: Governor Ige is also taking a pro-State stance. According to one Big
Island legislator, on April 1St he met with the Hawai`i Island delegation, and made clear that if the
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Margaret Wille ..-- „ Phone No.Hilo: (808)961-8027
Council Member (P-'';(..C' '�'4 Phone No.Waimea: (808)887-2043
District 9-North and South Kohala �4'. Fax No.: (808)887-2072
{E 6:-.S41:i• E-Mail: mwille@co.hawaii.hi.us
4Tt Oi_N��
HAWAII COUNTY COUNCIL
County of Hawai`i
Hawaii County Building Holomua Center West Hawaii Civic Center Bldg.A
25 Aupuni Street 64-1067 Mamalahoa Highway,Suite C-5 74-5044 Ane Keohokalole Hwy.
Hilo,Hawaii 96720 Waimea,Hawaii 96743 Kailua-Kona,Hawaii,96740
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TO: Dru Mamo Kanuha, Council Chair -0 r('--.
And Members of the Hawaii County Councilw >_
FROM: Margaret Wille, Council Member ..,:='
DATE: April 13, 2015 --
SUBJECT: Tax Review Commission Report for Communication 258 ,
Please find attached the Tax Review Commission Report for reference during the
Communication 258 discussion on April 14, 2015.
Thank you.
MW/dh
att •
Comm. No. 2.56.2
Serving the Interests of the People of Our Island Ref. To. � iZEpCj
Hawaii County Is An Equal Opportunity Provider And Employer
Ref, Date�Z01$
•
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County Revenues
The counties' plea for more money is not unique to deteriorate,or (2) property taxes will be increased and
Hawaii. Across the country,local governments are looking eventually reach a level that will not be tolerated.
to the state for more assistance,and the states in turn are The focus on waiting until the counties are in distress
looking to the federal government for the same. As the is ill considered. An analysis of county revenues should
federal government tries to cope with its budget problems, instead focus on the allocation of functional responsibilities
it will have a tendency to pass along responsibilities--and and revenue authority between the State and the counties,
costs--to the states while at the same time competing with with the goal of ensuring the efficient delivery of public
the states for revenues. Local governments are in a services.
precarious position because they face growing demands Efficiency in this context can be understood to have two
but have limited power. A knowledgeable observer at the general senses. The first relates to the overall level of
national level has suggested that the result will be a period economic activity and the role of government when the
of"fend-for-yourself federalism' and believes this will be market fails to provide goods and services, and when
the issue facing state legislatures in the 1990s, private actions give rise to benefits and costs that are not
This has a unique twist in Hawaii because education is taken into account by the market. The second sense of
funded at the State level and the amount of power vested efficiency concerns the desire to ensure that public services
in the counties is less than is typical throughout the rest of are delivered at minimum cost.
the country. That uniqueness has made the debate over Revenue flexibility is an overlooked aspect of efficiency.
county revenues in Hawaii more contentious because Unless a local government can finance public services in
comparisons are not easily drawn,and it has been difficult a manner that reflects to some degree the cost and
to establish suitable reference points for analysis. beneficiaries of the services it provide; there will be
There is a recognition across the country that inefficiencies. For example,the trend is to tout user fees
state/local relations need sorting out. Recent studies have and benefit charges as the preferred means of financing
focused not only on the tax and revenue implications of local government, and to the extent that fees and charges
intergovernmental policies but also on the efficiency and can be administered at reasonable cost and do not impose
quality-of-life questions that arise because of the changing undue hardship on the poor, they probably ought to be
responsibilities and shifting balances between levels of used. In many. instances, however, local governments
government, provide services for which fees and charges might not
In Hawaii, every committee, commission, advisory always be appropriate, such as for police and fire
group,or task force that has looked into the State/county protection. In such cases, much of the financing must
relationship has had a limited scope and studied certain come from other sources.
issues more or less in isolation. The result has been a With the property tax often likened to a benefit charge,
series of partial analyses rather than the comprehensive there is pressure to have the property tax assume the
analysis that is needed. A comprehensive analysis would function of financing local services for which fees and
cover revenues,spending, and the allocation of functions charges are insufficient or inappropriate. In Hawaii,
and responsibilities between the State and the counties. however,the property tax also funds services,particularly
The Tax Review Commission's mandate is limited to in support of the visitor industry, that often bear little
evaluating the tax structure and recommending tax and direct relationship to benefits received by property owners.
revenue policy, so this review should be considered a In addition, given the large percentage of renters in
preliminary step in the process of sorting out State and Hawaii relative to other states, the connection between
county relationships in Hawaii. public services and beneficiaries is often obscured because
renters do not see the direct impact of property taxes.
Finally,the property tax is an unpopular tax. It was the
County Revenues: A Question of Efficiency and Revenue property tax that sparked the "Tax Revolt" with
Flexibility The debate over county revenues in Hawaii has Proposition 13 in California and Proposition 2-1/2 in
been framed in terms of whether or not the counties Massachusetts. To insist that the counties rely solely on
'need'more money. That is not helpful or useful because the property tax and be forced to increase property taxes
it amounts to a disagreement over identifying the exact against the protests of citizens, because of a fashion for
point at which the counties will be in distress. The two fees and benefit charges,is an unreasonable demand.
possible outcomes of the current approach to county
revenues are:(1)at some point services will be allowed to •
Tax Review Commission 51
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Division of Service Responsibilities In a market economy, costs,the responsibility of the state is to ensure that those
such as that of the United States, decisions about the costs are paid by the locality. Most analysts agree that
allocation of resources are made by individual consumers programs whose major objectives relate to the distribution
and investors. In an economy of this type, governments of income and wealth—public welfare,for example—should
have important roles to play when markets fail. Among be the responsibility of the federal government, with
the most important of these roles are the provision of possible involvement of state governments in adapting
goods and services for which people would be willing to broad national policies to the specific conditions of
pay but that arc not be available in the market, and individual states. Local governments, however, should
ensuring that benefits and costs external to market confine their agendas to the provision of services that do
transactions (often referred to as 'spillovers," or not have strong elements of income redistribution, and
"externalities") are taken into account in private decisions. finance those services to the maximum possible extent in
It is also important that governments minimize their accordance with the benefit principle. The simple logic of
unintended effects on economic behavior,as when tax and this is that local tax bases and service populations tend to
other policies modify relative prices. be too mobile to permit the differences between taxes paid
Conceptual considerations offer a powerful rationale and benefits received that are the essence of redistributive
for structuring decision-making and the financing and policies to be sustained if they reach significant
delivery of public services on a decentralized basis to the magnitudes.
maximum possible extent. Decentralization significantly In addition to spillovers, the existence of substantial
enhances the effectiveness of the political process. In a fiscal disparities among local governments is also an
decentralized system, choices about expenditures are important rationale for action by a state government. This
closely linked to costs. A corollary of decentralization is is the heart of the issue of horizontal fiscal balance.
the principle of autonomy,which calls for restraint by state
governments in their dealings with local jurisdictions.
In general,the essence of the allocation of functional Assignment of Revenue Authority The overall efficiency
responsibilities among governments lies in an effort to of the economy is impaired when the fiscal system is not
assign each to the jurisdiction whose borders most closely "neutral," that is, when tax (and service) differentials
correspond to the range of benefits from a service,so that among jurisdictions influence the decisions of individuals
responsibility vests with the smallest unit of government and businesses about where to locate,or induce people to
that can efficiently provide the service. Even the most incur substantial costs in efforts to avoid taxes.
conscientious effort to assign responsibilities in accord with Differentials could be avoided by imposing a uniform
this logic, however, will leave cases where some of the tax structure throughout the state, but this would be
benefits or costs of a service will spill over the boundaries inconsistent with the existence of autonomous local
of the government providing the service. governments. Autonomy without independent authority to
The importance of this in the case of local governments raise revenues is a contradiction in terms.
is that these spillovers,or externalities,will be ignored by This being the case,the approach most consistent with
local decision-makers. As a consequence, they will economic efficiency is for localities to tax bases with low
produce less of the service than would be appropriate if mobility. The base with the lowest mobility is real
the demands of all beneficiaries were taken into account, property (land, of course, has no mobility) so it is not
thereby reducing the overall efficiency of the economy. surprising that the property tax is universally viewed as the
The state government can ensure that the right amount of most appropriate tax for local governments. User charges
the service is produced by subsidizing the financing of the are also well suited to local governments because--by
service to the extent of the external benefits. linking payments to benefits actually received—they do not
In the special case of benefits that are received by create an incentive for people to modify their economic
visitors to a locality (an especially important case for behavior.
Hawaii, where visitors are major beneficiaries of many Consumption taxes are usually regarded as appropriate
local services) the state may be able to ensure that the for state governments but not localities because of the so-
right amount of a service is produced by making taxing called border problem--the ease of avoiding the tax by
authority available to the locality that enables it to collect visiting a neighboring jurisdiction with a lower tax rate or
from visitors an appropriate share of the cost of the no tax at all. In Hawaii,the border problem is less of an
service. obstacle to county reliance on consumption taxes than it
When action by a local government creates external is for local governments on the mainland,where shopping
Tar Review Commission 53
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senuenea A4unoo •
•
The proposal was termed, and has been discussed as, of significant budgetary consequence benefit visitors
a"complete"transfer of the liquor and tobacco taxes to the exclusively,it is not possible to estimate what proportions
counties. Among its restrictions,however, are provisions of the benefits from these services arc enjoyed by visitors;
of House Bill 1858 that tell the counties how to increase However,the functions shown in Table VIII.1 account for
or decrease the tax rates,how to share the tax collections, 64 percent of all county expenditures.
and how to spend the money. By comparison, the major services for which the State
Even if the proposal were changed to allow a true government is responsible provide nearly all their benefits
transfer of taxing authority,there is no evident reason why to residents of the State. The most important of these
the liquor and tobacco taxes are likely candidates for services are elementary,secondary,and higher education,
transfer from the State to the counties. There is no public welfare, hospitals, and urban redevelopment and
indication that either equity or efficiency would be housing. Services directly benefiting visitors are
improved as a result of a transfer. responsible for less than 14 percent of State expenditures.
It isn't evident what social policies the counties might An additional factor to be weighed in considering
have better control over as a result of such a transfer. If, transfer of the TAT to the counties is its close relationship
for example,one county wished to discourage smoking and to the real property tax, the cornerstone of the county
increased taxes to a prohibitive level, people could easily revenue system. In an important sense, the TAT is a
buy cigarettes in another county. If all the counties raised substitute for a property tax targeted to hotels and other
taxes to prohibitive levels, a black market would develop. transient accommodations. Further, the information
It is also not evident why the counties would be better generated by the process of compliance with the TAT
off by having the State grant them the more regressive and should be of substantial value in estimating the market
inelastic taxes of the Hawaii tax system, and there are no value of such properties. This being the case,it might well
discernable policy considerations that could make these make sense to vest responsibility for both taxes in the
taxes preferable to other, more suitable taxes as a source counties.
of revenues for the counties. Moreover, the TAT,like the property tax,is peculiarly
Finally, there is no clear connection between those suited to use and administration by a county because the
taxes and the distribution of the benefits of public services taxed transaction takes place within the physical
for which the counties are responsible. In fact,there is a boundaries of the government. Then too, the room rate
stronger case for retaining the liquor and tobacco taxes at typically comprehends a substantial element of economic
the State level because it is the State that has responsibility (location)rent,which is uniquely amenable to taxation by
for the health and welfare functions that are associated local authorities. In other words, there is little risk, at
with the costs to society from the use of liquor and remotely competitive tax rates,of migration of the tax base
tobacco products. to other jurisdictions.
Finally,county control of the property tax and the TAT
2. Transfer of taxing authority for the transient would allow each county to choose its own balance
accommodations tax from the State to the counties The between hotel development and residential development
primary case for transferring the TAT to the counties and its relative reliance on the associated taxes. To the
rests on the proposition that the incidence of the tax is, extent that a county chooses to develop hotel properties,
more than any other revenue source in Hawaii's fiscal it can rely on TAT collections;to the extent that a county
system, on the visitor. This suggests that, if the benefit chooses to preserve its residential character,it should rely
principle is to be accorded high priority in tax policy. on the property tax.
making, the TAT is especially well suited as a source of
revenue to finance public services from which visitors 3. Exemption of transient accommodations from the
benefit significantly. The key question, then,is what are general excise tax coupled with a transfer of taxing
those services,and are they predominantly provided by the authority for the TAT to the counties,with an
State or by the counties? authorization to set a rate of up to some maximum level
The analysis of the budgets of the State and the The Hawaii State tax on transient accommodations is 9.4
counties in Chapter V of the ACIR report indicates that percent,which is within an average range for room taxes
approximately 53 percent of all public outlays for services in the largest cities on the mainland. In Hawaii the tax
-from which visitors to Hawaii directly benefit arc made by consists of two taxes: the GET and the TAT. This
the counties. (These services are summarized in Table proposal is related to the recommendation to exempt
VIII.1 of the report.) Beyond observing that no services residential rentals from the GET and would provide a
Tax Review Commission 55
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•
i
•
counties to finance, in accordance with the benefit underestimation of the costs imposed by development. A
principle, their service responsibilities that cannot be more consistent and uniform application of fees and
funded by fees and charges. exactions,with a more realistic assessment of additional
A final consideration is that a county supplement,like costs,should be considered.
a shared tax, tends to cloud accountability. If there is an
issue of possible Statewide concern,such as with proposals
for mass transit systems, there is no reason for preferring
a county supplement to the GET over categorical State
grants as a means of financing such projects.
Existing Revenue Authority As of November 1989,the
counties have full control of the property tax. By many
measures the property tax in Hawaii is below national
averages,but peculiarities of the State/county relationship
in Hawaii make comparisons less helpful. The issue of
additional revenue authority for Hawaii's counties is one
of efficiency and revenue flexibility and should not be
obscured by whether Hawaii's property tax is or is not in
line with national averages.
Nevertheless,the property tax is a cornerstone of local
tax systems and should be recognized as such in Hawaii.
The policy of county officials should be the same as that
of State officials with respect to the tax system: the base
should be kept broad and the rates low. The tendency to
provide tax relief and erode the tax base through
exemptions should be avoided,as should the inclination to .
adopt policies that result in less than 100 percent
assessment of property, Thecounties should guard against
the proliferation in the number of tax classifications.
In addition to property taxes,the counties have control
over user fees and benefit charges for county services.
Fees and charges should generally be a preferred means
of financing county services because they more nearly
reflect the benefit principle. By some measures, the '
degree to which counties in Hawaii rely on user charges
is substantially less the averages nationwide and for the
western states. The counties should make best use of such
fees and charges.
Finally,a major concern of the counties is the cost of
development. Many of the arguments put forward in
support of requests for money by the counties center
around infrastructure costs. An analysis of the counties'
use of development fees and exactions suggests that these
sources of revenues, which should cover much of the
infrastructure costs imposed by development,are not being
properly utilized.
It appears that development fees and exactions have
been applied on an ad hoc basis that has tended to focus
on high-visibility projects while neglecting other
developments. Overall there has probably been an
Tax Review Commission 57
•
t7;01 aSed
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apuepl wnu!aeld
a44 pue a.aosau wiayeuy eqa.ui sapaadoad ao;/oZ sold '%St :swoon 'elm{ uo xel
eluaopje0 'wiageuy
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Los Angeles, California
City tax on hotel rooms: 14% plus 1.5%fee on hotels with 50 or more rooms
Total taxes on hotel rooms: 14% to 15.5%
San Diego, California
City taxes on hotel rooms: 10.5%, plus 2%Tourism Marketing District imposed on
lodging businesses with 70 or more rooms
Total taxes on hotel rooms: 10.5% to 12.5%
San Francisco, California
City tax on hotel rooms: 14%, plus Tourism Improvement District levies of 1%to 1.5%
Total taxes on hotel rooms: 15%to 15.5%
Miami, Florida
City sales tax: 1%
County taxes on hotel rooms:
Convention Development Tax: 3%
Tourist Development Tax: 2%
Professional Sports Facilities Franchise Tax: 1%
State sales tax: 6%
Total taxes on hotel rooms: 13%
Orlando, Florida
City sales tax: 0.5%
County taxes on hotel rooms:
Convention Development Tax: 3%
Tourist Development Tax: 2%
Professional Sports Facilities.Franchise Tax: 1%
State sales tax: 6%
Total taxes on hotel rooms: 12.5%
Chicago, Illinois
City taxes on hotel rooms:
Municipal: 1.08%
Home Rule: 4.5%
Metropolitan Pier and Exposition: 2.5%
Sports Facility: 2.14%
State tax on hotel rooms: 6.17%
Total taxes on hotel rooms: 16.39%
Page 2 of 4
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suasnLpessew `uolsos
Here is a summary of the expanded and updated list:
Total City County State
Destination Tax Share Share Share
Anaheim, CA 17.00% 100% 0% 0%
Los Angeles, CA 15.50% 100% 0% 0%
San Diego, CA 12.50% 100% 0% 0%
San Francisco, CA 15.50% 100% 0% 0%
i
Miami, FL 13.00% 8% 54% 46%
Orlando, FL 12.50% 4% 48% 48%
Chicago, IL 16.39% 62% 0% 38%
Boston, MA 14.45% 61% 0% 39%
Las Vegas, NV 13.00% 100% 0% 0%
New York, NY* 14.75% 33% 0% 67%
Portland, OR** 13.50% 59% 41% 0%
Austin,TX 15.00% 60% 0% 40%
San Antonio,TX 16,75% 54% 10% 36%
Washington DC 14.50% 100% 0% 0%
Unweighted Ave. ' 14.60% 67% 11% 22%
* Plus$3.50 per night(not included in the calculated percentages).
** For facilities with 50 or more rooms.
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A Brief History of the Transient Accommodations Tax(TAT)Allocations
The TAT was established by Act 340, SLH 1986. The rate was set at 5%. From January
1987 through June 1990, the TAT collections were General Fund realizations. Act 185,
SLH 1990 changed the allocation of the TAT collections beginning July 1990, so that 5%
went to the General Fund and the remainder went to the counties, with shares
distributed as follows:1
Oahu 44.1%
Maui 22.8%
Hawaii 18.6%
Kauai 14.5%
The Conference Committee Report to bill that introduced the county allocations (and
became Act 185) contained the following statements to justify the change:
"Your Committee agrees that a more equitable method of sharing state revenues with
the counties must be provided. A stable and continuing source of revenue will enable
the counties to provide for their needs. Currently, the counties must come before the
legislature each year to request financial assistance. This process discourages long-
range planning.
During this legislative session, both houses considered several proposals to determine
the most equitable means of sharing state revenues with the counties. Among the
proposals that were considered were the transfer of revenues collected from the
transient accommodations tax, a portion of the public service company tax, animal
fines, and unadjudicated traffic and parking fines and forfeitures to the counties.
Your Committee finds that the administrative costs and burdens of distributing revenues
from several smaller sources will be considerably greater than the costs of distributing
from one large source.
Your Committee also notes that tourism is the largest industry in Hawaii, and many of
the burdens imposed by tourism falls on the counties. Increased pressures of the visitor
industry mean greater demands on county services. Many of the costs of providing,
maintaining, and upgrading police and fire protection, parks, beaches, water, roads,
sewage systems, and other tourism related infrastructure are being borne by the
counties.
1 The shares of the individual counties in the total TAT allocations have remained the same ever since.
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2ulia>laew wsunol ao;laoddns alels sed leq;spun aaylan}aalliwwo0 anoA •A;uadsoad
alwouoaa sAo(ua mOu llemeH `wsunol jo asneaaq;eq;spun aalllwwo0 anoA 'Aae:iluoi
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aaylanJ aaWwwoa anoA •aauuew algellnba ue ul aanseaw slq;jo lualu1 ay1 yslldwoaae
;sag pinom Alunoa pea jo uoilelndod aq;of uo! iodoad u! sallunoa aq;8uowe sanuanaa
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Act 7, SSLH 1993, allocated one-sixth of TAT collections to the convention Center,
starting July 1994. Of the remaining TAT collections, 5% went to the General Fund and
the remainder went to the counties. Act 156, SLH 1998 allocated 37.9%of the TAT
collections to the Tourism Special Fund and increased the allocation to the Convention
Center from one-sixth to 17.3%. The amount allocated to the counties was set at 44.8%.
The allocations made under Act 156 began in January 1999. Allocations to the
Convention Center were allowed to expire at the end of fiscal year (FY) 2000. In FY 2001
and 2002 the Convention Center's share was instead deposited to the General Fund.
Act 250, SLH 2002 reduced the allocation to the Tourism Special Fund from 37.9%to
32.6% beginning July 2002. Act 253, SLH 2002 capped the allocation to the Convention
Center at$31 million per year, starting in January 2002, with the excess amount of the
Convention Center's share of 17.3% of TAT collections over the cap going to the General
Fund.
From 2005 to 2008, various changes were made to TAT allocations, but the counties'
share remained fixed at 44.8% of total TAT collections.
Act 61, SLH 2009 increased the TAT rate from 7.25%to 8.25% for FY 2010, and from
8.25%to 9.25% after June 2010, with the increased collections dedicated to the General
Fund. The share of the counties in the collections from the base tax rate of 7.25% was
not changed. The reason for the increases was to replace budget shortfalls caused by
the Great Recession.
Act 103, SLH 2011 capped the amount of the TAT allocated to the Tourism Special Fund
at$69 million per year and capped the amount going to the counties at$93 million per
year from July 2011 through June 2015. The purpose was again to address the State's
budget shortfall.4
Act 268, SLH 2013 ordered that starting in FY 2018, if a county failed to pay in full the
annual required contribution to its employees' health benefits trust fund, the shortfall
would be made up directly from the county's share of the TAT allocations.
Act 174, SLH 2014 increased the cap on the counties' share of TAT allocations from $93
million to$103 million for FY's 2015 and 2016. The Act also established a working group
to recommend the proper allocation of TAT collections to the counties.
4 See Conference Committee Report No.139 for Senate Bill 1186,April 29,2011.
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State-County Functions Working Group (Transient Accommodations Tax)
TAT Measures dead/alive(as of June 25, 2015)
Dead
HB 197 Relating to the Transient Accommodations Tax
H8373 Relating to the Transient Accommodations Tax
HB 379 Relating to Financing for a New Hospital in North Kona
HB 403 Relating to the Transient Accommodations Tax
HB 716 Relating to Innovative Business Interactions
HB 833 Relating to the Transient Accommodations Tax
HB 954 Relating to the Transient Accommodations Tax
HB 1257 Relating to the Transient Accommodations Tax
HB 1448 Relating to the Transient Accommodations Tax
SB 408 Relating to the Transient Accommodations Tax
SB 534 Relating to the Transient Accommodations Tax
SB 617 Relating to Beach Protection
SB 1173 Re|/m)ngtotheAcquinhionnfSoonioLandaatKepuuinK4i|o|i'ionthe|o|endo/Hawoi'i
SB 1356 Relating to the Transient Accommodations Tax
Alive
NB 169 Relating to Taxation (Act 93,on 6/5/15)
HB 444 Relating ooBeach Protection(Act 117.un012/15)
HB 1214 Relating to the State-County Functions Working Group(Act 134,on 6/1 9/1 5)
SB 284 Relating tothe Transient Accommodations Tax(Act 121.on012/15)
State-County Functions Working Group (SCFWG)
Significant Dates and Deadlines, 2015 - 2016
June
6/1/2015 Mon RFP 1 -Proposals due, none received
6/3/2015 Wed SCFWG Meeting(decide on data, I.G.,other work)
RFP 2 posted
6/11/2015 Thurs Holiday- Kamehameha Day
6/17/2015 Wed RFP 2-proposals due,1 received
6/23/2015 Tues File agenda
6/26/2015 Fri Distribute handouts
RFP 2-Notice of Award
July
7/1/2015 Wed SCFWG Meeting
7/3/2015 Fri Holiday- Independence Day
7/15/2015 Wed RFP 2 -Notice to Proceed(consultant begins)
7/28/2015 Tues File agenda
7/29/2015 Wed Consultant submits monthly progress report,status update, preliminary
allocation models
7/31/2015 Fri Distribute handouts
August
8/5/2015 Wed SCFWG Meeting,Consultant presents preliminary allocation models
8/21/2015 Fri Holiday-Admissions Day
8/25/2015 Tues File agenda
Consultant submits monthly progress report, status update
8/26/2015 Wed Consultant submits allocation models, preliminary findings&
recommendations
8/28/2015 Fri Distribute handouts
September u _
9/2/2015 Wed SCFWG Meeting-Consultant presents allocation models,preliminary findings
&recommendations
9/7/2015 Mon Holiday- Labor Day
9/29/2015 Tues File agenda
Consultant submits monthly progress report,status update
9/30/2015 Wed
Consultant submits outline and preliminary report draft(Chapters 1 and 2)
1
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State-County Functions Working Group(Transient Accommodations Tax)
(Established by Act 174, Session Laws of Hawaii 2014)
State of Hawaii
http://auditor.hawaii.qov/task-forceworkina-group/
Minutes of Meeting
Date: Wednesday, April 1, 2015
Time: 10:00 a.m.
Place: State Capitol
415 S. Beretania Street
Conference Room 414
Honolulu, Hawaii
Present: Simeon R. Acoba, Chair, Chief Justice Appointment
Ed Case, House Appointment
Mary Alice Evans, Governor Appointment
Steven Hunt, County of Kaua'i Appointment
George Kam, Senate Appointment
Neal Miyahira, Governor Appointment
Deanna Sako, County of Hawaii Appointment
Jesse Souki, Governor Appointment
George Szigeti, House Appointment
Kerry Yoneshige, Governor Appointment
Jan K. Yamane, Acting State Auditor
Kathleen Racuya-Markrich, General Counsel, Office of the Auditor
Jayna Oshiro, Analyst, Office of the Auditor
Pat Mukai, Secretary, Office of the Auditor
Margaret Wille, County of Hawaii Councilm ember
Dan Purcell
Excused: Sananda Baz, County of Maui Appointment
Ray Soon, City and County of Honolulu Appointment
Ron Williams, Senate Appointment
Call to Order: Chair Acoba called the meeting to order at 10:05 a.m. at which time quorum was
established. The agenda for this meeting was filed with the Office of the Lieutenant Governor, as
required by Hawaii Revised Statutes, Section 92-7(b).
II. Public Testimony
Two members of the public provided testimony at the beginning and end of the meeting:
1. Margaret Wille, Hawai'i County Council, Councilmember, is Vice Chair of the Committee on
Governmental Relations and Economic Development. She presented her personal views
opposing the direction of the Working Group's (WG)work. She explained that it was the
understanding back when TAT was changed that the cap was temporary. She stated that the
original intent of the TAT was for the counties to receive 95 percent of the TAT revenues and
5 percent to the State for administrative fees. She did not favor a cap on the amount of
money to the counties because it was a disincentive.
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(1t11) dnoJO 6uP{JoM suo!;ound A;unoO-a;e;s
State-County Functions Working Group (TAT)
Minutes of the April 1, 2015 Meeting
Page 3
3) DoTax chart of Transient Accommodations Tax Collections and Distribution for FYI987 to
present FY2015, showing shares in millions distributed to the counties, the Tourism Special
Fund,the Convention Center Fund, and the General Fund; and
4) A Brief History of the Transient Accommodations Tax Allocations.
Mr. Rousslang summarized the percentages from the Taxes on Hotel Rooms—An Informal
Survey of Various Cities; State and local jurisdictions. This handout was prepared to compare
Hawaii's taxes on hotel rooms compared to other jurisdictions and visitor destinations. Member
Szigeti observed that most of the higher percentages in other destinations are driven by business
travelers whereas Hawai'i's are from leisure visitors.
Member Case stated that the WG's legislative mandate is to recommend the allocation of the
TAT between the State and the counties. He said what we do with the TAT impacts the other
taxes such as real property, GE tax, and presumably the way the TAT is allocated will have some
impact on how the State and counties treat those other taxes. He asked from a tax perspective,
should the TAT be weighted. Mr. Rousslang said it's a very deep question. He said that a study
done from the 1988 Tax Review Commission, Intergovernmental Fiscal Relations in Hawaii,talks
about how tax responsibility should be divided between the State and counties and how
responsibilities for providing services should be divided between the State and jurisdictions.
Ms. Fujitani stated that the Tax Review Commission convenes every five years. The next report
to the Legislature is expected by the end of 2016. All commission reports and attachments are
available at DoTax's website: http://tax.hawaii.qov/stats/
Mr. Rousslang stated the 1988 Tax Commission Report, which is 25 years old, addressed the
TAT.
Member Evans asked if the counties in the State are able to vote for and levy fees or taxes on
hotel use in their counties or is it reserved under the State Constitution. Ms. Fujitani said it's best
to look at it as the State has the taxing authority except as provided under that constitutional
amendment that provides taxation for real property to the counties.
Mr. Rousslang stated that the handout on TAT Collections and Distributions includes historical
data on collection and distribution of the TAT from FY1987 to present FY2015.
Member Case asked from a taxation perspective, are the allocations weighted from the state side
or city side of the TAT. Mr. Rousslang said the Tax Review Commission study looked at what
other states do and noted that Hawai'i's has one of the lowest property tax rates in the nation.
Member Souki stated that one struggle is on equity--what is the right way to tax. In the absence
of a TAT, the counties have property tax. There has never been an intent for the TAT to cover,
specifically, the impact of tourism.There's never that nexus or link. Mr. Rousslang replied,the
reasons given in the committee report for choosing the TAT as opposed to other options was that
they could have added smaller taxes instead of allocating some of those revenues to the
counties, but they thought they needed a bigger tax because the administrative costs of doing
county apportionments would be easier if done from one tax rather than doing it from several
taxes. He also stated that the Tax Review Commission Report provides a breakout as to how
much of the public outlays that directly support tourists is from the counties and the State.
Increased pressure from the visitor industry means greater demands for county services.
Member Miyahira stated property tax in Hawaii is not a model; there are different classifications
on properties. Mr. Rousslang stated if the county uses its present real property tax to selectively
impose a heavier burden to other industries who are currently paying non-residential real property
tax, the Legislature may re-examine this TAT sharing mechanism.
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(illi) dnwo 6ul)IaoM suol4ound A4uno3-54e4S
State-County Functions Working Group (TAT)
Minutes of the April 1, 2015 Meeting
Page 5
Member Hunt stated there are going to be areas where there will be not only expenses related to
tourism but also other revenue sources related to tourism. For example, the counties have real
property tax, tax class for hotels and resorts, so we have county revenues that are related to the
visitor industry. Whereas, airports and harbors,they charge fees and have concessions; so
highways may align better because both have vehicle weight taxes and registration fees. He
stated that the WG should not only look at expenses but also revenues.
c. Visitor Industry Investigative Group
Member Case reported the following:
Scope: To review and summarize visitor industry and other views on visitor related needs for
state and county services.
Methodology: The investigative group surveyed their own constituencies to find out what types of
government services provided by both state and counties that relate to tourism needs. The group
surveyed Maui Visitor's Bureau, Waikiki Improvement Association, Outrigger Hotels statewide;
and the hotel and lodging industry. The group reached out statewide online and through
surveying the neighbor islands.
The top four tourist-related issues were: 1)transportation; 2) parks and recreation; 3) public
safety; and 4)homeless.
Member Case provided the following comments:
1) Transportation issues included airports that need improvements such as upgrade,
tourism friendly, security, and restrooms. Improvements to road conditions, better
signage, and public transportation were also issues raised.
2) Parks and recreation issues included beach restoration, DLNR hiking trails, and
lifeguards. In addition, facilities in parks, including public restrooms, need to be clean,
safe, and usable.
3) Public safety issues, in general, related to law enforcement. Provide for the health
safety, and welfare of our visitors.
4) Homeless in Waikiki and across the state.
5) Marketing-tourism marketing money to HTA is not factored in, but should be discussed.
6) Education needed for workforce development in the tourism industry and cultural
education.
Member Szigeti added that an important factor to consider is health, safety, and welfare for our
locals as well as visitors on homelessness. It's a statewide issue.
Member Souki stated parks are a big issue. If we freeze the amount of services we are required
to provide, we don't have enough, even if you allocated a large portion of TAT to that, it still
wouldn't be enough to cover.
Member Case said the number one priority is transportation and airports. Roads are part of being
tourist-related and how the TAT should be allocated. The group may need to re-visit areas such
as parks and recreation and public safety.
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(lvi)dnowo 6uD!woM suopound A;uno3-a;e;s
State-County Functions Working Group (Transient Accommodations Tax)
(Established by Act 174, Session Laws of Hawaii 2014)
State of Hawai'i
http://auditor.hawaii.qov/task-forceworkina-group/
Minutes of Meeting
Date: Wednesday, May 6, 2015
Time: 10:00 a.m.
Place: State Capitol
415 S. Beretania Street
Conference Room 414
Honolulu, Hawai'i
Present: Simeon R.Acoba, Chair, Chief Justice Appointment
Sananda Baz, County of Maui Appointment
Ed Case, House Appointment
Mary Alice Evans, Governor Appointment
Steven Hunt, County of Kauai Appointment
George Kam, Senate Appointment
Deanna Sako, County of Hawaii Appointment
Ray Soon, City and County of Honolulu Appointment
Jesse Souki, Governor Appointment
George Szigeti, House Appointment
Kerry Yoneshige, Governor Appointment
Jan K. Yamane, Acting State Auditor, Office of the Auditor
Kathleen Racuya-Markrich, Office of the Auditor
Jayna Oshiro, Analyst, Office of the Auditor
Pat Mukai, Secretary, Office of the Auditor
Jim Howe, City and County of Honolulu, Emergency Services Department
Excused: Neal Miyahira, Governor Appointment
Ronald Williams, Senate Appointment
Call to Order: Chair Acoba called the meeting to order at 10:00 a.m., at which time quorum
was established. The agenda for this meeting was filed with the Office of the Lieutenant
Governor, as required by Hawaii Revised Statutes, Section 92-7(b).
II. Public Testimony
Jim Howe, City and County of Honolulu, Emergency Services Department, Ocean Safety
Division and as a private citizen represented the interest of beach lifeguards on the TAT. He
stated that looking back at the original resolution, police and fire were specifically mentioned
as services provided to visitors for the State through the TAT. However, he did not see any
mention of ocean safety or paramedic services which are state funded versus county funded.
He also did not see any mention of beaches which covers ocean safety services. He
explained that he is a part of the Injury Prevention Advisory Committee with the Department
of Health, and drowning is a significant issue and the leading cause of visitor death in the
State. He stated that there is a five-year state health plan and one of the initiatives
specifically addresses the issue of drowning, particularly of visitors. He also stated that there
is a direct relationship between the number of visitors and the number of deaths related to
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6ul;aaW 91.02 '9�(ew a(4;;o sa;nulni
(ivi) dnowp 6ui)poM suolsound Ic;unop-a;e;s
State-County Functions Working Group (TAT)
Minutes of the May 6, 2015 Meeting
Page 3
Mr. Howe said he has worked with the Hawaii Tourism Authority(HTA)for a number of years
on this issue. HTA has assisted with funding for many of the initiatives, including education,
that are in place today. He said he would be happy to provide any assistance the WG needs
as it moves forward.
Member Yoneshige arrived at 10:09 a.m.
III. Chair's Report
a. Announcements, introductions, correspondence, and additional information
The Chair congratulated Member Szigeti on his appointment as the new president and
chief executive officer of HTA. Member Szigeti's appointment is pending HTA's board
approval.
b. Minutes of April 1, 2015 meeting
It was moved by Member Hunt, seconded by Member Evans,and unanimously carried to
approve the minutes of the April 1, 2015 meeting.
c. Legislation—Discussion of TAT and SCFWG bills and testimony(handout)
ASA Yamane summarized the following handouts:
1. List of TAT measures dead/alive(handout)
ASA Yamane reported one amendment on the handout; House Bill No. (HB) 716 is
dead. The bills that passed final reading are:
• HB 169 changes the TAT rate on timeshares;
• HB 444 includes $3 million to DLNR;
• HB 1214 is the budget bill for the SCFWG; and
• Senate Bill No. 284 relates to the Turtle Bay transaction.
ASA Yamane stated that these bills may become important to the WG because they
impact TAT distribution. She stated that HB 1214,which is the WG's budget bill,
included $15,000 for expenses and $150,000 for consultant services. However, she
explained that the way it is funded is not from the general fund, The$165,000 will
come from the counties' portion of the TAT. This measure has been transmitted to
the governor for approval.
2. List of testimonies presented to the Legislature relating to the SCFWG (handout)
ASA Yamane thanked Chair Acoba who attended most of the hearings and the staff
for all their help. The second page of the handout is a list of approximately 30
testimonies that the WG put forward during the legislative session. The Chair also
thanked ASA Yamane and everyone else for tracking all the bills. ASA Yamane
stated that once we get the final list,we will compose a handout of what is coming
out of the TAT as of July 1, 2015.
IV. Consultant Services—RFP
ASA Yamane reported that when HB 1214 passed final reading, the Office of the Auditor floated
the RFP on May 1, 2015. The RFP has a 30-day call-back date of June 1, 2015 . The RFP
refers to the tax information submitted during the discussion at the April 1, 2015 meeting.
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6uneolAl 91,03 '9 AeW ag;Jo sa1nu!W
(illi)dnwO 6uppoM suo!lound A;unoO-a;e;s
State-County Functions Working Group (TAT)
Minutes of the May 6, 2015 Meeting
Page 5
apply(100%)of the 8.90 percent(visitor/resident ratio)to that line item to come
up with an estimated cost of the operating budget devoted to visitors, which is
$2,063,701.
Member Hunt further explained the following percentages at the bottom of the summary
spreadsheet:
1) Visitor to Total Expenditures—The percentages are calculated by dividing the
total operating expenses relating to visitors (second column) by the expenses
(first column)for all counties.
City and County-5.77 percent
Maui- 15.38 percent
Hawaii-7.99 percent
Kaua`i- 19.06 percent
2) Total Expenditures Statewide—The percentages are calculated by dividing each
counties'total operating expenses (first column) by the total of operating
expenditures for all counties combined, which equals to$2,886,555,173.
City and County-69.45 percent
Maui - 11.70 percent
Hawai'i - 13.39 percent
Kaua'i -5.47 percent
3) Visitor Expenditures Statewide—The percentages are calculated by dividing
each counties'total operating expenses (second column)by the total of operating
expenditures for all counties combined,which equals to$228,573,306.
City and County-50.61 percent
Maui -22.72 percent
Hawaii- 13.51 percent
Kaua'i- 13.16 percent
4) TAT Allocation (uncapped)—The listed percentages are from the statute and
reflect the allocations for the counties.
City and County-44.10 percent
Maui-22.80 percent
Hawai'i- 18.60 percent
Kaua'i - 14.50 percent
Member Hunt stated that these relative metrics are where moneys are being spent; how
it's being spent; and how it impacts each of the counties' budgets independently.
Member Evans suggested to Member Hunt that the"Visitor Expenditures Statewide"
could be changed to"County Expenditures on Visitors Statewide" because visitor
expenditures is a term of art that relates to how much visitors spend per day. Chair
Acoba also suggested that"Total Expenditures Statewide"be changed to"Total County
Expenditures Statewide."
Chair Acoba asked Member Hunt to explain how he got the visitor/resident ratio.
Member Hunt said the visitor/resident ratio information was provided by Member Case at
a previous meeting that gave the number of visitor days and dividing the visitor days by
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(ivi) dnos 6up poM suo!lound Aluno3-91e15
State-County Functions Working Group (TAT)
Minutes of the May 6, 2015 Meeting
Page 7
Chair Acoba further asked about the percentages listed under"TAT Allocation
(uncapped)"of the summary spreadsheet. He asked if it was to derive some relationship
between what the TAT allocation is as stated in the legislative history versus what the
group comes up with. Member Hunt stated that the percentages are from the statute and
he included it because it was the benchmark of where we are today—if the cap was lifted,
this is where we would return to.
ASA Yamane asked the group to refer to the investigative group worksheet. The
worksheet applies to all investigative groups and will guide your investigative group's final
report.
Member Case stated the idea of trying to be on the same page in terms of the allocation
of the general expenditure categories for the counties and the State is really good and
effective. He said, however, trying to come up with a standard allocation of the tourism
part of the expenditures is also very effective. This definitely shows exactly what Member
Sako said that the counties are spending more than what they're getting and it's a pretty
effective conclusion. Member Case also pointed out why the City and County of
Honolulu ends up so low relative to Maui, Hawai'i, and Kaua'i given the number of people
on this island. It's a tough question to develop a formula for the division of the TAT
because we're taking the status-quo, not aspirational. He's not sure how to develop a
TAT formula that flexes over time among the counties unless you go back to a
population-based formula.
Member Soon stated the counties didn't want to re-visit that formula. He said the
question of distribution is between the counties as a whole and the State. However, the
big question is how to allocate the TAT between the expenses the State needs for pre-
determined allocations. The county is hoping to focus on distribution between the State
and the counties as opposed to between the counties.
Member Baz stated that one of the factors to consider is the choice of each of the
counties to fund certain things. For example, unlike other counties, Maui funds over
$4 million for their Visitor's Bureau, He also stated that it impacts the total visitor
expenditures quite a bit just from that one item, but that's our choice. Member Case
added, that's why we need to allow the counties a choice in terms of how they spend
their money and how much they want to market. There has to be that flexibility at the
county level.
Chair Acoba asked how could that be crafted. Do you need a statute that says a certain
amount is allocated to the counties and then the counties would have to get together to
decide how to split up the moneys. Member Sako said the current law is very clear, the
counties' portion of TAT is already set. It's the larger picture of what's going to the State,
Convention Center, and all those other pieces. Member Hunt stated that after the debt
service for Convention Center, Turtle Bay, and HTA, it will no longer be 44.8 percent to
the counties. He wondered what the percentage will be?
Chair Acoba stated the legislators may ask that question and it would be difficult to
propose something without having at least considered it, and include it in the report.
Secondly, circumstances change, right now we have the percentages but they don't
seem to be tied specifically to something that is rational, but instead reflects more political
judgment. We have to justify and verify the results the group comes up with. He further
stated that if the WG says to allocate a certain amount, it would have to figure out the
components.
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State-County Functions Working Group (TAT)
Minutes of the May 6, 2015 Meeting
Page 9
Member Yoneshige stated as to question 3), is the analysis purely on expenditures or
does it involve expenditures and revenues? The 2 percent doesn't necessarily impact
the allocations for expenditures but is related to what the group envisions for the report.
The allocation of the counties is another open item that will come out of the final report.
From the State level, he explained that how the counties went through and analyzed the
different expenditures—high, medium, and low—and started allocating percentages to
CAFR line expenditures that eventually become the basis for allocation expenditures,
their methodology was too general for the State to use. He explained that for the State to
get up to the level of county involvement, it would involve having people that are more
knowledgeable about the operations to those specific CAFR lines. Some of the CAFR
lines involve multiple departments and that's where the complexity comes into play.
Member Sako stated the counties didn't have time to go line by line, they did it by
departments. She said looking at the handout for the State, the column"directly related
to tourism"would be in relation to the county's high; and the column "indirectly related to
tourism but essential support to line agencies"would be medium or low; and the line
items with no"x"would be no nexus at all.
Chair Acoba questioned whether the first column of the state handout was tied to tourism
to capture the major expenditures for government because one of the purposes for the
report is to compare the functions. He also asked whether there were any items
excluded because it didn't fit within the tourism area. Member Yoneshige responded "no"
and that the numbers are from the State CAFR. Member Yoneshige explained that this is
not a scientific analysis that resulted in these percentages, but it's more to give the
reader an idea as to what the expenditures may be.
Member Sako stated airports are funded from the landing fees that visitors pay so to get
a comparison of the way the counties did it, we might need to look at revenues in terms
of what sources both State and counties have to rely on towards visitor expenses.
Member Yoneshige stated if we go by expenditures at least we have numbers that are
comparable. Chair Acoba said health, welfare, and education are not included with the
counties' numbers but included as indirectly for the State. He asked whether the State
can latch on to the counties' methodology? Member Yoneshige answered"yes," he
believes so.
Member Evans stated the WG will have to note that it's subjective and the State's high,
medium, and low may be different from the counties. Chair Acoba said he was looking at
health and welfare and was not sure if those are even connected with tourism when
looking at the county chart. He said if the counties say it isn't, and the State says it is
connected, then there's a discrepancy. Member Evans said the State CAFR line items
represent totally different services than the same general categories at the county level.
Member Souki asked how Hawai'i and Kaua'i counties determined the portion related to
visitors. For example, for both Kaua'i and the Big Island, transportation is included with
public welfare. For Maui County, the bus system is included in transportation. Member
Souki asked how it works for the State. Member Evans said she would need to go back
to the program structure and look at what's included in welfare.
Chair Acoba stated the counties applied the visitor days ratio to the costs. He asked
what would the State use as a ratio to apply to the costs. Member Yoneshige replied that
the State will apply the high, medium, and low percentages. Member Hunt said you
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State-County Functions Working Group (TAT)
Minutes of the May 6, 2015 Meeting
Page 11
the money is going now. Member Soon suggested this part of the discussion should be
deferred because there's all kinds of questions relating to this. Chair Acoba said this will
be deferred to the next meeting.
Chair Acoba referred to question 2)of the handout:The allocation of the TAT can be
based on tourism or general government services provided. Should the Working Group's
report to the Legislature provide information on the outcomes(allocated amounts) on
both allocation methods so the Legislature has information to make an informed
decision?
Member Yoneshige explained that question 2)looks at how the allocation is presented
based on tourism-related expenses or government-wide and this is where the 2 percent
may be addressed because tourism-related in that allocation model allocates the TAT to
the counties. The 2 percent is included on the government-wide side.
Member Baz stated from the counties' perspective,the information is there to do both—it
created some allocation based on tourism and general expenditures. This information
could be used down the road in answering either of the two questions. If the State is able
to do both, it will help the counties in their evaluation. Chair Acoba believes the report
calls for both information—allocation based on function and allocation based on the TAT
to give the Legislature some options. He stated seeing how the Legislature has treated
the TAT and what the counties want, it serves both purposes. He also stated: 1) If you
want reimbursement which seems to be the driving rationale behind the TAT to the
counties for their expenses related to tourism, it can be set as a foundation; and 2)The
rest of the TAT, set the standard to how the rest of the TAT should be used; or the
Legislature will do whatever it wants with the rest of the TAT. The TAT can serve both
functions—it can reimburse the counties as part of it, and part if it would be what the
Legislature uses it for.
c. Visitor Industry Investigative Group–Discuss report, Visitor Industry Views on Visitor-
Related Needs for State and County Services (handout)
Member Case stated that the handout is the report from the visitor industry investigative
group. He said this was discussed at the last meeting. He summarized the report. The
group went through an outreach process to respective contacts and other sources which
included visitor-and county-related perspectives and prioritized the government services
that have the most impact on tourism from a visitor-need perspective. The first priority is
transportation and parks and recreation, primarily the beaches that include lifeguards;
transportation includes airports and some harbors. These were direct connection to
tourism. The second priority is public safety and housing. Public safety includes police,
fire, lifeguards, and general comfort and safety perception of our visitors; a housing
concern is the homeless, not necessarily Waikiki-centric but across all islands. The third
priority is culture, education, and sanitation. Culture in preservation and enhancement;
education through visitor industry workforce training; and sanitation based on the general
capacity to handle visitor as well as resident demand.
Member Case stated the group didn't answer the question on health and welfare and to
what extent it impacts tourism. He said everything one way or another impacts tourism.
They did not specifically include the use of the TAT for HTA; they basically looked at what
the visitor needs are. He further stated that the big picture conclusion is that the list they
came up with is independent of the State and county investigative groups and is entirely
consistent with what the State and counties have set. They are on a solid foundation
when it comes to all three investigative groups in terms of what services they are
focusing on in terms of trying to analyze the division of duties and responsibilities.
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State-County Functions Working Group (TAT)
Minutes of the May 6, 2015 Meeting
Page 13
purpose of the TAT should be. It looked at county functions and State functions; some of the
language is actually similar to the legislative history.
Member Baz stated a possible discussion topic on whether a possible outcome for a
recommendation from this WG to the Legislature may be the TAT should not be a general fund
item but a special fund created for that nexus area. Maybe the WG could recommend to the
Legislature that the TAT should be a special fund.
ASA Yamane stated every year, the Office of the Auditor has a statutory charge to review all
proposed funds and we put out an analysis based upon the criteria for special and revolving
funds. Therefore, the office would have to review this if a special fund is proposed. She said the
office has taken the position in most of its work that the creation of such funds takes moneys out
of the general fund, thus impacting the Legislature's power to appropriate. She explained that
putting the TAT into a special fund would be difficult for the office to support, but we would do the
proposed fund analysis just as we would for any other fund.
Member Souki stated he likes the idea of injecting discipline in budgeting, but is not sure if a
special fund is the right idea. If we have expectations and we create a taxing regime—the TAT—
then that will be used to offset the impacts of transient accommodations; then this is more
disciplined. Another discussion is do we increase the TAT. Without any discipline, then
increasing it is not a discussion of how much do we need for tourism but how much do we raise
on how much we spend on tourism.
Member Szigeti said there is a need for transparency and accountability because sometimes, it
appears there's the endless pit of money that they can just go to. There is a need for structure
and discipline. Member Hunt added it's a delicate dance for the counties as well because most of
us here are pushing for the hotel room taxes to the higher tiers of the tax level. And if we're
obviously getting fewer revenues based on the cap, we only have a certain amount of elasticity to
push that rate up to recoup the taxes.
Member Kam left the meeting at 11:58 a.m.
Member Case stated some of the moneys do go into a special fund already. It would have to be
for a specific purpose and be administered. It's more connecting it to tourism and trying to
structure it so it goes back to collection from the state and counties. If we can conclude on an
allocation based on what the State and counties are doing for tourism,we need the money for
tourism and the formula is based on that.
VIII.Adjournment:With no further business to discuss, Chair Acoba adjourned the meeting at
12:13 p.m.
Reviewed and approved by:
Jan K. Yamane
Acting State Auditor
[�j Approved as circulated.
State-County Functions Working Group (Transient Accommodations Tax)
(Established by Act 174, Session Laws of Hawai'i 2014)
State of Hawai'i
http://aud itor.hawaii.gov/task-forceworkinq-group/
Minutes of Meeting
Date: Wednesday, June 3, 2015
Time: 10:00 a.m.
Place: State Capitol
415 S. Beretania Street
Conference Room 414
Honolulu, Hawaii
Present: Simeon R. Acoba, Chair, Chief Justice Appointment
Sananda Baz, County of Maui Appointment
Ed Case, House Appointment
Mary Alice Evans, Governor Appointment
Steven Hunt, County of Kaua'i Appointment
George Kam, Senate Appointment
Ray Soon, City and County of Honolulu Appointment
Jesse Souki, Governor Appointment
Kerry Yoneshige, Governor Appointment
Jan K. Yamane, Acting State Auditor, Office of the Auditor
Kathleen Racuya-Markrich, General Counsel, Office of the Auditor
Jayna Oshiro, Analyst, Office of the Auditor
Pat Mukai, Secretary, Office of the Auditor
Leanda Santos, Secretary, Office of the Auditor
Excused: Neal Miyahira, Governor Appointment
Deanna Sako, County of Hawaii Appointment
George Szigeti, House Appointment
Ronald Williams, Senate Appointment
Call to Order: Chair Acoba called the meeting to order at 10:02 a.m., at which time quorum
was established. The agenda for this meeting was filed with the Office of the Lieutenant
Governor, as required by Hawaii Revised Statutes, Section 92-7(b).
II. Public Testimony
None
III. a. Announcements, introductions, correspondence, and additional information
ASA Yamane announced that a formal request has been made to Speaker Souki's office
for a new appointment to replace Member Szigeti. Speaker's Office will let us know as
soon as an appointment is made.
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State County Functions Working Group(TAT)
Minutes of the June 3, 2015 Meeting
Page 3
discussions. In terms of staffing, Ms. Oshiro will continue with the TAT WG work as well as her
currently assigned audit project responsibilities.
The investigative groups' reports are extremely important because the guts from those reports
and the WG discussions will be extracted and likely attached as appendices. For example,
referring to last month's minutes, as the counties were walking through their methodology, very
specific data will be extracted and the information compiled.This makes the minutes that much
more important because Member Hunt did a very good job of marching through all the columns,
explaining how he got all the data, and how the group approached it. That kind of information
would be put into the report. For all of the other investigative groups turning in their reports—the
allocation models group, the visitor industry group, and the State duties and responsibilities group
—final discussions on those reports will become the guts of the report. The schedule may
change a bit, with a consultant.
Chair Acoba asked if the December 2"d meeting is for the final approval. ASA Yamane answered
"yes." She explained that the draft will be approved in its final form at the November meeting. If
the WG wants to present certain kinds of data we may ask for DBEDT's assistance to ensure
accuracy. She stated now is the time to create investigative groups because it takes several
meetings to do the work, report back, and accept the IG's report.
Member Souki asked if the final report would be approved prior to December. ASA Yamane said
hopefully yes. She referred to November 12th(at the bottom of the handout on page 1)where
report production begins. She explained that this schedule was built into our overall office
production schedule. For all our work,the Legislature has a call back date of 20 days before the
start of the next session; it's the same for this report. All report production is done in-house.
Member Souki asked what is the drop-dead date for the office. ASA Yamane replied the deadline
(December 30, 2015) is highlighted in yellow(handout–page 2). Once pieces are approved, the
office can drop it into format early. The office uses a standard format for all reports. The front of
the report typically will have the WG letterhead with the State seal. The report itself will be
formatted in our usual office style.
Member Baz asked, if the report is finalized on December 2"d, is that enough time for the office to
publish. ASA Yamane said the WG approval of the final report draft is scheduled for the
November meeting and copies will be distributed at the December meeting. The office
anticipates a heavy production load. This schedule is for planning purposes and to keep the
investigative groups on task. It's also to push the WG's discussions and conclusions and
recommendations early so those pieces can be documented and dropped into the draft report.
Member Souki asked what happens if we get a consultant with Option 2. Ms. Racuya-Markrich
replied the time schedule and time limitations in the RFP match the deadlines in the handout,
including the WG process for discussion and approval. The first submittal is July 29th; September
2nd is the presentation to the WG for discussion; submittal of a proposed outline and preliminary
report draft date is September 30th; presentation to the WG is October 7th; submittal of the final
report draft including WG discussions and recommendations is October 28th; and presentation for
WG approval is November 4th. These are the deadlines for production purposes.
Member Souki asked if the outline is the work plan for approval. ASA Yamane answered,
because this is largely a compilation, it reflects the work already done and it would be in
anticipation of the delivery of the allocations piece. The work plan would be something delivered
at the time of the RFP. The office usually develops a very detailed outline for each report,
including all section headings, etc. We can start putting it together because we know where the
WG is going based upon the discussions over the last few months. If we get a consultant, we
would blend their work and maybe leave a space for the allocation models because that work has
begun with the investigative groups. Ms. Racuya-Markrich stated that the timeframe in the RFP
3
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State County Functions Working Group(TAT)
Minutes of the June 3, 2015 Meeting
Page 5
b. County Duties and Responsibilities Investigative Group—Adoption of report, County
Expense Summary with Nexus to Visitors(handout)
Member Hunt reported that there's a more detailed level that rolls up into this summary.
His understanding from Member Baz is Maui included only those expenditures that have
some sort of nexus that are additional expenditures beyond the$337.6 million,which
could be added to the total spending but may have no additional nexus. The$51 million
may still stand but the total expenditures may change. Member Baz stated $477 million
of expenditures is in Maui's CAFR so there's a significant amount that's not included and
it may change the nexus amount and will definitely change the total amount.
Referring to the counties'expense summary with a nexus to visitors, Member Hunt
explained the following:
1) County Expenditures on Visitors to Total Operating Expenditures
City and County—5.77 percent
Maui—deferred—numbers will change
Hawai'i—7.99 percent
Kaua'i— 19.06 percent
Overall—about 8 percent
To arrive at the percentages above,the investigative group used the same
methodology as the State. It took the total operating expenditures for visitors
(second column)for each county, no CIP, and divided it by the total operating
expenditures (first column)for each county. Resources from HTA and DBEDT are
footnoted.
2) Individual County Expenditures to the Aggregate Expenditures of All Counties
City and County—69.45 percent
Maui—11.70 percent
Hawai'i— 13.39 percent
Kauai—5.47 percent
Overall— 100 percent
To arrive at the percentages above, the investigative group took the total operating
expenses of each county and divided it by the total operating expenses
($2,886,555,173)of all four counties.
3) Individual County Expenditures on Visitors to the Aggregate Expenditures on
Visitors for All Counties
City and County—50.61 percent
Maui—22.72 percent
Hawai'i— 13.51 percent
Kaua'i— 13.16 percent
Overall— 100 percent
To arrive at the percentages above, the investigative group took the total operating
expenses for visitors (second column of each county) and divided it by the total
visitor operating expenses for all four counties ($228,573,305).
5
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State County Functions Working Group (TAT)
Minutes of the June 3, 2015 Meeting
Page 7
Member Souki reiterated that drilling down from the large topics listed is probably the
better way to do it. The State should do it for the same reasons that Member Soon
mentioned, because coordinating statewide agencies is very difficult. There are so many
functional areas, programs, reporting differently, it's a big project so that might be a
recommendation.
Member Baz said it really depends on what the outcome of this is and what the
Legislature wants to accept. As far as our determination of an allocation model, these
are the State and county functions and the distribution of those functions. Our
recommendation of an allocation model may or may not be based on this information.
The Legislature can take the same idea and our allocation model, to review, tweak, or
throw out the window and do their own thing again, but at least we provided our
recommendations. He didn't know whether a model like this will be ever done again.
Chair Acoba asked if this chart indicates the"high,""low" rating. Member Hunt said,
"yes." Chair Acoba asked if this needs to be amended. Member Hunt said, "yes." Chair
Acoba said this is deferred. Member Soon added that some of the content is really good.
For example, the importance of visitor industry to Kaua'i and Maui counties, and how big
of a chunk of their expenditures are allocated to the visitor industry relative to the Big
Island and City and County of Honolulu. The group keeps arguing about re-examining
the county distribution. When you look at expenditures, it comes pretty close to how the
money is distributed; yes, we're short 6 percent; Big Island about 5 percent, but Kaua'i
and Maui are right on the spot. We are really close to the expenditures.
c. State Duties and Responsibilities Investigative Group–Adoption of report, Report on
Visitor Allocated CAFR Expenses(May 2015) (handout)
Member Yoneshige reported the group met twice to: 1)identify and calculate CAFR
expenditures in relation to tourism; and 2)evaluate the level of visitor nexus—high,
moderate, low. Members of the State Investigative Group included four State
members—Member Evans, Member Souki, Member Miyahira, and Member Yoneshige;
Member Case from the Visitor Industry Investigative Group; and Member Hunt from the
County Investigative Group. The group convened with all of the participants so that
everyone could see that the process followed was consistent. Member Yoneshige had
concerns about the methodology, but at the prior meeting the WG asked the group to use
the counties' methodology. Is it accurate? No, but it gives the WG an idea as to how
much of the State expenditures have a relationship to tourism. It's not an end in itself
and neither are the counties' numbers, but it provides a basis for discussion.
At its first meeting, the group went through the 2014 State CAFR expenditure lines that
have relationships to tourism and identified expenditures directly and indirectly related to
tourism. When it was presented at the WG's May meeting,the group was asked to
evaluate the CAFR expenditures to determine the level of nexus (high, moderate, and
low)to tourism using the same methodology as the counties. The spreadsheet
previously submitted includes the same percentages relative to the amount of expense to
be allocated to the nexus of tourism: low–25 percent; moderate–50 percent; high–100
percent. The percentages were applied to the visitor/resident ratio percentage or 12.63
percent. The net result: State expenditures relative to tourism is $450,000, and relative
to overall State expenditures, it's 4.4 percent. This represents an idea of the amount of
State expenditures relative to tourism using the same methodology as the counties.
Member Hunt stated that his role was to understand the process used by the State group.
In the two processes, the counties' submittal is a roll-up into broad categories, but the
roll-up is actually the summary of individual line items. Specifically, there's no general
government, public safety, and no high, low, level of nexus assigned to the broad
7
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96ed
6u!}a0W 9l•0Z 'g aunt ay;to salnu!W
(lyl)dnaio 6uppoM suo!lound Aluno3 alels
State County Functions Working Group(TAT)
Minutes of the June 3, 2015 Meeting
Page 9
anything about nexus. The statute requires that we first determine and evaluate the
division of functions between the State and counties, and a proxy for that was to look at
the CAFR. That's one allocation model. The second step is to determine the TAT
allocation and that involves the nexus. By looking at this,for purposes of a model, there
are differences but the categories are very similar—general government, public safety,
highways and streets, human services, culture, and recreation. Maybe footnotes are
needed when talking about debt services.
Member Case agreed with Chair Acoba and said this was a very good exercise. Both the
State and counties attempted commonality in the categories and applied the same
standards and percentages to those categories. Both sides deliberated on the nexus and
and came up with the same allocation. At the end of the day,what is the ratio between
the State and the counties of total tourism expenditures? Is it close to a ballpark we
would recommend? Is the formula backed up by some analysis? The WG established
early on that there was no legislative history on the original allocations. Member Case
agreed with Member Hunt, that the one major skewing is to take the 25 percent figure to
the$2.2 billion category on the State side. You can see this coming to a reasonable,
logical conclusion that backs up a recommended split of the TAT. If the WG needs to
meet again to footnote, refine,or go through one more reiteration to try and get some
commonality, it is a worthwhile effort for both working groups. Member Case asked what
the State group thinks about the 25 percent of expenditures for welfare related to tourism.
Member Hunt stated if they were to remove those three items(welfare, lower education
and higher education)completely, the result is roughly 53 percent State and 47 percent
counties. Member Case stated that removal altogether is going too far because some
basis for education is valid. Member Soon said the devil is in the details and should be
included in the allocation models. The counties may want to take a second pass and
refine the percentages and drill down over time. Part of the recommendation has to be
moving forward and there has to be some money allocated.
Chair Acoba stated that it was not necessary, but a basis for discussion. He asked if
there is agreement, using the CAFR and recognizing there are differences between the
State and counties, can the WG at least exclude nexus in the State-county functions
evaluation, but include nexus when the WG talks about TAT allocation. Member Evans
preferred taking up the question of whether we can accept this as a preliminary draft at
this point. Doing so doesn't lock the WG into accepting it as a final piece for the report,
but allows the WG to take another look at it, particularly in light of allocation models.
Chair Acoba asked in terms of comparing the CAFR, can that be done as the first issue.
Member Yoneshige answered"yes." The group used the CAFR expenditures like the
counties, applied the same methodology, and came up with the same numbers and
percentages. The precision on that type of analysis is very wide. For discussion
purposes, the State's share serves as a range between 53 percent and 66 percent.
Member Yoneshige said that the right number is probably somewhere in between,which
is good enough to start discussions and cross out the first question. He is comfortable
accepting both the county and the State's report so they can move forward because they
used the same methodology and audited numbers.
Member Souki stated Member Hunt identified some good areas to explore. Member
Hunt concurs with Member Yoneshige as they have very similar approaches overall. The
only difference is the counties drill down to the actual line item which may not roll up to
high, moderate, or low at the general item. He stated it's somewhere in between
depending on the individual nexus for each line item. The only major difference that
could shed more light is if the group could drill down into welfare or maybe even
education, but that may be very challenging to do.
9
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01. abed
6w;aalN 9!•0Z g eun!'ay;to swum!
(lyl)dnomO 6u!i!JoM suo!lound A;unoQ alels
State County Functions Working Group(TAT)
Minutes of the June 3, 2015 Meeting
Page 11
percentage, etc., how the TAT is to be allocated. She said it's unrealistic to think the
Legislature, namely the money committees,will go through a similar exercise of doing the
math and drilling down to figure out the State CAFR expenditures and the nexus to
tourism. The Legislature will look at the law and what is proposed, put it into the
provision, and execute it according to the percentage to allocate to HTA, the Convention
Center, and whatever arrangement is made as to the State and counties. It's the charge
of this group to deliver that final recommendation, as opposed to expressing it to the
Legislature in terms of how to arrive at the allocations.
Member Souki asked who would crunch the numbers and run the model, if the WG
recommended a methodology for figuring out the numbers. ASA Yamane said if the TAT
is collected by DoTax, they would apply the distribution. Member Souki asked what if the
WG presented a recommendation and a model, and the Legislature is not comfortable,
could they task DoTax to refine it. ASA Yamane said she doesn't know, but thinks DoTax
will view it as a policy question for the Legislature, not the department.
Regarding Turtle Bay, Member Hunt asked ASA Yamane whether funding is coming from
the State allocation or another top line item in terms of the debt service, or added to HTA.
ASA Yamane answered, it's a separate line item but it's only$1.5 million. Member Hunt
stated that comes before the net distribution, it's already deluding the percentage. ASA
Yamane said the way she understands it, it is in priority order. The first line item gets
paid, second one, and so on until you get to the end, and any excess goes to the general
fund. Member Hunt said it has some bearing when looking at the percentage,the
expenditures, if it continues to delude then all of a sudden we're looking at the overall
State CAFR may include those expenditures. Member Soon said that's how it's written
now, our charge is to recommend a new allocation model. Member Hunt thinks that if
they're looking at the raw numbers to come up with a percentage, but from that you get
deluded, because you're taking off a big chunk.
Chair Acoba asked if there's anything more for the State report. Member Soon doesn't
disagree with Member Yoneshige. He would like the minutes to note that the
methodology is the same, but there are some detailed facts within the model with which
the WG is struggling.
It was moved by Member Yoneshige, seconded by Member Hunt and unanimously
carried to accept the State's Investigative Group report.
d. Allocation Models Investigative Group—Discuss progress (handout)
Referring to the handout, Member Soon reported on the group's four different TAT
allocation models:
1) Allot the TAT funds according to the proportionate share of tourism expenses
incurred by the Counties and the State—The basic concept is to figure out the total
public expenditures (operating)and the proportionate share of the total attributable
to the State and counties. Then allocate all TAT by those percentages.
2) Allot the TAT funds according to the historical intent of the TAT legislation passed
over the years—The basic concept is to look at the historical intent of the
legislation. However, the group struggled with this model because there are a lot
of gaps as to legislative intent.
3) Use the current allotments as a guide, and account for the political reality that the
State Legislature will want to fund other uses out of the TAT—The basic approach
is to lock in a set amount of funds for the counties, the Convention Center, the HTA,
11
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(iVi)dnoJ9 6u!)IJoM suo!4Ound A4unoo ale4S
State County Functions Working Group (TAT)
Minutes of the June 3, 2015 Meeting
Page 13
to 60/40 as revenues grow. But at least your base point is covered and doesn't go below
the floor. The risk is if you don't make the $283 million. He asked whether both floors go
equally below the$100 million or does one floor drop and one floor stays. Assuming we
don't go below the$283 million,a model like this will be useful.
Member Case observed there are advantages to this model. We don't want DoTax
figuring this out every year. It provides some certainty of your income stream,which is
important to the tourist industry, HTA, and for the State and counties to know they will get
at least$100 million, so they can depend on it. Another advantage is the credit rating
because at the end of the day, the political reality is the State will want a discretionary
fund. If you go in the direction of this model, what it essentially provides is a down cycle.
Right now we're coming over the top, that's great if we stay up there, but nobody in the
visitor industry thinks it will keep going up. So, in a down cycle,there's a guaranteed
level of income to the State, the counties, and HTA. The State gets the up side but not
necessarily the counties.
Member Souki stated having a predictable budget to implement programs that may or
may not have an impact on tourism is important. He appreciates the$100 million floor.
His concern is the 90/10 split because it appears the Legislature gets two discretionary
pots—the 60 percent and the 10 percent. As a former agency manager, he would rather
see more predictability on the 60 percent and let the Legislature fool around with the 10
percent. Using DLNR as an example, he would rather see Kawela Bay come out of the
10 percent. When you look Kawela Bay and Turtle Bay in the context of programs,
DLNR's mission, and the amount of land they could purchase that has higher market
value, the money may have been spent differently. But DLNR has no discretion on
spending; it was the Legislature's discretion. Taking it out of the 60 impacts all the DLNR
programs.
Member Case said he's not following Member Souki. The WG is not micro-managing
where the State money goes. Member Souki said the Legislature will micro-manage.
Member Case said yes they will, but we're not suggesting that there be a directive where
the 60 or the 10 goes. Presumably, it's a discussion every year at the Legislature as to
where the State moneys are going. The 10 percent is intended to be the Legislature's
discretionary money. Member Souki said he would like to see more discipline in the
budgeting for the 60 percent.
Member Soonstated if you took the 10 percent and threw it into the 90, every time they
make a cut at the counties, they see a dilution. The counties don't want dilution.
Member Baz stated the 60 percent is more the general fund type of revenue to the TAT
money coming in, where the 10 percent would be more for special projects that the
Legislature allocates all of it wherever they want to. So yes, the Legislature gets two pots
of money. But the hope is that the 60 percent would be set aside that goes into the
general fund and that's revenue; whereas, the 10 percent could be used for the
Legislature's issue of the day.
Member Hunt stated the$83 million for HTA stays in effect for ten years. That allows for
no growth. If there are COLA (cost of living allowance)adjustments he would like to see
HTA have their percentage built in as part of this, too; not getting less than the$83 million
and 2 percent or whatever the number is of potential growth to cover that. That$83
million ten years from now, assuming it sticks, may not be sufficient. Member Case said
they did talk about adjustments. He would like to see some upside, not capped out and
not go down every year the Legislature fusses around with it. HTA gets some
predictability as well as the counties and the State at a certain level. Then there's the
unpredictability side which mostly affects the State. Maybe it's a deal with the visitor
industry you get some uncertainty and predictability.
13
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State County Functions Working Group (TAT)
Minutes of the June 3, 2015 Meeting
Page 15
This item was not discussed.
VIII.Adjournment:With no further business to discuss, Chair Acoba adjourned the meeting at
12:00 p.m.
Reviewed and approved by:
Jan K. Yamane
Acting State Auditor
[X] Approved as circulated.
TATW G/20150603
15