Hotel vacancies putting
dent in state budget

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By Tim Ruel
truel@starbulletin.com

The high vacancy levels that have hit Hawaii's hotels this week are cutting directly into revenues from room taxes, already prompting concern about the state budget.

The state's Council on Revenues, however, wants to wait for hard evidence before drawing conclusions about tax revenues, the council's chairman said yesterday.

The transient accommodations tax, a 7.25 percent levy on the price of hotel rooms in Hawaii, typically accounts for about 5 percent of the state's total taxes.

In the immediate aftermath of last week's assaults on the United States, far fewer visitors are in the islands. The effect on hotel room taxes is direct: If the hotels get half as many visitors, the state gets half as much room tax revenue.

Plus, there is an indirect reduction on other taxes. If tourism workers lose their jobs or their hours because of the slowdown, the state also stands to lose income taxes, and so forth.

On an anecdotal basis, average hotel occupancy has already dropped and stands anywhere from 20 percent to 50 percent, said Joseph Toy, president of tourism consulting firm Hospitality Advisors LLC.

"It's just going lower," Toy said.

In September last year, statewide hotel occupancy was 76.4 percent, according to accounting firm PKF-Hawaii. PKF's final report for this month won't be out until October.

Adding to Toy's concerns is that another key hotel statistic, revenue per available room, has been flat, at a little more than $130, since March -- months before the terrorist attacks occurred. Revenue per available room is the amount of money received for each hotel room, which is considered a more accurate indicator of cash flow than posted room rates.

Reacting to concerns about Hawaii's tourism, Gov. Ben Cayetano is calling for a special session of the state Legislature, a decision prompted yesterday at an emergency meeting of local business and government figures.

But Michael Sklarz, chairman of the state's Council on Revenues, warned about jumping to conclusions when it comes to tax revenues. The seven-member council meets every quarter to project state income, providing a limit for the state's budget.

Sklarz said yesterday he has talked with council members about holding an emergency meeting to review the effects of last week's attacks, but he thinks the council should wait for its scheduled meeting on Nov. 1 to get more data.

While Waikiki may be more empty than usual, that's the immediate result of increased security measures at airports and uncertainty over the U.S. response to the attacks, Sklarz said. The long-term effect could be less severe.

"You're just speculating and then you get people all alarmed," Sklarz said.

September's tax data also won't be available until October. In July, the latest month for which figures are available, hotel room taxes rose 18 percent to $16.3 million from $13.8 million in the same month last year. Total state taxes were at $299.2 million, up 5.2 percent from $284.4 million.

The bulk of the state's revenues come from the general excise tax on business, which brought in $140.6 million in July, up 6.5 percent from $132 million in the year-earlier period.