Two key state senators suggested the counties could impose a sales tax of up to 5 percent to recoup revenue lost if the state holds on to the counties' share of the hotel tax.

Senate Ways and Means Committee Chairwoman Donna Mercado Kim and Sen. Russell Kokubun, both former county council members, said they support giving the counties the authority to impose a sales tax.

"We want to be able to help them," Kim said after a meeting with mayors from Honolulu, Maui, the Big Island and Kaua'i. "A sales tax will hopefully generate more than the (hotel tax)."

Mayors of the counties, who testified before a joint hearing of the House and Senate money committees yesterday, were hesitant to embrace the sales tax.

The key message offered by mayors Mufi Hannemann of Honolulu, Billy Kenoi of Hawai 'i, Charmaine Tavares of Maui and Bernard Carvalho of Kaua 'i was for legislators to reject Gov. Linda Lingle's plan to take away their share of the hotel tax, or transient accommodations tax, for the next three years.

Lingle, a former Maui mayor who had long opposed taking away hotel room tax dollars from the counties, reversed course on the issue this year in an effort to help alleviate the state's budget woes. The plan would save the state $99.4 million in fiscal 2011, $104.9 millon in 2012 and $110.8 million in 2013.

In terms of how it would hurt the counties, budget analysts have estimated that in the first year, Honolulu would lose $44.5 million, Maui $22.7 million, the Big Island $18.5 million, and Kaua'i $14.4 million.

"Losing all of the TAT, combined with the other known revenue shortfalls and fixed-cost increases we face, could result in a 19 percent reduction of our budget and seriously challenge us to provide the basic health and safety services for which we are responsible," Carvalho said.

Carvalho and other mayors said they are instituting plans for two furlough days per month for their employees beginning July 1, and have taken steps in the current year's budget to reduce costs.

Kenoi said the counties are simply getting their "fair share" of room tax revenues, pointing out that they provide the roads, water and sewage systems that tourists use when they come here.

SUPPORT GROWS

Without support from Lingle, an effort to take away hotel tax dollars from the counties did not advance too far in last year's legislative session. This year, indications are the plan has the support of key House and Senate leaders, as well as Lingle.

Kim grilled the mayors for not taking bigger steps last year to store away revenues in anticipation of even leaner years.

Kenoi responded that he submitted a balanced budget and did not see the wisdom in instituting furloughs to store more money away for next year.

Kim and Kokubun urged the mayors to support legislation allowing them to impose a sales tax.

There is now a 4 percent excise tax, except on O'ahu, which has an additional 0.5 percentage point levy that goes toward the city's transit system.

An excise tax is charged on each business transaction, whereas a sales tax is imposed on retail sales only.

The senators said there is less of a pyramiding effect on a sales tax, and the counties would also be able to decide what not to impose a sales tax on. For instance, in some Mainland jurisdictions, a sales tax is applied to all goods except food.

Kokubun said as former council members, he and Kim recognize the frustration of placing nearly all of the burden for revenues on property owners. "We always advocated for additional revenue tools," he said.

SHIFTING BURDEN

According to the state Department of Taxation, a 1 percent sales tax would generate about $120.8 million for Honolulu, $32.7 million for Maui , $24.9 million for Hawai 'i and $13 million for Kaua 'i.

House Finance Chairman Marcus Oshiro said that when the proposal to give counties a sales tax mechanism was introduced last year, he did not give the bill a hearing as none of the counties expressed interest in supporting it.

Kenoi said he's hesitant to embrace a sales tax mechanism because he's not sure what variables would be involved, including who would administer the collection.

Hannemann said there are other ways the state can balance the budget without resorting to taking away hotel tax dollars or creating a new tax mechanism for counties.

The counties have raised all taxes and fees at their disposal but the state has not, the mayor said. "I really believe that, beginning with the governor, (the state) has got to bite the bullet with the taxing options they have at their disposal," he said.

"All they're doing is shifting the burden to the counties," Hannemann said.

But Kim said that the state last year raised its share of taxes and fees as well, including income, hotel and conveyance taxes.