New Taxes, Tourism Funding Cuts Amongst Payments Pushed Via As Legislature Winds Down

House and Senate lawmakers gave preliminary approval Thursday to a measure that would allow the counties to levy their own tax of up to 3% on hotel rooms and vacation rental units, a move that one lawmaker said would “incentivize” the counties to crack down on illegal vacation rentals.

Lawmakers also tentatively agreed Thursday to a significant boost in the state conveyance tax that would be imposed on sales of the most expensive non-owner occupied homes in Hawaii.

Legislators are hurrying to wrap up negotiations this week on an array of bills in advance of the scheduled adjournment of this year’s session next week. They have until Friday night to finalize almost all of the bills that will pass this year.

The bill to allow the counties to levy their own hotel room tax is the latest chapter in a long struggle over the lucrative hotel room tax, officially known as the transient accommodations tax.

The Waikiki hotel district is seen here from Diamond Head. Lawmakers have tentatively agreed to give the counties the authority to levy a new tax of up to 3% on Hawaii hotels in addition to the existing state tax of 10.25%. Cory Lum/Civil Beat

For many years there has been an annual skirmish at the Legislature over the counties’ share of the 10.25% tax, and despite the objections of the counties, the agreement lawmakers reached on the issue Thursday essentially resolves the dispute in the state’s favor.

State law now requires that $103 million of the revenue from the hotel room tax be divided up each year among the counties to help offset the demands of mass tourism.

The counties must provide services such as police and fire protection, park maintenance and waste disposal for millions of tourists each year, and the hotel tax money is supposed to help the city and counties cover the cost of those services.

However, the Legislature often flirts with the idea of grabbing the counties’ share of the hotel room tax to help finance state operations and projects.

In fact, when the pandemic hit last spring, Gov. David Ige abruptly used his emergency authority to entirely halt distribution of the hotel tax revenue to the counties in an effort to cope with the state’s huge budget shortfall. The counties have not received their share of the hotel taxes for the past year.

On Thursday night lawmakers merged elements from House Bill 321 into House Bill 862 to create a new bill that makes that interruption in cash flow permanent by ending the distribution of the existing hotel tax levy to the counties for good.

Instead, the measure would give the counties the authority to impose their own hotel tax surcharge of up to 3%. Further details of the plan and the written draft were not available Thursday evening.

Not surprisingly, the counties this year have opposed similar proposals. The new arrangement would essentially force the counties to increase the hotel room tax themselves if they ever hope to recoup the $103 million they would permanently lose to the state.

Visitors lounge on the shores of Waikiki Beach during the COVID-19 pandemic. The counties oppose the legislation that would allow them to impose an extra 3% in hotel taxes. Cory Lum/Civil Beat

Maui Mayor Michael Victorino noted in written testimony that “our current taxes and fees already make us one of the highest visitor tax rates in the nation.”

“While recognizing the devastating impacts the pandemic has had on our state overall, I humbly request continued support of TAT funding to help Maui County with the associated costs in providing public services to residents and visitors, without adding a surcharge to the existing TAT,” Victorino wrote.

Mufi Hannemann, former mayor of Honolulu and president and CEO of the Hawaii Lodging & Tourism Association, said the association “feels strongly that now is not the time to place additional cost burdens on local businesses.”

“Everybody is desperately working to recover an economy that has been disproportionately affected by the COVID-19 pandemic, and we should be looking to support these businesses rather than saddling them with additional costs,” Hannemann wrote.

HB 862 now goes to the full House and Senate for further consideration and voting, but the agreement reached Thursday night strongly suggests key House and Senate leaders intend to push the bill through in the final days of the session.

House Finance Committee Chairwoman Sylvia Luke said lawmakers want to give the counties hotel taxing authority because that will “incentivize counties to hold B&Bs accountable, and enforce B&Bs.”

“It also provides the counties another taxing authority other than just property tax and some of the motor vehicle fees,” she said.

State Rep. Sean Quinlan also said that the latest version of HB 862 would reduce funding for the Hawaii Tourism Authority from $79 million in hotel tax revenue down to $60 million in federal funds.

The new draft bill would cut funding for the Hawaii Convention Center from $16 million to $11 million. Cory Lum/Civil Beat

Funding for the Hawaii Convention Center would also be decreased from $16 million per year to $11 million, he said.

Several other tax bills remain unresolved near the end of the week, but lawmakers tentatively agreed Thursday to increase the state conveyance tax for some high-end home sales.

The latest draft of House Bill 58 would double the conveyance tax on sales of non-owner occupied homes worth more $4 million, and triple the tax on the sale of homes worth more than $6 million.

The conveyance tax would be quadrupled on sales of non-owner occupied homes worth more than $10 million. For example, the state conveyance tax on the sale of a $10 million non-owner occupied home would increase from $100,000 today to $400,000 under HB 58.

However, state tax officials estimated Thursday the proposed tax increase would only raise an additional $2 million to $3 million a year for the state’s general treasury.

That’s because up to 60% of the conveyance tax revenue is automatically diverted into the state rental housing revolving fund to develop affordable rentals, and to the state land conservation fund to buy and preserve land.

The conveyance tax on homes sales worth less than $4 million would be unaffected by the bill. HB 58 now goes to the full House and Senate for further consideration and a final vote.

Lawmakers on Thursday also dropped a plan to expand the reach of the Hawaii inheritance tax. Currently estates worth $5.49 million or less are exempt from the tax, and the Senate had proposed limiting that exemption to estates totaling $3.5 million or less.

Some advocates have argued in favor of that proposal as a way to shift more of the state tax burden to wealthier residents, but the estate tax language was dropped from HB 58 on Thursday without any public discussion of why House and Senate negotiators were abandoning the idea.

House and Senate negotiators this week also decided to pay about $400 million that is due this year to fund the future cost of health care benefits for public worker and retirees, according to Luke.

At the same time, they authorized Gov. David Ige’s administration to defer a total of about $750 million in similar payments for the next two years.

“We should be looking to support these businesses rather than saddling them with additional costs.” Hawaii Lodging & Tourism Association CEO Mufi Hannemann

Ige used his emergency powers to withhold about $400 million that was due to be paid to the Hawaii Employer Union Health Benefits Trust Fund this fiscal year because the state faced a fiscal crisis as tourism shut down in the pandemic, and state tax collections contracted.

Ige also asked lawmakers to authorize him to withhold another four years of similar payments to the EUTF, a dramatic stop that would have saved the state an estimated $1.85 billion over five years.

Instead, House and Senate negotiators opted to appropriate about $400 million to cover the EUTF obligation for this fiscal year, and to authorize Ige to defer similar payments for the next two years.

Luke said lawmakers took that approach “only because we wanted to wait and see if the revenue picture improves and see if we can just do two years instead of five.”

She said lawmakers are wary of deferring payments that would add to the state’s unfunded liabilities, including future health care costs. “As a policy, that is the right thing to do,” she said.

Ban No-Knock Warrants

While most police reform measures stalled this session, lawmakers advanced one measure on Thursday that would ban Hawaii officers from executing “no-knock warrants,” where police don’t announce their presence before entering a home or office.

Senate Bill 726 would require officers to approach doors in full police uniform with body cameras activated and wait 30 seconds after first announcing their arrival before trying to gain entry to a residence.

If the bill is signed into law, Hawaii would become the sixth state to ban the practice. The Honolulu Police Department opposed the measure, and said it is department policy for officers to knock at least three times before breaking a door down.

The state Attorney General’s Office, the Honolulu Prosecuting Attorney’s Office and county police departments opposed the bill. But it had support from the American Civil Liberties Union of Hawaii, Kauai County Councilmember Felicia Cowden, the Hawaii Health and Harm Reduction Center, the Drug Policy Forum of Hawaii,Young Progressives Demanding Action, Community Alliance on Prisons and AF3IRM Hawaii.

SB 726 and other measures like it around the U.S. have been called Breonna’s Law, named after Breonna Taylor, who police killed last year in a botched midnight raid in Louisville, Kentucky.

Progress For Electric Vehicles

Lawmakers advanced measures to get more electric cars in the state.

House Bill 1142 would set aside 3 cents from the tax on each barrel of oil that comes into the state to help fund a state rebate program created in 2019 for EV charging stations. The program was previously funded but has run out of money.

Rep. Nicole Lowen, the chairwoman of the House Energy and Environmental Protection Committee, said using the barrel tax is a sustainable source of funding for the rebate program. However, she said it could be hard to estimate how much money the rebate program might accrue each year since the number of barrels of fuel coming into the state can vary.

Electric vehicle chargers at Ala Moana Shopping Center. Lawmakers approved a barrel tax that would help fund a rebate program for electric vehicles. Cory Lum/Civil Beat

Lawmakers have set aside $100,000 for the program for the next fiscal year, according to Lowen. House and Senate negotiators also added language from other bills that would require owners of parking lots with more than 100 stalls to have and maintain at least one EV charging station.

Lowen says she is interested in expanding the rebates to further incentivize construction of more stations.

“Like rental car companies or having hotels and resorts install,” Lowen said. “Their guests may want to choose to rent an electric vehicle, but don’t because there’s no charging at the hotel.”

House Bill 552, another bill from Lowen that cleared conference committee on Thursday, would end the purchase of gas powered light-duty vehicles by the state, and require any new purchase to be an EV.

Lawmakers considered creating a task force that would create a plan for Hawaii’s rental car fleet to go 100% electric by 2035, but the House and Senate weren’t able to sort out their differences on the measure.

Rep. Henry Aquino and Sen. Chris Lee, chairmen of their chambers’ transportation committees, decided to shelve the bill for this session.

No More Sub-Minimum Wage

Hawaii employers will no longer be able to pay workers with disabilities below minimum wage under laws enacted long before Hawaii was even a state.

Senate Bill 793 would remove from the law a provision that allows employers to pay workers sub-minimum wage. The law is outdated and no employer pays disabled individuals below the state’s minimum wage of $10.10 an hour, advocates have said.

“Sub-minimum wage laws for workers with disabilities are pre-Civil Rights era laws intended to serve as a vehicle to full gainful employment,” Kirby Shaw, the executive director of the Disability and Communication Access Board, said in written testimony.

“Because such laws no longer serve the purpose for which they were originally enacted. It is time for this practice to come to an end,” he continued.

Charge Commercial Ocean Activities

Lawmakers also reached agreement on House Bill 1019, which would require all commercial vessels, water craft and water sports operators to collect a $1 “ocean stewardship user fee” from each passenger who boards their vessel.

Those fees would be spent on marine conservation efforts and buoy installations.

“It’s been a great partnership with the private sector to recognize we need to start to charge fees for folks using ocean recreation to help contribute to protection of our environment,” House Water and Land Chair David Tarnas said just before a panel of lawmakers voted on House Bill 1019.

The measure is one of Gov. David Ige’s proposals. If Ige signs the bill, commercial boat operators would have to start collecting those fees immediately. Lawmakers inserted a provision into HB 1019 that would end the fee after five years.

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