Counties Brace for Possible Loss of Funding from Transient Accommodation Taxes

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By: J. S.

A new bill awaiting Governor Ige’s approval would reallocate the funds from the state’s transient accommodations tax from Hawaii’s counties to the State’s general fund. The transient accommodations tax, or TAT, is currently at 10.25% and is charged to those staying in Hawaii’s hotels and various short-term accommodations. Traditionally, this tax revenue source was dispersed to Hawaii’s counties. The total amount that the counties would use this year, if the bill passes, is as much as $103 million.

After a year of financial hardship across Hawaii, individual counties must brace themselves if the bill passes, and begin looking for ways of making up this revenue loss. Mayors will be responsible for finding ways to make up the deficit. The TAT was used by the counties to complete county budgets, including essential services.

House Bill 862 was introduced by three Democratic Senators, Marten, Tam and Wildberger. Under the same bill The Hawaii Tourism Authority will also lose its funding, beginning the next fiscal year with a budget of $0. The Tourism Authority was originally established to help Hawaii recover from the impacts of international financial troubles in the 1990’s and is meant to help build up Hawaii’s all-important tourism industry.

The Tourism Authority strongly opposed the bill, stating that “it is imperative that HTA assure [tourists] that Hawai‘i is safe and open for business. Defunding [THA] will mean employment for our neighbors will continue to evaporate.”

How will counties make up the tax deficit after the TAT is allotted to the State’s general fund? County mayors will have the option of adding additional taxes for hotels and accommodations at a rate of up to 3%. This would mean incoming visitors could pay as much tax as 13.25% while staying in Hawaii.

Tourism’s role in Hawaii’s economy is undisputed as a main contributor. During 2020, tourism dropped to a low point of just 10% during certain months in comparison with previous years’ numbers. This hard drop in visitor numbers was especially painful for the hotel and rental car industries that rely heavily on tourism. With the prospect of increasing taxes this coming year, hotels and rentals will need to find new ways to entice not only island visitors but also residents to pay higher prices to stay at resorts and other accommodations.

The summer months are historically some of the busiest months for the islands to receive visitors. According to the Department of Business, Economic Development and Tourism, the first quarter of 2021 saw a 59.6% decrease in air arrivals compared to the previous year. Arrivals from international visitors took a brutal hit, dropping 98.8% compared to the first quarter of 2020. The state’s hotel occupancy level is at an estimated 32.4%, 38 percentage points lower than the same time in 2020. State economists have estimated it will take Hawaii years to recover financially from 2020.

Hawaii’s Governor and legislative body have discussed alternatives to tourism, including industries like film and aerospace, among others. While the state looks at alternative income sources beyond tourism, it must also be careful not to cut off important income streams before alternatives are readily available.

In a competitive world market, the cost for visitors entering the island is likely to continue increasing. The cost for visitors to conduct Covid-19 tests, pay higher taxes for accommodations and rental cars and jump through the hoops to arrive in Hawaii are all reasons visitors may begin looking elsewhere for vacation destinations.