“The State is paying nothing on the rail project. City and County residents are already paying the GET surcharge.”
OPTIONS FOR ADDITIONAL RAIL FUNDING
Extending the Half-Percent GET
Those who support extending the half-percent GET Surcharge another seven to ten years starting in 2027 point to the simplicity and effectiveness of the approach. The GET surcharge is already proven, given that it has been in place for ten years and would be even more effective if the Legislature reduced or eliminated the unplanned 10% “skim” the state tax department imposed (so that rail only gets 90% of the revenue.) The half-percent is only charged on Oahu, which many believe is most fair, given that the rail project serves only residents and visitors to the island. Non-residents pay roughly a third of the islandwide total every year. The actual amount of the surcharge is so low – just one penny on a two-dollar purchase, or a quarter on fifty-dollar purchase – research has shown it receives little or no notice by consumers.
Increasing the TAT (Hotel Room Tax)
Instead of a simple extension of the half-percent GET surcharge, the State House approach would increase the Transient Accommodation Tax or TAT. This would push the increase revenue needed onto visitors. Visitor industry officials are concerned this approach could jeopardize the state’s leading industry. Of greater concern to others, though, is the complexity of raising the tax and earmarking the funds, whether or not it would be statewide (and not just on Oahu), and possible legal challenges that might result (with any ensuing delays likely leading to FTA default.) Another concern is that the Legislature might arbitrarily reduce other TAT allocations to the City, which would then force the City to raise Real Property Taxes. The risk of such political maneuvering might even make the FTA question the approach altogether as a “dedicated” source of funding.
Increasing Property Taxes
Some State Legislators have complained the Oahu residents need to “put more skin in the game” for rail, a veiled reference that they should pay more from the City’s budget, which would require raising real property taxes to cover the increased cost to the City. Not surprisingly, this is very unpopular for many reasons, particularly because Oahu residents are already paying for two-thirds of the GET surcharge, which they rightly regard as MOST of the “skin in the game.” Transit experts also point to the fact that literally NO other municipality in the country uses real property tax to pay for rail transit construction or operations; indeed most of them use something like the GET surcharge. Housing experts, meanwhile, worry how real property tax increases raise the cost of housing in Honolulu (for both owners and renters), already among the highest in the entire U.S. Finally, there is the very real threat that such a move would reduce the City’s strong bond rating, which would cost the City – and therefore taxpayers – billions of dollars over time and require slashing spending on everything from roads and parks to trash collection and public safety.
FREQUENTLY ASKED QUESTIONS ABOUT RAIL FINANCING
Q: What is the GET surcharge?
A: A surcharge is an amount added on an existing tax. For example, the state General Excise Tax is 4% and the Oahu County Surcharge adds half a percent to that, making the tax rate on goods and services sold on Oahu 4.5%
Q: What would be an example of the County GET Surcharge?
A: Before the surcharge was passed, when the GET was 4%, if you purchased something for a dollar on Oahu, 4 cents in tax would be added to the cost of the purchase, so you would pay $1.04 and a $2 cup of coffee would cost $2.08. After the surcharge was added the cost would be $2.09. In other words, there would be a penny added for every two dollars.
Q: Does the GET Surcharge take any funds from the state or county budgets that would go to other projects, programs or services?
A: No. The County Surcharge was created as a separate source of revenue dedicated exclusively to paying for the Honolulu rail project.
Q: How much of the surcharge is paid by tourists?
A: About one-third of the County GET Surcharge revenue comes from non-residents.
Q: How long have we been paying the County GET Surcharge?
A: Many are surprised to learn people on Oahu have been paying it since January of 2007. Public opinion research shows that a large percentage of Oahu residents find it only “mildly noticeable” or “not noticeable at all.”
Q: How much as the surcharge raised so far?
A: The rail project has received about $2 billion in funding from the surcharge.
Q: What’s “the skim”?
A: The “skim” is amount the state takes out of the surcharge?’
Q: Why does the state skim funds from the surcharge that’s supposed to go to the rail project?
A: The state collects the money for the City to use on the rail project. However, 10% is much more than it costs the state to collect the funds. The Honolulu Star-Advertiser, the Tax Foundation, and many others have called for the state to end the skim and give all of the revenue to the rail project as originally planned.
Q: How much has the state skimmed off of the GET revenue collection?
A: As of July 2017, the state has skimmed approximately $200 million off of the rail project funding.
Q: What is the Transit Accommodations Tax?
A: The Transit Accommodations Tax, also referred to as the TAT or “Hotel Room Tax” is a is a tax imposed on certain rental activity in the State of Hawaii, including hotels and “legal” bed-and-breakfast operations. The current rate is 9.25%. For timeshares, the rate is 7.25% of fair market rental value.
Q: How much would the TAT be raised for rail transit?
A: Rate increase discussed have ranged from an additional 1% to as high as 2.75%, or a 12% total TAT.
Q: Why do some oppose the use of TAT for rail transit funding?
A: Visitor industry leaders fear that increasing taxes on hotel rooms – currently Hawai‘I has the second-highest rate in the country – will threaten competitive pricing for visitors or drive more tourists to illegal vacation rentals.
Some lawmakers are concerned that while increasing the TAT raises more funds for the state, the state will reduce its current share of TAT with the city, therefore forcing an increase in Real Property Taxes on Oahu.
Some Neighbor Island lawmakers object to the statewide TAT being used only for the benefit of O‘ahu.