Lawmakers reach tentative rail funding agreement with GET extension, hotel tax increase

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Hawaii lawmakers reached a tentative agreement Thursday, which means a special session to address funding for Honolulu’s rail project can begin next Monday.

With a Sept. 15 deadline to submit a financial plan to finish rail, lawmakers are feeling the pressure from the federal government. Negotiations have been extensive because billions of dollars are on the line.

After a full day of closed-door meetings, House and Senate leadership, along with U.S. Sen. Brian Schatz and Rep. Colleen Hanabusa, held a press conference to outline the bill, which includes the following:

  • Extend the general excise tax surcharge on Oahu for three additional years, from Dec. 31, 2027 through Dec. 31, 2030. This will provide $1.046 billion.
  • Raise the hotel room tax charged to visitors Transient Accommodations Tax (TAT) by one percent from 9.25 percent to 10.25 percent for 13 years, from Jan. 1, 2018 to Dec. 31, 2030. This also applies to timeshares. This will provide $1.326 billion.
  • The current method of collecting the hotel room tax remains the same. It is collected statewide and goes directly into the general fund, not to the island where it is collected. Each county receives a specified amount of the tax regardless of total amounts collected. Raising the tax does not change that amount.
  • Permanently increase the counties’ share of the TAT from its current $93 million base to $103 million.
  • Reduce the State Department of Taxation’s administrative fee on the GET surcharge from 10 percent to one percent.
  • Require a state-run audit of the rail project and annual financial reviews.

The bill also provides that funds collected for rail go into a new mass transit special fund. Lawmakers say that will allow the state to keep track of both spending and construction progress, rather than simply give the money to the city without any oversight, to ensure waste and fraud does not occur.

Click here to view the bill in its entirety.

Lawmakers also say having two funding sources also provides greater security for the project, in case either the GET or TAT does not perform as expected.

House Speaker Scott Saiki (Kakaako, Downtown) says the $2.378 billion funding shortfall package will fund the rail project through Ala Moana and will not jeopardize the $1.55 billion in federal funding.

“By working with our colleagues in the Senate, the Legislature has come up with a concrete plan to fund the rail project that will reduce the overall costs while shifting some of the regressive tax burden away from our residents, who are struggling to make ends meet,” Saiki said. “This plan will not have a direct impact on neighbor island county budgets.

“We have taken a long look at the rail project and have heard the concerns of residents during our joint public hearing on rail funding this month. This is a critical infrastructure project for Hawaii. We are not giving the city a blank check, but instead insisting on audits and financial reviews and expenditures to provide complete transparency for our taxpayers,” he added.

“I’m optimistic that we’ve taken the most important first step, but we can’t presuppose how the FTA will deal with it except to say that this was an absolutely essential for step to give us another chance,” Schatz said.

Gov. David Ige says he’s happy lawmakers have come up with a way to save rail and that, in the long run, it will help Oahu’s economy.

“I’m elated that they arrived at a solution that provides sufficient funding. We believe we need to move forward with the project and the people of Hawaii want us to get it done,” he said.

Honolulu Mayor Kirk Caldwell arrived at the State Capitol at around 4 p.m. to give his thoughts on the bill, and says he continues to have issues with the agreement.

“We are concerned about a potential funding gap, and we still remain concerned, and we don’t have a bill to analyze to see if in fact what they said in the worksheet is what’s in there, including issues dealing with the HART budget, operating budget of HART, and marketing budget of HART, and whether we’re going to be paying for previous payments already made,” Caldwell said.

“My hope is still that at the end of the day, they will have a dedicated revenue stream proposed by the Legislature that doesn’t come over to this side of Punchbowl so that we have to potentially go to our taxpayers and our bond-owner writers to see about putting in operating funds,” he added. “At the end of the day, we have to manage the risks of the City and County of Honolulu beyond just rail. It’s about protecting the city and it’s about protecting the taxpayers of this city.”

If a funding gap does remain, taxpayers would be in jeopardy of needing to make up the difference to the tune of hundreds of millions of dollars, which in turn could affect many city services, or cause the city to discuss raising real property taxes.

“What that does is basically it makes us choose between core services and completing the rail project and so we have to weigh those decisions out,” said Honolulu City Councilman Joey Manahan.

Lawmakers say the deal with generate enough money to finish rail, but Caldwell says it will still come up short. Why the difference?

Always Investigating analyzed new HART projections that the rail authority came up with in light of the proposed state measures and found the project has gone from $8.2 billion to $8.7 billion with contingencies, plus about another $1 billion in borrowing costs, totaling about $9.7 billion.

That’s a half-billion dollar swing in base cost that the mayor told lawmakers in letter Thursday that the Federal Transit Administration requires to be included as a “stress-tested” cost model.

Hanabusa, who formerly served as chairwoman for HART’s Board of Directors, wasn’t buying it.

“I think, with all due respect to the mayor and the city, they can’t come out as they’ve done in the past and pick numbers out of the air,” she said. “If they want to do that, they have to be fair, and to say that these figures have been there all along is, in my opinion, not true. I could use another word, but it’s not true.”

The mayor’s letter says the half-billion-dollar stress contingency is the largest portion of the funding gap, but he also says a slower tourism growth rate would cause a shortage of extra rail funds.

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