HONOLULU (HawaiiNewsNow) - Lawmakers in both houses of Hawaii's state Legislature have agreed to a plan that will continue to provide funding for Honolulu's troubled rail project.
The agreement, reached early Friday afternoon, will discard a proposed two-year general excise tax extension in favor of increasing the transient accommodations tax by 2.75 percent for the next 10 years.
The move, which will increase the state's hotel room tax to 12 percent from the existing 9.25 percent rate, will go into effect from Jan. 1 to Dec. 31, 2027. That increase is expected to raise about $1.2 billion for rail.
"In effect, this proposal will provide more funding for rail than any proposal being considered by either chamber," said Rep. Henry Aquino, the House conference committee co-chair, who also noted that the money will help the project complete all 20 miles of its planned route.
"The end goal has always been to go to Ala Moana," he said.
Mayor Kirk Caldwell, though, says that even though measure will help -- it's still not enough.
"That shows that we have a shortfall of $936 million, which is a lot of money," he said. "That means we have to look for funding sources somewhere else."
Lawmakers say the city should look to reduce expenses first.
"There are many areas where they can cut, and we know, and if they asked me I can tell them. But they need to take a look at their own finances," said state Rep. Sylvia Luke, co-chair of the House conference committee. "At this point in time, the state has bailed out the city two times. It is time for city to look at its budget. "
To be sure, the hotel room tax increase is the largest ever for the tourism industry, and executives worry about the impact on visitor arrivals.
"It's going to put us in an extremely difficult situation competitively. Some have even said it will make us even more expensive to visit than New York," said Mufi Hannemann, CEO of the Hawaii Lodging & Tourism Association.
But lawmakers say Hawaii's hotel room tax is still lower than other major tourism destinations, and the increase comes at a time when the visitor industry is booming.
"If you look at these types of taxes across the country, it's about the average. Twelve percent is about what the average is," said State Sen. Kalani English, (D) Hana.
Honolulu County will lose $13 million in funds currently generated by the transient accommodations tax, with the money instead being diverted toward the city's rail project. Funds from the tax intended for other counties not impacted by the rail will not be impacted.
Under the plan, at least $50 million annually will also be set aside for schools-related spending, thanks to the creation of a new education fund.
Lawmakers say the plan will help provide more money for rail without putting the costs on some of "our most vulnerable citizens, the poor, elderly and low-income working families."
The city had previously asked for a 10-year tax surcharge extension to pay for the project, which is estimated to cost $10 billion.