Use TOD fee to fund rail operation, maintenance

Perspective is needed in the discussion for extending the rail surcharge, an extension that could lead to unintended consequences if used to fund operations and maintenance (O&M).

The surcharge — an additional 0.5 percent on the general excise tax on Oahu — specifically demonstrated a dedicated local funding source to the Federal Transit Administration, leading to federal approval of $1.5 billion for local rail development, about 28 percent of the estimated total cost.

Legislation creating the current alignment included yet-unfunded but system-enhancing extensions to West Kapolei, the University of Hawaii-Manoa and Waikiki (with rail obviously a better plan than circulator buses from Ala Moana). If the surcharge is directed toward O&M funding, Oahu may never see federal support for expansion.

Following are estimates from publications on rail (including the 2012 "Final financial plan for Full Funding Grant Agreement"):

» The surcharge brought in $1.2 billion through 2013, with $120 million going into the state’s general fund. The remaining nine years — the surcharge sunsets in 2022 — should bring in about $2 billion as prices rise, with funds left after the state’s cut used to complete the system.

» Rail O&M is expected to start at $110 million per year, with that number rising in year-of-expenditure (YOE) dollars.

» Guideway and station construction by the Honolulu Authority for Rapid Transportation is estimated at about $150 million per mile, or $3 billion of the total $5.3 billion project. An estimate for 8-10 additional guideway miles would be $1.5 billion.

» Fares for TheBus are limited to 27-33 percent of O&M costs, and will probably apply to combined bus and rail O&M. Bus and Handi-Van O&M already exceeds $200 million annually, and combined bus-rail O&M is projected at $450 million in 2021 YOE dollars, about 75 percent for TheBus and Handi-Van.

Regardless of how the surcharge is applied, Oahu taxpayers subsidize transit. With TheBus providing ser- vice islandwide, spreading its subsidy to all taxpayers is fair; however, a different strategy can be used for rail.

City planners praise transit-oriented development (TOD), with residential, retail and office space build-up within radii of one-quar- ter mile (inner TOD zone) and one-half mile (transit-influence zone, or TIZ) of every rail station. Developers flocking to TOD and TIZ precincts — perhaps a $5 billion impact in Kakaako? — could build projects and make profits.

Area residents also would benefit from enhanced commuting. While increased property taxes in TOD areas will add revenues, TOD should have a direct relationship to rail transit funding.

TOD finances various elements of rail in, for example, San Francisco, with Transbay TOD revenue to develop transit in the Embarcadero, and in Hong Kong, where the rail authority owns property along the line, collects revenues to support O&M, and turns a profit. Legislative action could direct some share of construction project profits and lease rents for any new development within TOD precincts to rail O&M — no exceptions. If one benefits from rail, one should help pay for it.

Extending the surcharge eight years — with a zero cut for the state — should bring in $1.6 billion. If the federal government again were to provide 28 percent, there would be over $2 billion for extensions. Using an extended surcharge for O&M threatens chances for federal support to that extension.

TOD revenue for rail is used elsewhere, so why not here? Failure to act will enable all developers to reap benefits from proximity to rail without helping fund operations.

This is an issue worthy of debate during this year’s electoral campaigns.

The path ahead should be to use TOD to help subsidize rail O&M and extend the surcharge to extend the alignment. It is possible — and practical.