Room tax shortfall may hurt recovery
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By Katherine Nichols
Advertiser Staff Writer
The significant decline in revenue from the transient accommodation tax this fiscal year will negatively affect several state entities and could potentially jeopardize the recovery of the tourism industry.
Revenue from the transient accommodation tax, also known as the hotel room tax, is projected to fall from a record $177 million in fiscal year 2001 to $157 million this fiscal year, affecting everything from the Hawai'i Convention Center and counties on all islands to possibly marketing and product development related to the state's No. 1 industry.
So far this year, collections are down 22 percent as of June from the same time a year ago.
The decline comes as hotel owners who collect the state tax — 7.25 percent of revenues from all rooms — have struggled with a decrease in the number of visitors to the Islands and meeting the costs of value-added deals to attract guests since Sept. 11.
"Everybody subjected to an allocation will be affected" by the decline of the tax collection, said David Carey, a member of the Hawai'i Tourism Authority and president and chief executive officer of Outrigger Enterprises Inc.
Until 1998, the counties received 95 percent of the transient accommodation tax collections to help balance their budgets. Now the tax is distributed three ways, with at least two tourism agencies relying on it for survival.
The counties receive 44.8 percent of the collections to use as they wish. The Hawai'i Convention Center gets 17.3 percent for expenses and debt service. And 32.6 percent goes into the tourism special fund for use by the Hawai'i Tourism Authority, the agency that sets policy, pays for major events and festivals, and contracts with the Hawai'i Visitors & Convention Bureau to market the Islands worldwide.
Yet the tourism authority already has faced financial hits that frustrated many industry leaders pushing for more marketing dollars to ignite a rebound in tourism.
Recent legislation cut the allotment to the tourism special fund by 5.3 percent, from 37.9 percent. That 5.3 percent goes into a trust fund, according to Murray Towill, president of the Hawaii Hotel Association.
Towill said 32.6 percent of the tax collected is supposed to bring the tourism special fund to $63 million. If the collections are too low — as they will be this year — the trust fund will be used to supplement the tourism special fund until it reaches $63 million, or until the trust fund is drained.
If the trust fund isn't tapped, it gets swept into the state's general fund where it's treated like any other state revenue.
Of that $63 million, $61 million goes to the tourism authority, $1.3 million is allocated for the Department of Business, Economic Development and Tourism for its research related to tourism and visitor statistics, and $1 million goes toward the improvement of state parks and trails.
The tourism authority must also spend $1 million to improve and protect the natural environment, but that comes from its $61 million allotment.
Gov. Ben Cayetano also cut $5 million from the money that the tourism authority is allowed to spend, reducing it from $61 million to $56 million. As a result, the tourism authority's administrators have begun making budget cuts.
Some say the move is ill-timed as the industry struggles to recover its footing. In addition, they said that the limiting of marketing investments to a fixed amount was never the intent when the transient accommodation tax was initiated.
Originally, setting a percentage rather than a static amount was supposed to give the tourism industry an incentive to make the most of those marketing dollars, said Towill. If successful, the industry would have more resources to re-invest into marketing and support the broad mandate of the tourism authority.
On the flip side, if extra money wasn't generated, the tourism industry would have to adjust and live within its means.
The tax first took effect in January 1987. At that time, 5 percent of revenue from hotel rooms on all islands went into a state fund. Legislation in 1994 raised it to 6 percent. The added 1 percent helped pay for the construction of the Hawai'i Convention Center.
Another increase of 1.25 percent in 1998 coincided with the formation of the tourism authority, bringing the tax to its current 7.25 percent. As a result, the industry finally achieved what it had long desired: dedicated funding to free tourism promotion from the legislative process and plan ahead.
"You need an amount that you can count on so you can make long-term investments and decisions," said Towill.
But the term "dedicated funding" remains a sticking point with some industry leaders whose interpretation is that the authority can spend every dollar in its special fund while avoiding tedious processes of getting budget approval and justifying expenditures.
A more accurate explanation is that a consistent source for the funds exists and "nobody else can tap into that source," said Lloyd Unebasami, chief administrative officer for the Hawai'i Tourism Authority. "Your budget still has to be approved," he said.
Sen. Donna Mercado Kim, D-15th (Kalihi, 'Aiea), said the Senate recommended a $10 million budget cut for the tourism authority before the governor reduced it by $5 million. As head of the Senate Committee on Tourism and Intergovernmental Affairs, Kim has demanded more accountability from the state agency.
"I think there are a lot of areas where they could be more efficient," she said.
