Ige plans veto of bill that shifts tax revenue from Hawaii Tourism Authority, counties

Jun. 22—Gov. David Ige today that would make functional changes to the Hawaii Tourism Authority and eliminate transient accommodations tax distribution to the agency as well as individual counties.

House Bill 862, passed this legislative session through an 11th hour gut and replace effort, sought to eliminate the $103 million annual county share of revenue from the transient accommodations tax, or hotel tax. Instead of sending the money to the counties, the state would keep it.

The changes outlined in House Bill 862 also would take away the dedicated transient accommodations tax funding HTA has had since its founding. The bill replaced HTA's normal $79 million annual TAT distribution with $60 million in funding from this year's American Rescue Plan Act.

The bill would eliminate HTA's procurement exemption, a move that would have required HTA to get state approval for all future contracts and purchases.

Ige, who has until July 6 to make final veto decisions, said he was concerned that the "funding and functional changes " in House Bill 862 would "severely damage HTA's shift to destination management."

Ige said HTA's destination management action plans, which focus on bringing the community together to mitigate tourism hot spots, is especially needed given the high numbers of visitors coming to Hawaii since the development of safe and effective vaccines. He said the bill would make it impossible for the HTA to strike a more sustainable balance in Hawaii's communities.

Ige told lawmakers earlier today that the rationale for his veto also stemmed from his concern that funding the HTA with federal American Rescue Plan Act funds instead of TAT makes funding less predictable and adds potential inefficiencies.

He said that a "3 % county TAT represents a significant increase that could have a major impact on Hawaii's nascent economic recovery."

Ige told lawmakers that coupling House Bill 862 with House Bill 200 would limit operational funding for the Hawai ʻi Convention Center to $11 million, which is only 20 % of the $54.1 million requested in the administration's executive biennium budget. The move, he said, would severely restrict the HCC from attracting additional events and fulfilling its mission.

After legislators passed the bill, Ige met with HTA and offered support. However, it wasn't certain that he would put House Bill 862 on his veto list as the veto will trigger a series of complicated consequences since legislators left HTA funding out of House Bill 200, the state's finance bill.

During today's press conference, Ige also announced his intention to line-item veto parts of House Bill 200 related to debt service spending and objectives that required federal-matching funds.

If Ige vetos HB 862, it means federal funding that lawmakers allocated to HTA for fiscal year 2022 disappears, without any new special funds to replace it.

Ige said today that House Bill 862 is the only funding for HTA.

There's also a sacrificial lamb in HB862, which came to be after legislators used gut and replace to formulate the HTA and county provisions in the bill, which replaced sections of an aerospace bill.

Ige said if he vetos House Bill 862 funding for the International Space Center for Exploration Systems PISCES also would be eliminated.

According to its website, the state-funded Hawaii aerospace center, has five employees who "working to position Hawaii as a leader in space exploration while developing sustainable technologies and industries that benefit Hawaii and space exploration."

"All of those appropriations in House bill 862 would be vetoed along with that measure, " Ige said.

He said HTA and PISCES are among the gaps, "that we would probably propose to fill with the measure that we would propose to cover funding for debt service and some of the other priority appropriation that's necessary to operate government."

Even if Ige does veto House Bill 862, it's uncertain that the veto would hold. If state lawmakers come back into session and chose to address the veto, they may have the votes to override it.

It's still unclear what will happen to the funding for PISCES, HTA and the counties, but contingency plans are ongoing.

Ige said if a veto on House Bill 862 is sustained the counties would get their annual $103 million TAT distribution.

But if Ige vetos House Bill 862 and that veto doesn't hold the counties would no longer receive an annual TAT distribution. Instead, the bill would allow each county to increase its hotel tax up to 13.25 % from the current 10.25 % for up to 10 years. Lawmakers, including House Finance Chairwoman Sylvia Luke (D, Punchbowl-Pauoa-Nuuanu ), said the measure was aimed at improving transparency, and would give the counties an incentive to crack down on illegal vacation rentals, which could be a source of greater tax revenues.

However, the 30 % hike left tourism and government officials debating whether the revenue gains would offset the potential negative impact of increasing the cost of a Hawaii vacation, especially now when the state is trying to recover from the pandemic plunge.

So far, only Maui Mayor Mike Victorino and Honolulu Mayor Rick Blangiardi have said that they would exercise their power to raise TAT taxes if House Bill 862 advanced.

HTA has been beefing up its budget so that it is prepared for House Bill 862 to become law or a veto or a veto override.

The agency is in the process of trying to encumber more than $53 million in funds that could help carry them through to another legislative session. Some $35.5 million of that came from a new distribution of transient accommodations tax funds, which Ige approved on June 1.

HTA previously had not had access to TAT since May 2020 when Ige cut off distribution as part of the state's COVID-19 emergency response. HTA's TAT restart is a critical but relatively small distribution given that in fiscal year 2019 HTA received $79 million in TAT funds, but helped bring $631 million in TAT collections to the state.

In May, HTA's board committed to encumber some $12 million in leftover tourism special funds and about $6 million that has been parked for years in a special fund created for the Hawaiian Music and Dance Center.

The move to encumber so many funds was an administrative-supported end run around House Bill 862, which HTA says would have put its future in jeopardy and taken away the kind of autonomy that has made it possible for the agency to execute multiyear projects and move nimbly. It also would make it harder for state lawmakers to interfere with HTA's destination management priorities and ensure that the agency doesn't run into difficulty spending federal funds on foreign marketing and the Hawai 'i Convention Center.

HTA has until June 30, the date when the agency could lose access to carryover money in its special fund, to create purchase orders to buy goods and services or sign contracts that commit to purchases. That doesn't necessarily mean that HTA will spend the money, which will be subject to certain benchmarks that are established by the HTA board.

HTA's pending encumbrances are more than then their fiscal year 2020 budget, which HTA cut to $41 million from the earlier $86 million, which included some carryover funding.