Rail:  I Dunno About TAT

by Tom Yamachika, President Tax Foundation of Hawaii

We are getting closer to the special session that our Legislature has scheduled to continue its discussion about funding Honolulu rail.  During this past session, the House and Senate were unable to agree on a common version of a bill to continue rail funding.

The two chambers disagreed about whether to use our Transient Accommodations Tax (“TAT”).  The TAT is a statewide tax.  A large portion of it is shuttled off to special funds, $93 million a year is shared with the counties, and the remainder goes to the state general fund.

One frequently voiced comment about using the TAT is that “Neighbor Islands should not pay for rail in Honolulu.”  This was the headline of Maui Council Chair Mike White’s analysis, recently published in The Maui News, which said:

For fiscal year 2018, in what has now become a common occurrence, the Legislature raided the counties’ TAT share by reducing it from $103 million to $93 million.  The counties’ share was reduced at a time when TAT revenues are at an all-time high, with anticipated revenues nearing or exceeding $533 million in the coming year.  By the end of this fiscal year, the state will have harvested $96 million more in TAT since FY 2016, or a 42 percent increase.

The state has increasingly taken more TAT revenues to help balance its own budget at the detriment of counties.  Now the Legislature wants to raise the tax to fund rail?

Neighbor Islands receive no benefit from the Honolulu rail, and a TAT increase has major implications on the economy. . . .

Members of the [Maui] County Council also agree that increasing the TAT is not the solution, and passed a resolution this past week urging the Legislature to extend Oahu’s GET surcharge instead.  The hope is that legislators will have a change of heart and avoid pulling the Neighbor Islands into the rail project and draining resources the counties need for their own projects.

Chair White seems to be arguing that the counties have a right to TAT money.  Really?  The TAT, when it was enacted in 1986, was primarily meant to fund the Hawaii Convention Center, which happens to be on Oahu.  (The tax at that time was 5% and it was billed as a temporary tax that would go away once the convention center got built.  Now it’s a 9.25% tax, and it’s permanent.  I have ranted about that before.)  The Hawaii Constitution explicitly says that the legislature shall have the power to apportion state revenues among the several political subdivisions.  State lawmakers have a right to send state revenue from a state tax wherever they see fit. 

State taxes fund all kinds of projects on all islands.  Guess how the Maui Memorial Hospital was built and maintained, for example?  Or Honoapi’ilani Highway?  If the 80% of Hawaii’s population on Oahu decided that they didn’t want “their” state taxes to fund any projects on any other islands, Maui County would be very different today. 

Also, Maui County has its own taxing power.  If revenue is needed to run county government, the county can tinker with real property tax, fuel tax, vehicle weight tax, vehicle registration charges, user fees, and other revenue sources.  (Honolulu has that power too, and it will probably have to use it to operate and maintain the train…unless it can persuade state legislators to use state money or state taxing authority to make Honolulu’s job easier.)  If Maui County doesn’t want to because their politicians fear political backlash from their electorate, Oahu and the State shouldn’t be blamed for that.

The Tax Foundation of Hawaii is not endorsing any particular tax to be tapped for rail.  We just want to make sure that any decision made is not based on misinformation.