County tapping into reserves to cover TAT

LIHU‘E — Since March 2020, the county has tapped into at least 40% of its reserve fund.

Since the onslaught of the pandemic until now, the state has withheld the county’s share of the Transient Accommodation Tax, which is usually about $14.9 million per year for Kaua‘i. And since last March, that’s amounted to a $17.4 million hole the county has had to plug.

As of June 30, 2020, the county had about $50 million in the reserve fund balance, according to officials.

During this current FY21, the county allocated funds from the reserve to fully cover the money it typically gets from the state in hotel tax funds.

Earlier this month, the Kaua‘i County Council passed the fiscal year 2022 budget, which runs from July 1 to June 30, 2022, which also tapped into the reserve for another $14.9 million in anticipation that the state will continue to withhold that money.

Combined, that’s $29.8 million.

One of the most contentious bills Gov. David Ige intends to veto is House Bill 862, which would eliminate the $103 million county cut of revenue from the TAT and allow county governments to up its own hotel tax charge of up to 3% over the next decade.

The bill would have also cut funding for the Hawai‘i Tourism Authority by about $19 million, and used funds from the American Rescue Plan Act.

Mayor Derek Kawakami said this bill put the county and HTA in an “awkward position to be competing against each other when in fact, we work closely together.”

“We are appreciative to Gov. Ige for his thoughtful consideration of this particular measure, which would have cut TAT appropriations to the counties and instead allow imposition of our own TAT on tourists,” Kawakami said. “I will always advocate for home rule and be in favor of the counties having control of their own destinies. However, I also understand there are other consequences tied to this bill unrelated to TAT.”

Should HB 862 move forward, the county would be in charge of administering the tax, which it currently does not have the infrastructure to implement. However, per every one percent increase, the county would see about $6 million, according to a previously reported projection.

“HTA and the counties should have never been included in the same bill because what it was asking from each of us forced us to be against each other. What we need right now is to bring people together,” Kawakami said. “Now more than ever we are seeing the need to better manage our tourism industry and we need our Tourism Authority to be a big part of that effort.”

The county’s reserve cannot sustain funding the shortfall in the future.

“Due to HB 862 and the possible loss of our county’s share of Transient Accommodations Tax, we were forced to utilize funds from our reserve to fill the potential void of approximately $14.9 million in this year’s budget,” County Council Chair Arryl Kaneshiro said. “Moving forward it will be imperative for the county to find an alternative way to cover this loss and prevent a catastrophic depletion of our reserve fund. The most likely solution would be in the form of a county-designated TAT tax in addition to the tax already collected by the state.”

Kaneshiro said that if the veto does go through and the share of TAT comes through, it will go into the county’s savings.

“I have all intention of making sure the budgeted money goes back into the reserve,” Kaneshiro said.

Meanwhile, the county continues to lobby for the unreleased TAT funds.

“As for TAT, we will continue to work with our state partners to have a more predictable source of collecting revenues from our visitors for their impacts to our island, so that we can maintain our roads, parks, and public spaces for our local residents,” Kawakami said.