Council approves GET surcharge extension with $910 million cap

The Honolulu City Council on Wednesday moved a step closer to approving a bill requiring consumers on Oahu to pay a 0.5 percent surcharge on the general excise tax for five more years to help finance the city’s $6.57 billion rail project.

And while, at least on the surface, there appear to be enough votes to give final approval to Bill 23 next month, a division among Council members over whether to cap the amount of surcharge dollars going to the project could unhinge support for the extension.

The Council voted 7-2 to give second reading approval to Bill 23, leaving in place language that caps the amount of new revenues going to rail at $910 million of the $1.2 billion to $1.8 billion estimated to be raised during the extra five years.

The bill now goes back to the Budget Committee on Jan. 13 for another review. If the bill is approved there, a final vote of the Council would likely take place two weeks later, on Jan. 27.

Members Ikaika Anderson and Ann Kobayashi voted against the bill. Kobayashi has consistently voted against legislation for the rail project.

Rail supporter Anderson, the Council’s vice chairman, said he will not vote for a bill that includes a cap because Honolulu Authority for Rapid Transportation officials have said that won’t be enough to cover the cost of a 20-mile, 21-station rail project. But Council Chairman Ernie Martin said he would not support a rail extension unless there is a cap.

The Legislature last spring gave the city the go-ahead for an extension of the surcharge through Dec. 31, 2027. Consumers on Oahu pay the additional 0.5 percent surcharge on top of the state’s 4 percent general excise tax on all goods and services.

But in what he describes as an effort to “stop the bleeding” on a project that’s seen a dramatic rise in its price tag to $6.57 billion from $5.26 billion in less than a year, Martin proposed language capping the amount going to rail at $910 million. That’s how much HART officials told state lawmakers earlier this year that they needed to meet additional expenses and contingencies.

Experts estimate an additional five years of the surcharge would net between $1.2 billion and $1.8 billion, depending on the island’s growth rate. Martin wants any money raised above the cap to go to city housing projects, a plan that would need the approval of the Legislature.

Martin’s language including a cap was inserted into the bill that was given tentative approval by the Budget Committee last month and what was before Council members Wednesday.

But Council members Brandon Elefante and Kymberly Pine had, before Wednesday, proposed new drafts deleting the cap. Elefante, at the meeting, withdrew his own proposal and supported Pine’s draft. Pine’s draft was shot down 5-4, with Martin joined by Carol Fukunaga, Kobayashi, Joey Manahan and Trevor Ozawa. Anderson, Elefante, Pine and Ron Menor voted to delete the cap.

Before Wednesday’s vote, Mayor Kirk Caldwell and HART Executive Director Dan Grabauskas reminded Council members that Therese McMillan, acting administrator of the Federal Transit Administration, said her agency is withholding $250 million, the next installment of a promised $1.55 billion, until the Council OKs the city’s funding share through the surcharge extension.

Caldwell said he opposes the “artificial cap” but that he supports other language by Martin calling for HART to submit additional financial reports, including details of what is paid out to project subcontractors, to ensure better oversight and transparency of project expenses.

“I think we need to show the federal government … that we are still committed to the course that we began to travel back in 2012 when we signed the full funding grant agreement,” the mayor said.

But Caldwell took heat from several Council members.

Ozawa said that rather than heed warnings from the FTA that the city had breached the funding agreement, city officials should be questioning whether the FTA is within its rights to withhold the money.

“We should be demanding that money from them,” he said.

Kobayashi said the concerns of the city’s taxpayers should outweigh the FTA’s demands. “They want assurance that their property taxes won’t go up so high that they’ll have to give up their properties,” she said.

Caldwell said the project can now be paid for from only two sources of funding: federal transportation funds and surcharge revenues. Using any other funding, including property taxes, would need approval from the Council and the Legislature. “And I don’t the votes are ever going to be there to do that,” he said.

Anderson pointed out that budget officials estimate the average property owner would see tax rates increase 40 percent in each of the five years if the city were required to find $2 billion necessary to stop and dismantle the project.

A little more than half of about 15 public speakers testified against the project.

Several opponents suggested that the Council should reject the extension, using what money has already been generated to build the rail line to end at Aloha Stadium or the Middle Street bus terminal. Rail supporters, however, said that plan would not provide enough ridership to make the project viable.