Rail surcharge kickback rejected by senators

Key Hawaii state senators are moving against the deal proposed last week that would extend Oahu’s rail tax in exchange for the city relinquishing a share of those rail dollars to the state for neighbor island projects.

Sen. Lorraine Inouye (D, Kaupulehu-Waimea-North Hilo) and Sen. Clarence Nishihara (D, Waipahu-Pearl City), who run the Transportation and Intergovernmental Affairs committees, recommended Monday to strike language in the bill that would allow more Oahu money to flow to other islands’ transportation needs.

They suggested that the state should take only as much money as the Department of Taxation needs to administer Oahu’s 0.5 percent general excise tax surcharge.

The state currently skims a flat 10 percent fee for that work, and on Monday a Tax Department official acknowledged that the agency still doesn’t know how much money it needs or uses to administer the surcharge. The skim, she told the Senate committees, goes into the state’s general fund.

The full committees will vote on those suggestions Wednesday, according to state Capitol staff. The recommendations came after they considered three different rail-tax bills that deal with the state skim, which has been controversial for years on Oahu, and whether to extend the island’s rail tax surcharge in perpetuity.

Inouye and Nishihara’s recommendations, which are likely to be passed by their committees, would advance only one of those measures: Senate Bill 1183. It still calls for lifting the surcharge’s latest sunset, 2027.

The bill, however, must also be passed by the Ways and Means Committee. Its chairwoman, Sen. Jill Tokuda (D, Kailua-Kaneohe), has expressed opposition to extending the rail tax in perpetuity and has scolded the transit system’s leaders for providing lawmakers with insufficient budget details.

Monday’s hearing was reminiscent of the 2015 legislative session, when Honolulu Mayor Caldwell and rail leaders last came before lawmakers to ask for an extension to rescue the project from its soaring cost estimates. The 20-mile, 21-station project faces an approximately $3 billion budget shortfall, including financing.

There were some key differences, however. Instead of hearing testimony from Dan Grabauskas, the former rail executive director who resigned from the rail agency in August amid the project’s runaway costs, state lawmakers were greeted with his replacement: interim Executive Director Krishniah Murthy, who testified before them for the first time.

Another change from 2015: Members of the City Council, including its new chairman, Ron Menor, flanked Caldwell this year as he spoke before the lawmakers — offering the body’s collective support. The Council didn’t do that two years ago.

Caldwell told the committee members that he is confident the city could handle rail’s operations and maintenance costs on its own. Murthy said that’s estimated to be $126 million in 2026.

The city looks to raise some $65 million annually in hikes to its vehicle weight and fuel taxes, as well as parking rate increases. That would raise about half the annual cost, and Caldwell maintains that rail passenger fares and the island’s rising property values could cover the rest.

After testifying, Caldwell told the Honolulu Star-Advertiser that he wants to keep the GET surcharge in perpetuity to fund rail line extensions to the University of Hawaii at Manoa and downtown Kapolei.

Before the two committee chiefs recommended striking the language to share more rail dollars with the state, Caldwell, who has lobbied the Legislature in past sessions to end the skim, told them that the city was “open to consider” sharing more.

Sen. Laura Thielen (D, Hawaii Kai-Waimanalo-Kailua), who voted against the 2015 tax extension, pressed Caldwell. “Isn’t that manifestly unfair?” she asked him. Caldwell responded that visitors to Oahu pay about a third of the tax, so if it expires in 2027, “you’re actually asking residents to pay more.”

Thielen replied, “You could push for the extension without increasing the skim.”

Rail currently faces an estimated $8.2 billion in construction costs, plus $1.4 billion to $1.9 billion in financing costs, city budget officials told the committees.

The bigger the share the state takes, the longer it would take to pay off the rail project. At the current rate, by which the state takes 10 percent, city budget officials estimate the project could be paid off between 2037 and 2047.