HILO — Time is running out for the County Council to consider a general excise tax surcharge granted by the state Legislature during its special session earlier this year.
The surcharge, of up to a half-cent on the dollar, has become a political hot potato in a county struggling to find enough money to balance its budget in the face of increasing costs for services and employees. Mayor Harry Kim and the County Council raised both property taxes and gas taxes earlier this year.
The Legislature allowed the county option as part of a bill adding a 1 percent increase to the transient accommodations tax on hotels and short-term rentals, while limiting the counties’ share to $103 million annually. The extra 1 percent of the TAT is earmarked for Honolulu’s controversial rail project.
The optional GET increase for the neighbor islands was approved by state legislators even as they justified the TAT increase by saying it is preferable to the Honolulu GET because it is less regressive and doesn’t hit the poor the hardest.
Estimated to raise anywhere from $25 million to as much as $40 million for the county annually, the extra half-penny must be passed by the council and approved by the mayor by March 31, or the county loses its opportunity, at least until the Legislature gives it another chance.
That deadline, taking into account a required public hearing, a committee hearing and two council hearings, puts the timeline somewhere in the neighborhood of the council committees’ Jan. 23 meeting date for a bill to be introduced, said Deputy County Clerk Jon Henricks.
“If something’s going to happen, it’s going to happen very soon,” Henricks said. “That window’s still ajar, but it’s closing.”
Kim doesn’t like the tax because he thinks it disproportionately affects the poor.
He’s still advocating that the Legislature allow counties to share more equally in the TAT that is raised on its islands instead of the state taking it. He also doesn’t like restrictions on what the GET money can be used for.
“This is beyond unfair,” Kim said. “First they give us the ability to raise the excise tax and then they tell us how to spend it.”
Meanwhile, Managing Director Wil Okabe, Kim’s right-hand man, has been talking to council members about a bill.
“I believe the council members should have a lengthy discussion about this,” Okabe said.
But apparently, no one wants their name on it.
Finance Committee Chairwoman Maile David, who could put a bill on the agenda by request of the administration, said no such request has been received. David said she won’t sponsor a bill.
Council Chairwoman Valerie Poindexter, who had told a state legislative committee during the special session that the council would welcome the opportunity to consider the GET surcharge, said she doesn’t plan to sponsor it either.
“Any council member can introduce a bill,” Poindexter said. “I’m not going to introduce it. Definitely not.”
Hilo Councilman Aaron Chung, who had favored a similar bill last year that was postponed after it was headed for a 7-2 negative vote, calls the current situation a “lost opportunity.” That bill had been sponsored by former Hilo Councilman Dennis Onishi, who was term-limited.
“Don’t look at me,” Chung said. “I won’t do it unless I get a clear signal from the County Council and the administration that they’ll support it.”
The GET surcharge can be used only for operating or capital costs for public transportation systems, including public roadways or highways, public buses, trains, ferries, pedestrian paths or sidewalks or bicycle paths.
But because the county currently pays for some of those projects partially through its general fund — paid by property taxes — the extra money could free up money in the general fund for other expenses.
“This is far more palatable to me than a property tax increase,” Chung said.
He noted that the county’s general fund is subsidizing mass transit to the tune of more than $7 million annually.
“That’s what poor people need. They need transportation to get to services and medical appointments and other things,” Chung said. “This has the potential to improve the mass transit system, which has been sorely lacking all these years.”
Chung said the county doesn’t have to go with the full half-percent surcharge, but could adopt a smaller one if the council thought the full half-percent is too onerous.
If approved, the new tax would go into effect Jan. 1, 2019, and continue for 12 years.
The Kauai County Council has moved its enacting bill right along, with a final reading scheduled for Dec. 6, according to its Council Services office. Maui County’s Maui Metropolitan Planning Organization recommended that council hear it, Councilwoman Stacy Crivello told the Hawaii State Association of Counties. But a bill hasn’t moved at the council level yet, a staffer said Thursday.
The one-half percent surcharge would be applied only to the 4 percent tax assessed at the retail level, not on the half-percent tax on wholesale transactions, according to an analyst at the state Department of Taxation.
Proponents point out that one-third or more of the general excise tax is paid by tourists, thus spreading the tax burden. They say that the county has limited revenue options, and money not collected at the cash register would have to be collected from property taxes.
Opponents say Hawaii Island’s cost of living is already too high, there’s a shortage of affordable homes and young people are leaving the island and moving to the mainland, where the cost of living is lower. Those opposed to the tax say it’s regressive, which means it hurts poor people more than the well-off.