Faced with a $1.2 billion budget gap, Gov. Linda Lingle on Monday proposed the state take about $100 million in hotel taxes from Hawaii's four counties next year and delay the payment of some personal and corporate income tax refunds.
The governor's supplemental budget for the 2011 fiscal year that begins July 1 does not call for wholesale layoffs or an increase in the number of furlough days state workers are already taking.
It does call for a big increase in the tax that insurance salespersons pay on their commissions and the elimination of dozens of positions in agencies that focus on mosquito control, adult mental health, family health and agricultural statistics.
But her proposal to swipe roughly between $99 million and $111 million in county hotel taxes in each of the next three fiscal years is likely to face opposition from the state's counties, which rely on the tourism-driven assessment.
Honolulu County, where the bulk of the state's tourists visit, would lose almost $45 million in the 2011 fiscal year; Maui would lose nearly $23 million; the Big Island, $18.6 million; and Kauai, $14.5 million. The Legislature must approve the transfer.
"I won't be surprised if the counties object, but I think they're prepared for it," said Lingle, a former mayor of Maui.
Her top budget adviser, Georgina Kawamura, told reporters at a briefing that the state would avoid having to cut even more than it already has if as much as $315 million is captured over the next three fiscal years.
Honolulu Mayor Mufi Hannemann criticized the idea, saying it could prod counties to increase property taxes in order to maintain police, fire, lifeguard and other services. Counties already are expecting property tax revenues to drop in the next year or two, a slow-to-emerge product of the economic downturn.
"I am disappointed that the governor would reverse from last session her position on taking the counties' share of the hotel room tax," Hannemann said.
The Legislature considered commandeering county hotel taxes idea earlier this year, only to drop the idea. But with little appetite for significant tax increases during an election year, legislators may be more receptive when they reconvene next month.
"We serve the same constituency," said Rep. Marcus Oshiro, chairman of the House Ways and Means Committee. "Those funds will go to good and appropriate purposes of providing services to the same constituencies," The Wahiawa Democrat, however, stressed that he was not ready to endorse the governor's proposal.
The current 2010 fiscal year budget is running a $721 million gap. Lingle is proposing a number of moves to close it, including the delay in personal and corporate income tax refunds. That would push about $275 million in payments into the 2011 fiscal year, which begins July 1.
Current law allows the state to pay a refund 90 days after the tax return is received or 90 days past April 20, whichever is later, the governor said.
"That delay allows us to get through that 2010 budget crisis that we have right now," Lingle said.
For the 2011 fiscal year, the state is facing a nearly $506 million budget hole, the governor said.
In addition to taking the county hotel taxes and cutting some public services, Lingle is proposing to hike the state general excise tax on insurance commissions from .15 percent to 4 percent, the same level paid on real estate commissions. That would gain more than $20 million a year.
Oshiro said he was surprised by the proposal, given the governor's vocal opposition to most tax hikes. "It shows a change of position from the last several years," he said.
Lingle also wants to eliminate state payments for public employee life insurance premiums and prescription drug reimbursements for spouses of retired state workers, and limit indigent dental services to emergencies.
The governor did not propose raiding two special accounts, the $180 million hurricane relief fund and the $60 million rainy day fund. Much of the rainy day account has been eyed as a source of money to eliminate Hawaii's teacher furloughs, but negotiations between the state and the teacher's union are at a standstill.