Fate of rail funding bill in limbo as lawmakers float new proposals

State House and Senate lawmakers extended their fierce disagreement today over how to bail out the financially strapped Honolulu rail project, with senators proposing to extend the half-percent excise tax surcharge for rail for another decade, and the House rejecting that idea.

The issue is still unresolved with just one day left in the regularly scheduled 60-day session.

The latest Senate proposal to extend the excise tax surcharge for rail was immediately rejected by the state House in a floor vote this afternoon.

House Transportation Committee Chairman Henry Aquino then proposed a floor amendment that would increase the hotel room tax by 1 percent to 10.25 percent for 11 years as part of a package that would provide more than $1.7 billion for the rail project.

The floor amendment would also extend the excise tax surcharge for rail by one year, and would reduce the state’s share of the excise tax surcharge from 10 percent to 1 percent to generate more than $435 million, he said.

Aquino said that plan “provided more funding than any other conference draft” being considered by lawmakers today. The various other proposals circulating in the House and Senate during a chaotic day of bargaining among lawmakers would have provided only $1.2 billion to $1.3 billion, he said.

“I feel this is a responsible floor amendment, and it addresses many of the concerns that we received,” Aquino said.

Other speakers during the House debate protested that the new proposal would strip Honolulu of $45 million a year in hotel room taxes that the city now receives from the state. That money would be applied to the rail project under the new House proposal.

“This amendment will undoubtedly raise property taxes for the people of the City and County of Honolulu,” said state Rep. Sharon Har (D, Kapolei-Makakilo). She said it would be better to extend the excise tax surcharge to fund rail.

The partially built rail line is massively over budget, with the estimated price tag for the project increasing from $5.26 billion in late 2014 to nearly $10 billion today, including financing costs. The project is funded mostly from the excise tax surcharge, which generates about $250 million a year and is scheduled to end in 2027.

The Legislature already extended the tax surcharge once in 2015 at Mayor Kirk Caldwell’s request, but the latest cost overruns forced the city to return to the Legislature this year to seek another extension.

House Finance Committee Chairwoman Sylvia Luke said the latest House proposal grew out of discussions between lawmakers and members of the tourism industry.

“Rail is a statewide concern, and I applaud the members of the visitor industry for coming forward and helping us share the burden,” and that prompted House leaders to reduce the proposed hotel tax increase from what had been proposed earlier.

However the Hawaii Lodging & Tourism Association issued a statement today flatly opposing the use of the hotel room tax for rail.

“We are opposed to tapping into the (hotel room tax) as a funding mechanism for Honolulu’s rail project and continue to believe that the (excise tax surcharge) is the more appropriate funding mechanism,” the association said.

Luke told her colleagues in a floor speech “I think most of the people in this chamber still have strong misgivings about whether the city has properly managed this rail project.”

She argued for “accountability,” saying lawmakers are “assuring the public we are not going to give a blank check, we are going to give them a finite number of funds, and we are going to put restrictions on the city to make sure that this job is done right, and to make sure that it is complete, and to make sure that they do it in a way that restores confidence back in the public,” Luke said.

She said a number of House members were unwilling to accept a long-term extension of the excise tax surcharge because it is a regressive tax that weighs on the working poor and the elderly.

“So, it is our responsibility to stand up for those people because they don’t have lobbyists here,” said Luke (D, Punchbowl-Pauoa-Nuuanu). “It is our responsibility to stand up for the people who don’t voices, who cannot hire lobbyists, and that is what we have done.”

House Majority Leader Scott Saiki said it has become clear that “unfortunately, the Legislature has assumed an oversight responsibility for the rail project, like it or not. And that is because there is no other entity is the state of Hawaii, public or private, that has overseen this project to watch out for taxpayers and ratepayers.”

Saiki said the cost for rail have already doubled, and “without continued oversight from someone, I suspect that the cost will simply increase over time to a point where it’s out of control.”

Saiki said the vote for the House floor amendment does not mean House members oppose rail. It “is simply a message that someone needs to take control of the management and the financial aspect of this project before it is too late,” he said.

If the House and Senate cannot agree on a funding bill, the city will have to come up with a solution to pay for the rail project’s massive deficit. The 2017 state legislative session is scheduled to end Thursday.