Rail recovery plan submitted to FTA, does not incorporate latest funding proposal

Opponents outline negative impacts of using visitor-housing tax to fund rail

How does the Honolulu Authority for Rapid Transportation plan to finish its rail project?

It’s a question that needed to be addressed as part of a recovery plan submitted Monday to the Federal Transit Administration with hundreds of millions of dollars in federal funding at stake.

View the plan in its entirety here.

In the plan, HART talks about the history of the project, what influenced the high costs, and the delays it’s encountered.

HART says the budget is projected at $8.165 billion before financing costs, while projected resources to Dec. 31, 2027 are approximately $6.8 billion.

“In terms of recovery, as far as HART is concerned, that’s where we have done improvements to our management and the handling of the delay of the project, project controls, risk management, cost containment, all those things that we have to do. That’s all part of the recovery,” said Krishniah Murthy, HART interim CEO.

The feds also asked the rail authority to explore two options: a) completing rail all the way to Ala Moana, which HART says is still the plan, and b) cutting rail short, which officials say is a last resort and not a viable alternative.

“Plan B can be done as we say in our recovery plan. One of the challenges would be we are concerned it does not serve the number of people it was supposed to serve. Instead of carrying 120,000 people a day, it carries hardly about 50 percent less — 60 to 70 percent of that, basically,” said Murthy. “Also, it does not terminate in downtown where there is an easy transfer from rail to buses.”

Murthy notes that Plan B could open HART up to potential litigation from developments that were planned around rail, as well as the fact that HART did not conduct an environmental impact study for rail to stop in downtown Honolulu “so then it goes into a litigation on that. If we do that, it might drag us another two or three years in courts.”

The plan does not address new funding scenarios, such as the latest proposal to fund the rail project by increasing a tax on the hotel industry.

“Unfortunately all the legislative actions are still not complete yet, that are still undergoing,” Murthy noted, adding that the FTA “would not extend the deadline for the recovery plan, so we had to submit the plan.”

The plan itself notes that: “The Financial Plan will be amended and transmitted to the FTA after funding decisions are made.”

On Friday, a House and Senate conference committee passed a proposed revision by the House, which removed the 2-year extension using GET surcharge from Senate Bill 1183 and would instead increase the Transient Accommodations Tax (TAT) by 2.75 percent

That idea isn’t sitting well with city lawmakers and tourism officials. Lawmakers say it would still mean drastic cuts to the city budget, which means increased property taxes, while tourism officials say increasing the hotel room tax would devastate the visitor industry.

City lawmakers also question if the proposal is legal, because there was never a public hearing on it. They want changes made and it has to be done by the end of the session, which is Thursday.

The proposal would raise the hotel room tax from 9.25 percent to 12 percent for 10 years starting January 2018. City council chairman Ron Menor points out it’s still not enough money, and Honolulu taxpayers would have to pay for the rest.

“What this means is that city revenues are going to be needed to make up for the shortfall, which could exceed one billion dollars, and again, this would necessitate significant real property tax increases and/or draconian cuts in important programs and services that our communities need,” Menor said.

Tourism officials point out Hawaii’s hotel rates are already considered one of the highest in the country, and even though tourism numbers have been record-breaking for the past six years, the added costs would drive many visitors to go elsewhere, and spend less while they’re here.

“Which would impact our small businesses and the fact of the matter is the tourism accommodation tax is highly volatile. You can’t count on the same number every year,” said Mufi Hannemann, president and CEO of the Hawaii Lodging and Tourism Association.

Tourism officials also point out that it will encourage more visitors to seek out illegal rentals.

“Effectively, increase to TAT will encourage visitors to stay elsewhere, namely illegal vacation rentals that are causing other problems in our beautiful residential neighborhoods,” said Kekoa MaClennan of the American Hotel and Lodging Association.

They say if there had been a public hearing on the proposal, they would have told lawmakers about all this. They say the best solution to pay for rail is to extend the general excise tax for another 10 years, with the city getting 90 percent and the state 10 percent.

KHON2 reached out to several state lawmakers to address these issues brought up today, but no one was willing to comment. They are scheduled to vote on the proposal Tuesday.

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