DLNR INCREASING SMALL BOAT HARBOR FEES
Action is necessary opposing SB795, a new bill aimed to increase commercial use fees. DLNR is proposing a change to commercial fees that will charge operators the greater of:
(1) $3.00 per head; or (2) 3% of gross revenues.
If an operator currently offers a trip that “nets” less than $100 per ticket (after commission), then your fees are increasing under this bill. For example, if you net $80 on a whale watch ticket, you currently pay $2.40 per ticket (3% of $80.00). Under SB795, your fees would be increased to $3.00 per ticket because $3.00 is greater than $2.40. Another example is child rates. If your child net rates are $60 per ticket, you currently pay $1.80 per ticket (3% of $60). Under SB795, your fees would be increased $3.00 per ticket. SB795 is doubling your commercial fees for any net rates of $50 or less. This increase is compounded by the current capacity limitations and travel restrictions.
HERE IS DRAFT OTC TESTIMONY:
The $3 per passenger fee will be far greater than 3% of gross receipts for a large number of operators who are struggling to survive.
A $3 per passenger fee (Section 2, subsection (c)(5)(B)) is only reasonable if the average ticket price for an ocean-based tour (e.g., whale watches, snorkel sails, dinner cruises, etc.) is $100, as this would be the equivalent to 3% of gross receipts. However, the average ticket price (particularly after commissions) for many operators is less than $100. A major factor in this equation is that the ocean tourism industry is a family-oriented industry. So while a quick internet search might show several tours over $100, a closer look would show that kids are often heavily discounted. As a result, a $3 per passenger fee would lead to a huge increase in fees paid to the State, especially for many small operators and family-oriented businesses whose tours sell for under $100.
This potential increase in fees is combined with the current COVID-19 economy and restrictions on local businesses. The majority of boat operators are currently limited to 50% passenger capacity and are discounting their tours as a way to attract visitors. As a result, operators are taking fewer passengers for far less money. A $3 per passenger fee could have a significant financial impact that many operators cannot bear at this time.
In addition, there are many operators who offer deeply discounted trips as a way of doing charity and benefit events. For example, a company may only charge $15 a ticket to get people to come help clean up the reef at a popular snorkel site. A 3% fee is $.45, but a $3 fee is now 20% of the ticket price. As a result, companies will face a major disincentive to helping their local communities.
OTC is unsure of the State’s reasoning for the $3 per passenger fee or the problem it is attempting to solve. A 3% gross receipts fee seems to be a fair rule (i.e., you make more, you pay more) that does not have the same adverse and disproportionate impact on smaller operators as the $3 per passenger fee will.
There is no recourse for harbor users to dispute the fees established by appraisal.
The Bill currently states that “all fees established by appraisal pursuant to this subsection shall be set at fair market value” (Section 2, subsection (c)(7)). While fair market value sounds reasonable, that is simply not always the case. Multiple appraisals often come back with very different numbers. As a result, purchasers and lessors typically have a right to dispute an appraisal by hiring their own appraiser. An example of this is found in HRS § 171-17(b)(2), whereby if the purchaser or lessor of public land does not agree with the appraisal price they may “appoint an appraiser who shall conduct an appraisal on behalf of the purchaser.”
This Bill assumes that “fair market value” is actually and always fair market value. However, one bad or unjustifiably high appraisal can have devastating effects on both recreational and commercial harbor users with little recourse. Accordingly, OTC believes that if rates were to be established by an appraiser, harbor users should have the right to counter any rates that they believe are not fair market value just like in HRS § 171-17(b)(2). Otherwise, the department will have carte blanche to raise rates without any recourse for the users.