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Home My WebLink AboutCOM 0670.001 2014-2016Margaret Wille More Na Hilo: (808)961-8027 8s•',c '' PhoneNo. Waimea: (808)887-2043 Council Member "'% Fax No. (808) 887-2072 Disoscaal t 9-.Noah nd South Kaha E-Mail: mwille amo.hawaii.hi.us HAWAII COUNTY COUNCIL County of Hawaii Hawal'i Caum, Building /lalnmua Center {Vert Hawaii Ciofr Center Bldg. d 25 Aupvnt Street 64-1067 Mamalahoo Highway. Suu, C-5 74-5044 Atte Keohokalole Hwy. HY HawaP, 96720 Waimea, Hawaii 96743 Kailuo-Kann Hmoa,'i. 96740 N w TO: Dru Mayon Kanuha, Council Chair v And Members of the Hawaii County ouncil I FROM: 'Margaret Wille, Council Member jaO DATE: February l2, 2016 SUBJECT: Additional Information for Communication 670 - MW Report Please find attached additional information for reference during the Communication 670 -TAT discussion on February 16, 2016. Thank you. MW/dh an Serving the Interests of lite People of Our Island Hawaii County Is An Fqual Opportunity Provider And Employer l'omte: No, 670.1 Ref. To: FG Ref. Date FEB 16 2016 Margaret 4ille :, Phone No. Nilo: (808)961-802? Coundl,tl PhoneNo 'A .,mea (808)84 2043 L� r9 S'nr, iRohala G Nail. m IleuhAezilc un K.knv HAWAII COUNTY COUNCIL County' of Hawaii Hawaii Counry Building Ho/mrwu Cumer n'esr 1/111n/'i (Tris (-emcr Old,. A 25 Aapunl Street 64 106, ILyhw,,, Suite C- -4.5044 Ane A'eohoAalole Hw, kiln, Hawai'1 96720 4...i eu. Hur+al'1 96-43 Kailua-k'ono. Hmvai'i.96-41) REPORT ON THE I AlSTATE — COUNTY FUNCTIONS WORKING GROUP'S RECOMMENDATION January 20, 2016 BACKGROUND: The County's share of the Transient Accommodation Tae (TAT) revenues is the County's second largest source of income after real property taxes. This tax on hotel stay's and rental vehicles was established in the early 1990's with the objective of funding the Counties' tourism related costs. Once fully implemented, the County's share of the TAT revenues was 95% with the State receiving a 5% administrative fee. Granting the TAT revenues to the Counties as its source of funding for tourism related expenditures followed an extensive study by the Tax Review Commission. That study found 53% of all public outlays for tourism is by the Counties, versus 47° o expenditures by the state. The Tax Review Commission also found that approximately 64% of the Counties expenditures benefited tourists while only 14% of the State's expenditures benefited tourists. (The major services provided by the State largely benefit residents, for example expenditures for education, public welfare and social services, public hospitals, and housing.) The study pointed out that failure to provide independent taxing authority for the Counties results in excessive centralization of power, an inefficient allocation of resources, less responsive government, and a loss of accountability. The study also noted that the TAT is a more appropriate vehicle for the Counties to have as taxing authority than a portion of the General Excise Tax (GET), since the GET falls more on residents than the visitor population. The Tax Review Commission went on to recommend that the Counties be given taxing authority (control) of the TAT, rather than have a State tax with a portion of which is shared with the Counties. As pointed out by the Commission, a tax sharing arrangement puts the State in a paternalistic role requiring that the Counties continually petition the State for funds. thereby creating an adversarial and unstable relationship. However because the administrative costs with centralized administration would be less, the recommendation was for the state to administer the tax. with the TAT revenues going to the Counties. Serving the Interests ofthe People of Our Island Hawal'i County Is An Equal Opportunity Provider And Employer January 18. 1_016 Page 2 of 3 .1 -he Counties' portion of these TAT revenues has been reduced over and over again. First to fund the Honolulu located Convention Center and then to fund the State's Hawaii Tourism Authority (Tourism Special Fund). By about 2001 the Counties' portion was reduced from 95% to 44.80/6. Beginning in 2009, State legislators further targeted the Counties' TAT as the way to address the impact of the economic downtum. Al that time State legislators repeatedly promised once the economy was on the upswing the Counties portion would be returned to 44.8°/ of the total TAT revenues. In 2009 and again in 2010 the State 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 the State 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 State's economy is now on the upswing. From 2010 to 2015 the State's revenue has increased by over 34% or 6.8 billion. Specifically the State's TAT revenue has increased from $8.3 million in 2007 to $205 million in 2015. Effectively since 2008, the State has increased its allocation by over 2000% (more precisely 2363%), while the Counties' allocation increased by only 2.2%. Ilad the State removed the cap, as had been promised (and even memorialized in a 201 I Conference Committee Report), the Counties' share of the TAT revenue last year would have been in excess of $170 million, rather than 103 million. On the other hand, County property valuations have not rebounded — and are now $4.5 billion less than in 2010. To appreciate the impact on the Counties' budgets consider that since 2007, the Counties have received only about $2.2 million more in TAT revenue. Yet the cost ofjust three departments for the four Counties (police, fire, and parks) has risen $170.3 million. Effectively the State's cost of tourism related expenses has now largely been shifted to the Counties. THE STATE — COUNTY" FUNCTIONS WORKING GROUP: Rather than carry ing out its promise to return to the 44.8% County share TAT formula, last year the State legislature formed a State —County Functions Working Group to recommend what portion of the TAT revenues should be allocated to the State versus to the Counties. More specifically the Working Group was responsible to evaluate the division of public services responsibilities between the State and the Counties, and submit a recommendation to the Legislature on the appropriate allocation of the transient accommodation tax revenues. However, the membership on the Committee was not split half County and half State, but rather a third of the members were "Industry representatives" with a decidedly State slant. The Chair, retired Judge Acoba, also had a pronounced State slant. The cost of the Working Group was taken totally out of the Counties' 2015 allocation. with no charge taken from the State's allocation. 2015 LEGISLATIVE SESSION: There was one bill this session, HB197, supported by HSAC that would have removed the cap on the Counties' portion of the TA'F revenue. Testifying on this measure, the Governor's Director of Finance, Wesley Machida, testified against the legislation claiming that if the cap on the County's portion was removed the State would lose over $74 million in FY16 and over $84 million. The Legislature voted against that legislation claiming Legislators want to first hear from the State County TAT Working Group. Yet State legislators passed other TAT related measures to benefit the State projects — including legislation to allocate $3 million a January 18. 2016 Page 3 of 3 vear of TAT revenues to cover the debt service for the North Shore Turtle Bay easement as well as allocating TAT revenue to annually fund the Waikiki beach sand replenishment project. THE STATE —COUNTY FUNCTIONS WORKING GROUP: Contrary to some statements in its Report, the Working Group found the State's share of tourism related expenditures was 53%, and the Counties portion was 47%. Yet after adding in some amount for expenditures for residents such as education — the Working Group determined the State's portion of tourism expenditures as 54 and the Counties portion as 46%. Again with a state bias, the Group "rounded off' those percentages to 55% State and 46% County. Then the question was how should those percentages be applied. Guess what (hardly a surprise) the Working Group voted to continue all of the State existing (Honolulu based) TAT earmarked allocations — even for the $1.5 million annual Turtle Bay Easement debt service and the $3 million Special Land Development Fund, which is primarily for Waikiki beach sand replenishment. To summarize the Working Group's recommendation for the TAT revenues is: - $82 million to the State's Tourism Special Fund (MTA) to be adjusted according to the CPI - $26 million to the State's Com cation Center $L5 million to the State's Turtle Bay conservation easement debt service $3 million to the State's Special Land and Development Fund, according to the HTA strategic plan — primarily targeting beach sand replenishment on Waikiki beach. The remainder -is then split: 55% to the State General Fund and 45% to the Counties. REACTION OF STATE LEGISLATORS AND THE GOVERNOR TO THE WORKING GROUP'S REPORT. Shockingly some legislators are saying the Working Group is being too generous to the Counties. Hogwash! Likewise the Governor is ignoring the Working Group's report and basing his budget on continuing the cap on the Counties' portion of the TAT,which pch without intervening legislation is next year slated to drop from $103 million to a $93 million cap. MY RECOMMENDATION: To be even close to fair to the Counties, State Legislators and the Governor should agree to an equal 50/50 split of the TAT revenues between the State and the Counties — with the State earmarked items included in the State's 50% portion. At minimum we must insist our State legislators and the Governor approve the Working Groups recommendation with its 55/45 State County split - even though the State's existing earmarks are "above the line" — meaning not being counted against the State's 55% portion of the TAT revenues. Respectfully. Res N arg et Wille