TESTIMONY: County TAT could further debilitate Hawaii tourism

From Grassroot Institute of Hawaii, October 19, 2021

The following testimony was submitted by Joe Kent, executive vice president of the Grassroot Institute of Hawaii, for consideration by the Honolulu City Council’s budget committee on Oct. 20, 2021, regarding Bill 40, which would establish a 3% transient accommodations tax for the City and County of Honolulu.
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To: Budget Committee
Calvin K.Y. Say, Chair
Radiant Cordero, Vice Chair

From: Grassroot Institute of Hawaii
Joe Kent, Executive Vice President

RE: BILL 40 (2021) — RELATING TO THE TRANSIENT ACCOMMODATIONS TAX

Comments Only

Dear Chair and Committee Members:

The Grassroot Institute of Hawaii would like to offer its comments on Bill 40, which would establish a 3% transient accommodations tax for the City and County of Honolulu.

The proceeds would be divided between the county’s general fund, a special account to “mitigate the impact of visitors on public facilities,” and the county’s transit fund that probably would be used primarily for the county’s rail project. The proportions of these disbursements are yet to be determined.

With the elimination of the county share of the state transient accommodations tax, it is understandable that Honolulu wishes to establish its own TAT. However, we urge the committee to carefully consider the state of the economy before proceeding with yet another tax increase.

Hawaii is still in a state of emergency, tourism has slowed, businesses are closing and unemployment is high. The economy will take years to recover from the economic damage caused by the coronavirus lockdowns.

Some might argue that the TAT will not affect Hawaii residents, as it is aimed primarily at tourists. But this argument ignores three important factors:

>> Tourists are not the only ones who use local transient accommodations.

>> The proposed county TAT would give Hawaii the highest tourism taxes in the nation.

>> The tax would burden a vital local industry that already is struggling to recover from the COVID-19 economic depression. 

As the setback from the COVID-19 delta variant demonstrates, there is no guarantee that the tourism industry will rebound quickly or without incident. The  University of Hawaii Economic Research Organization (UHERO) recently provided its economic forecast for Hawaii through 2024, and not even by then does it expect Hawaii’s visitor arrivals, visitor days or visitor expenditures to reach pre-COVID-19 levels.

In addition, high unemployment, regulatory uncertainty for businesses and continued confusion over the state’s destination-management strategy make this a bad time to add more taxes onto one of the state’s most valuable industries.

If Honolulu County must replace its former state TAT funding with its own tax in order to address budgetary needs, we urge you to keep that tax as low as possible. One way to do so is to remove any portions of this bill that would fund projects not previously funded through the state TAT — such as the proposed transit disbursement. 

Considering the Honolulu rail’s history of cost overruns, questionable decision-making, budgetary issues and overall lack of transparency and accountability, it seems inadvisable to create a special funding source for the project through the TAT. 

The Honolulu Authority for Rapid Transportation has made it clear that it is in need of more funding to meet its obligations. But the Council should demand greater transparency and proof of a fiscally responsible, independently reviewed plan for the completion and operation of the rail before creating another rail tax.

Thank you for the opportunity to submit our comments.