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Rail funds for rail, not deficit

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State lawmakers are contemplating various ways of moving money around to help close a fiscal gap approaching $1 billion. They should jettison one of them — a proposal to borrow money from the fund set aside for the Honolulu rail project. It’s a wrong-headed idea on multiple levels.

Senate Bill 1426 has crossed over to the House. Nobody likes to take options off the table at this point, but this particular bill will cost the taxpayers more in the long run, so it’s particularly hard to defend.

The latest draft of the bill leaves blank exactly how much of Oahu’s general excise tax now being directed to the city transit fund should be claimed by the state; the original version called for a $200 million loan. But the concept remains the same. The state proposes to issue general obligation bonds and then repay the loan using proceeds from the bond sale. Lawmakers hope to sweeten the pot for city officials who oppose the idea by extending for two years the time that the half-percent rail surcharge is collected from Oahu taxpayers.

Here’s the dollars-and-cents problem with the plan: The bond obligation has to be added to the state’s mounting debt, which must be paid off with interest, raising a concern noted in testimony from the Tax Foundation of Hawaii: "Neighbor island taxpayers are being asked to pay for Honolulu’s mass transit project because debt service must be paid out of the general revenues of the state paid by all taxpayers."

The bill also drew sharp criticism from Mayor Peter Carlisle, who disputed even the notion that money is available. Of the roughly $621 million in the rail fund, he said, the city has spent or committed more than half, with the balance needed for the soon-to-be-named transit authority to begin its operations.

But Carlisle wrote in his testimony that his biggest worry is over something even more fundamental than the cash on hand: It’s over how such a move would be read by members of Congress. The mayor is right to be concerned. Passing SB 1426 would send a signal that the state is willing to tamper with the project’s funding mechanism, the very aspect of the Honolulu project that has drawn favor from federal decision makers.

Projects in other cities competing for the same pot of funds could start to look better by comparison.

The mayor also points out that the City Council would have to change an ordinance to enable the loan, a step that members are not at all certain to take.

The state is obliged to find the right balance of cost-cutting and revenue increases to balance its budget. But lawmakers should first consider all the procedural hurdles that SB 1426 involves. Congress would have to show its acceptance of the idea, city elected officials would have to assure their support, the state’s bond counsel would have to conclude that all of this would not harm the state’s bond rating.

Even if all that could be resolved, this approach would set aside budgetary discipline. State government is allowed some limited borrowing for its own capital improvements, which are one-time investments rather than recurring expenditures.

Elected leaders shouldn’t put normal operational expenses on the credit card as well.

Lawmakers clearly need a workout program for their flabby fiscal muscles, and it can start with one exercise: spiking SB 1426.

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