Proposed limit on rail tax likely to be adjustable

The proposed cap on general excise tax dollars used to build rail would likely be more of a flexible limit than a hard one with no exceptions, Honolulu City Council leaders say, as project costs have soared even higher in recent weeks.

On Wednesday, Council members held their first official discussion of Bill 23, the city measure that would enact the five-year rail tax extension that state leaders authorized earlier this year. Those five years would generate an estimated $1.6 billion or so more from Oahu’s half-percent GET surcharge.

However, Council Chairman Ernie Martin has proposed that Bill 23 cap the portion that rail officials can spend on the rail project at $910 million and have the rest go to affordable workforce housing. The $910 million represents the budget shortfall that the Honolulu Authority for Rapid Transportation reported in December.

In the past two months, the estimated cost to complete rail has shot up by as much as $700 million on top of the December amount. Martin has said he aims to “stop the bleeding” by capping GET spending at what HART quoted in December, although it’s not yet clear how the city would cover the additional costs.

During Wednesday’s meeting of the Council Budget Committee, members suggested they keep the spending cap — but that the measure also allow rail officials to request more dollars from the rail tax extension later if they exceed the $910 million limit, which is something that rail leaders say is all but certain to happen.

“The $910 million that the Council has given you access to, if you need anything above and beyond that, we simply give you a mechanism in the (bill) to come back to the Council (and) ask our permission to access those additional monies if you need them,” Councilman Ikaika Anderson suggested to HART Executive Director Dan Grabauskas. “If we put such a mechanism in the legislation, that should alleviate your concern.”

Committee members also wondered how their federal partners for rail would react to the proposed cap. Last week the Federal Transit Administration, which has a $1.55 billion funding deal with the city, expressed concerns that the Council hadn’t yet passed the rail tax extension and reminded HART that the city is bound by contract to come up with ways to cover added rail costs.

Grabauskas said he had not yet discussed the cap proposal with the FTA, and he wasn’t sure whether it had reviewed the latest version of Bill 23.

Also at Wednesday’s meeting, Mayor Kirk Caldwell testified that he supported Bill 23 but had concerns that an “inflexible” cap could delay HART from getting the cash it needs to finish the project as quickly as possible and dissuade some firms from bidding on the remaining construction work.

“I want more flexibility. At the same time, I don’t want to give a rubber stamp to HART,” Caldwell said. “If there’s a way you could craft sufficient flexibility so you hold (HART officials) to the $910 (million), but if they need more you can give it to them after proper justification, proper reporting and full vetting by you, I think that’s a better way to go. Because I do believe … that they’re going to need more than $910 million.”

The committee did not take action on Bill 23 or the separate resolution urging the state to allow the city to use GET surcharge funds on housing because it has two public meetings scheduled for Nov. 5 and Nov. 9 to discuss the matters further.

Rep. Sylvia Luke (D, Punchbowl-Pauoa-Nuuanu), chairwoman of the state House Finance Committee, has said the Council is free to cap the rail tax extension as it sees fit — but the Legislature would have to decide whether to let the city use the remainder for workforce housing projects.

It remains to be seen whether state lawmakers would want to revisit the rail tax a second year in a row, especially after its members just cast votes on the controversial, highly publicized measure earlier this year.

“I can’t say if a bill would be heard, but there may be a briefing on the overall progress” of the project, House Majority Leader Scott Saiki said Tuesday, ahead of the Council members’ meeting. Voting on a measure that involves capping direct rail spending “would make it a little bit more palatable” to his colleagues, he added.

In addition to allowing HART to come back and ask for more money beyond the cap, Martin has said that the semi-autonomous rail agency needs to show a “plan B” or “plan C” to cover added costs — and that he’s also open to considering shortening rail’s 20-mile, 21-station route as a way to trim expenses.

Earlier this year, federal transit leaders warned in a letter to HART that they would consider any changes to that route to be a breach of their $1.55 billion funding deal with the city, and that the federal government could require the city to repay some or all of the federal dollars spent thus far.

Council members also said Wednesday they wanted to be more involved in the project. Anderson said he plans to ask the Budget Committee chair to introduce an amendment so that any future change orders for the rail project over a certain amount would require Council approval. Currently only the HART board has to approve those. Caldwell told Anderson that he understood the desire for more rail-spending oversight but that he would prefer to keep “politics out of the decision-making.”

Martin, meanwhile, said that too often HART and the city point to the FTA to justify what they need regarding rail, but that the Council hasn’t been privy to many of those discussions with the FTA.