The Honolulu City Council Budget Committee rejected a proposed property tax increase for hotels and resorts Wednesday.

Resolution 17-70 would have increased property tax rates for hotels and resorts from $12.90 per $1,000 of assessed value to $13.40, generating $6.53 million annually for general city operations.

Instead, committee Chair Joey Manahan suggested the committee maintain current rates in hopes that visitor industry representatives will be more willing to work with city lawmakers later if the city must come up with funds for the $10 billion rail project.

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Two weeks ago state lawmakers couldn’t agree on a rail tax bill before the legislative session adjourned. One proposal called for a hotel room tax increase that the visitor industry was not hospitable toward.

Manahan said financing the rail project using a combination of property taxes and bond issuances is a “possibility,” depending on what the Legislature ultimately does (there’s still the possibility of a special session to revisit the rail tax issue).

“If we were to forgo the increase this year,” Manahan said, “I just want assurances from the visitor industry that we would be able to work with them should that happen, and of course none of us wants that to happen.”

Manahan posed this possibility to Mufi Hannemann and Max Sword, who testified at the meeting on behalf of the visitor industry.

“We’re willing to do whatever we can do to help, within reason,” Hannemann said. “The big cloud hovering over us is this possibility of a special session.”

Hannemann is the president of the Hawaii Tourism and Lodging Association and a former Honolulu mayor.

Earlier in the budgeting, Manahan observed that the visitor industry’s lobby is “a force to reckon with.”

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Sword and Hannemann warned the committee of grim prospects ahead for the industry despite record numbers of visitor arrivals and spending in 2016.

“We will have a downturn soon,” said Sword, the vice president of industry affairs at Outrigger Hotels and Resorts and current chairman of the Honolulu Police Commission.

Manahan said the city will still have a balanced budget thanks to increases in the vehicle weight tax and parking meter fees approved by the Budget Committee on Tuesday.

Manahan said he’s not sure if this decision will impact how state lawmakers proceed on their own bills to fund the rail project.

At the beginning of the state legislative session, House and Senate leaders urged the City and County of Honolulu to “put some skin in the game,” as Senate Ways and Means Chairwoman Jill Tokuda said. Construction for rail is funded with a half percent surcharge on the general excise tax and through federal grants, not city funds.

“I’m not sure if this is going to have an impact on that,” Manahan said after the committee meeting adjourned. “We’re here considering city budget.”

He added that the bill to allow the city to use its own funds for rail construction, which the council temporarily shelved last week, was a bigger issue for state lawmakers.

Property taxes for most Hawaii homeowners will remain at $3.50 per $1,000 of assessed value, among the lowest property tax rates in the nation.

Mayor Kirk Caldwell originally proposed a 30 cent increase to Residential A properties, non-owner occupied homes worth $1 million or more. However, a bill signed into law last month splits the property class into two tiers.

The resolution passed by the committee Wednesday would lower the current rate for Residential A property from $6 to $4.50 per $1,000 of assessed value for the first $1 million of valuation. Above $1 million, the rate would increase to $9 per $1,000 value.

That is expected to generate $5.24 million annually.

The city is already bringing in $77 million more than last year in revenues from property tax because assessed values are increasing, said Nelson Koyanagi, director of budget and fiscal services.

No Handi-Van Fare Increases

The committee also scrapped proposed fee increases for riders of TheHandi-Van, but kept a one-time increase to TheBus fare.

At Wednesday’s meeting, Councilman Brandon Elefante tweaked Bill 28 to eliminate the proposed fare increase from $2 per Handi-Van trip to $2.50 by 2018.

The increase in bus fare from $2.50 to $2.75 starting in January remains. Under city law, revenue generated from riders must cover at least 27 percent but less than 33 percent of the bus system’s operating costs. This year, city officials say, the revenues cover just under 27 percent.

Manahan said in an interview after the meeting that setting rates for public transportation is an issue that should be addressed by the rate commission created by the 2016 charter amendments.

During the meeting, Councilwoman Kymberly Pine warned that without fare increases riders shouldn’t expect improvements to the city’s public transportation system.

“Without increases we just cannot, financially, make any improvements to the system,” Pine said.