The gradual economic recovery is providing a bit of fiscal cheer to the planners of the Honolulu rail transit project, with tax collections from the key source of funding finally coming in higher than the city has projected.

The rebound in collections from the excise tax surcharge devoted to rail transit is a significant and welcome change of fortunes for supporters of the $5.27 billion rail project.

"The excise tax trend is very encouraging and strengthens the project’s finances," said Toru Hamayasu, interim executive director for the Honolulu Authority for Rapid Transportation. "We took a conservative and prudent approach to our revenue forecasting and we are pleased to see that the economy is doing better than projected. That’s good news for Hawaii and good news for the project."

Excise tax collections for the rail project were $179.1 million for the past fiscal year, which was 9 percent ahead of the amount the city had projected.

The most recent quarterly excise tax collections basically continued that trend, coming in at $46.4 million, or about 6 percent ahead of the city’s latest projections for the quarter, according to a spokeswoman for the rail project.

The state began collecting the half-percent excise surcharge on behalf of the city in 2007, and the city expects to receive a total of $3.532 billion from the rail surcharge during the 16 years the extra tax is in effect. The surcharge applies only on Oahu, and expires at the end of 2022.

That tax is by far the most important single source of funding for the 20-mile Honolulu rail system, but the recession and the long recovery from it repeatedly forced the city to lower its projections of tax collections from the surcharge.

Longtime rail opponent Cliff Slater said he is skeptical of reports of the increase in rail surcharge tax collections because he isn’t certain the statistics provided by HART are accurate. Even if they are, Slater pointed out that the city only exceeded its tax collection projections after the projections were lowered.

"You do get these bumpy years, especially coming out of a recession," Slater said of the recent uptick in excise tax collections. "Now, does it hold going forward? That’s another thing altogether when you are looking at a number of years going forward."

THE CITY predicted in its August 2009 financial plan that it would collect $3.32 billion in excise taxes for the rail project from the second quarter of 2010 through 2023.

It later became clear that estimate was too optimistic given the weak economy, and the city has revised its excise tax collection projections downward at least twice since then.

The most recent financial plan the city submitted to the Federal Transit Administration in September predicts excise tax collections for rail will total $3.154 billion from 2010 through 2023.

That is about $166 million less than the city projected two years ago, and that reduction in anticipated tax collections prompted the city to impose about $100 million in cuts to the rail construction project this year.

Those cuts included reducing the size of rail station entrances, canceling plans for escalators and pedestrian bridges at some stations, and eliminating lighting systems in emergency walkways.

The city also adjusted its financing strategy to try to reduce the borrowing costs associated with the rail project by reducing the amount of long-term and medium-term debt the city will take on during construction.

The April 2011 draft of the financial plan for the rail system projected the city would borrow $3.6 billion during construction of the project. However, the September draft financial plan reduced that borrowing to about $2.9 billion.

That reduction in borrowing is expected to save about $98 million in interest and finance charges, HART officials said.

The city plans to begin borrowing money next year, using those funds to cover rail construction costs until additional federal funding and excise tax revenues arrive. However, transit officials emphasize that they plan to pay off all debt associated with construction of the rail project by the end of 2023, which is a few years after the entire 20-mile rail system is scheduled to open.

HAMAYASU SAID the city won’t immediately change its long-term excise tax projections because of the recent upward trend in collections.

However, if the current trends hold and HART ends up with extra cash when the rail system is complete, that money might be used to help subsidize operations of the system, Hamayasu said.

Fare collections for the rail line are expected to cover only about 17 percent of the cost of operations when the 20-mile system is scheduled to open in 2019. HART expects fare collections to later increase to cover about 40 percent of the cost of operations by 2028.

Another possibility is that continued brisk excise tax collections might allow the city to restore the design features that were cut from the project earlier this year, including the walkways, lighting systems and escalators.

It is also possible that any extra funds might be banked to pay for big-ticket replacement costs in the future, such as replacement parts or equipment, Hamayasu said.