Rail deal survives first vote in special session

By a razor-thin 6-5 vote, Hono­lulu’s rail project, long plagued by budget woes, will live to fight another day.

Senate Bill 4, the vehicle that looks to bail out rail with a $2.4 billion funding deal, narrowly passed the Senate’s Ways and Means Committee on Monday, the first day of the Legislature’s special session.

Sens. Donavan Dela Cruz (D, Wahiawa-Whitmore-Mililani Mauka), Maile Shimabukuro (D, Kalaeloa-Waianae-Makaha), Brickwood Galuteria (D, Kakaako-McCully-Waikiki), Michele Kidani (D, Mililani- Waikele-Kunia), Glenn Wakai (D, Kalihi-Salt Lake-Aliamanu) and Gil Keith-Agaran (D, Waihee-Wailuku-Kahului) voted in favor.

Sens. J. Kalani English (D, Molokai-Lanai-East Maui), Breene Harimoto (D, Pearl Harbor-Pearl City-Aiea), Lorraine Inouye (D, Kaupulehu- Waimea-North Hilo), Kaiali‘i Kahele (D, Hilo) and Gil Ri­viere (D, Heeia-Laie-Waialua) voted against.

The vote ensures that the bill advances to the Senate floor for a vote today.

As the weeklong special session got underway, Honolulu Mayor Kirk Caldwell said he’s willing to support the Legislature’s funding deal if its members publicly agree to revisit the matter should the Federal Transit Administration reject their solution.

“It would be really easy for me to just say I accept it, and I know many expect me to do that,” Caldwell said at a press conference Monday, two hours before the committee took up Senate Bill 4, which aims to complete the full 20-mile, 21-station project to Ala Moana Center.

“The House and Senate seems confident that their numbers are adequate, and no one wants that to be more true than me,” Caldwell added. “But according to our analysis, this bill falls short.”

Caldwell has come under fire in the past several days, including by many of his own rail allies, for warning that the tentative deal won’t provide $578 million to pass an FTA “stress test.”

Moments after telling the committee Monday that he believed the bill needs to include the stress-test funding for rail’s remaining capital costs, two members of Hawaii’s congressional delegation came to the podium and rebuffed his concerns.

“This revenue package is likely to be viewed as serious and sufficient,” U.S. Sen. Brian Schatz told the committee. “As far as I can gather, it is not the practice of the FTA to make the stress test amount a financial requirement.”

Schatz’s onetime rival, U.S. Rep. Colleen Hanabusa, then told committee members she believed the deal was solid and that she didn’t believe the FTA would require stress-test dollars upfront. “What you have done, in my opinion, is to address the cost in a very systematic and logical manner,” said Hanabusa, who chaired rail’s oversight board last year before returning to Congress. Caldwell had appointed her to the Honolulu Authority for Rapid Transportation board in 2015.

After about two hours of testimony, the senators’ first question to rail leaders was whether the FTA would demand that their bill fund the stress test.

“It’s for them to decide whether it’s needed or not,” HART interim Director Krishniah Murthy told Kidani, referring to the federal agency.

FTA officials “do not need the hard money. … They need to see the sources” of where the funding will come from and whether those sources are “reliable and adequate,” Murthy told Keith- Agaran.

Caldwell and rail leaders mentioned the stress test in written testimony to lawmakers earlier this year, and they’ve stated that the project currently faces a $3 billion shortfall. However, for months they’ve put rail’s total project cost at $8.16 billion and didn’t add the stress test to their official total cost until Wednesday — the day before legislative leaders were to announce their agreement.

“It is not solid money,” Hanabusa told Keith-Agaran later in the hearing of the stress test’s $548 million.

“I believe that FTA wants to see this project finished.”

However, Caldwell and members of his Cabinet point out that rail is ultimately a city project and that the financial risk falls on them and city taxpayers. The mayor is further resolute that he doesn’t want to come back to the Legislature for a third time for more rail funding.

In 2015, when the Legislature provided a five-year general excise tax surcharge extension, he and city leaders told them it likely would be more than enough. This time around, the city is taking a different tack, stating that the deal could leave rail short.

Sen. Donna Mercado Kim (D, Kalihi Valley-Moanalua Valley-Halawa) also sat in on the hearing. When she asked City Council Chairman Ron Menor to answer “yes or no” whether the latest proposed deal would be sufficient, Menor struggled.

“I think it’s a reliable figure,” Menor said first.

“We’ll try to make it work,” he said when pressed further.

“I hope so,” he said finally.

In his press conference earlier in the day, Caldwell acknowledged that no one knows rail’s true, final cost.

House and Senate negotiators agreed to the bailout package last week. It involves raising hotel room taxes statewide by 1 percentage point for the next 13 years to raise $1.32 billion for rail. That would increase the state’s hotel room tax to 10.25 percent.

The plan also would require lawmakers to extend the half-percent excise tax surcharge on Oahu for another three years to raise $1.04 billion. On Monday, Caldwell also called on the Legislature to extend the excise tax surcharge an additional two years to deal with the stress test.

Public testimony included strong opposition from representatives of the tourism industry to the part of the bill that would raise the transient accommodations tax, or TAT, to 10.25 percent. Several industry executives said increased visitor arrivals to Hawaii have not translated to increased hotel occupancy rates due to alternative accommodations like Airbnb and vacation rentals.

Former Honolulu Mayor Mufi Hannemann, now president and CEO of the Hawaii Lodging & Tourism Association, called the TAT “highly volatile” and suggested the GET is a more stable funding source for the project.

Several lawmakers later doubted remarks from hotel executives who asserted that increasing the hotel room tax would harm the state’s tourism industry and drive away visitors. The TAT levied on the average hotel room rate of $254 a night would increase by $2.54 under the higher tax rate.

“That’s going to break the back of the industry?” questioned Galuteria. “Am I missing something?”

Elected officials from the neighbor islands — including Hawaii island Mayor Harry Kim, Kauai Mayor Bernard Carvalho and Maui County Council Chairman Mike White — also opposed the bill, arguing that their islands should not have to foot the bill for a Honolulu project.

Tom Yamachika, president of the Tax Foundation of Hawaii, said state tax dollars fund projects around the state, and with 80 percent of the population on Oahu, Honolulu taxpayers often fund state projects on other islands.

The partially built rail project is hugely over budget, with the estimated cost ballooning from $5.26 billion in late 2014 to nearly $10 billion, including financing costs.

The city has to show the Federal Transit Administration by Sept. 15 how it plans to raise the money to cover the budget gap.